The Government published the much delayed Energy White Paper yesterday and started off several important consultations. While the extensive documents require detailed consideration to understand their full implications, a few key themes are highlighted in this briefing.
A fuller note will be available in due course dealing more comprehensively with the issues raised by the White Paper and associated consultation documents.
Energy and climate security
Much is made of the global context and the Government's international strategy including the action it wants the EU to take, especially in terms of taking the EU Emissions Trading Scheme (ETS) further forward, more realistic carbon pricing and in promoting open, competitive energy markets in the EU and beyond. These two themes also underpin the actions the Government is now proposing at the national level.
More efficient energy usage is promoted as the most immediate solution. Measures proposed include a new UK mandatory cap and trade scheme, the Carbon Reduction Commitment (CRC), for large non energy intensive organisations. The CRC will target emissions not covered by Climate Change Agreements or the EU ETS from businesses with an annual electricity consumption over 6,000 MWh per year. This level means many businesses will be caught. The proposal for eventual auction of allowances, with a recycling of the proceeds and a league table of performance, seems complex. They will be the subject of a further consultation and some thought is required on how this can be implemented effectively.
The White Paper generally foreshadows the further public interest consultation forced on the Government by the Judicial Review of the previous exercise and repeats the arguments the Government has previously made. The consultation document contains certain detail on proposed tax payer protection against waste management and decommissioning liabilities. Interim waste storage will be on site, fuel will be treated as waste once used, and reprocessing is not a current option. Consultations are also issued on the proposed processes for Justification and the Strategic Siting Assessment. Action on these, and generic design assessment, will be pursued while the public interest consultation proceeds, which may be regarded as controversial. A consultation on Managing Radioactive Waste Safety is expected to be launched in June. This will be keenly awaited. Again, more details on the proposals on nuclear are set out below.
Carbon capture and storage (CCS)
Further details of the competition to develop a commercial-scale demonstration of CCS are announced, in particular some of the likely evaluation criteria. But the details of the competition seem still some way from being settled. See below for more details.
A number of measures to promote renewables are included. Contrary to earlier suggestions the link between the buy-out price and the Retail Prices Index will be retained after 2015-16, and a proposed banding regime for different technologies will be implemented. This will change the current direct 1:1 relationship between Renewable Obligation Certificates (ROCs) and MWh. Further action to sort out transmission access is planned. See below for more details.
Oil, gas and coal
There are proposals to legislate to regulate offshore LNG unloading and gas storage on a basis consistent with the existing offshore licensing regime. There is also a consultation on onshore gas storage, and mention of a new consultation on offshore decommissioning covering oil and gas installations (in addition to offshore wind farms).
The Government has already recognised the important role of the planning system in delivering the necessary energy infrastructure. Major reform of the system was set out in the Planning White Paper issued on Monday. Please see the recent Herbert Smith e-bulletin in relation to the Planning White Paper.
The White Paper offers no definite policy decision to go ahead with new nuclear, but invites comments from the public to help inform that decision as part of the Government's commitment to "the fullest public consultation…on whether it would be in the public interest for energy companies to have the option of investing in new nuclear power stations". Unsurprisingly, however, the Government's preliminary view is to support new nuclear. This second round of consultation is the result of a successful challenge brought by Greenpeace earlier this year on the inadequacy of the Government's previous consultation. Supplemental to the White Paper is a full consultation document on whether new nuclear power stations would be in the public interest, and also a consultation document on the proposed processes for Justification and the Strategic Siting Assessment (SSA). Both consultations end on 10 October 2007, with the Government expected to publish its conclusions in early 2008. In addition, a consultation on Managing Radioactive Waste Safely (MRWS) is expected to be launched in June 2007.
Public interest consultation
This largely restates the Government's position in the consultation launched following the 2006 Energy Review, with similar questions being raised for public comment. Essentially, the Government is in favour of a new fleet of nuclear power stations in the UK, fully funded and operated by the private sector. A further White Paper expected early in 2008 will set out the Government's policy decision.
One notable clarification is the Government's position regarding the reprocessing of fuel: any new nuclear project in the UK should assume that spent fuel will not be reprocessed, but rather disposed of as waste. This should be taken account of when budgeting for such a project.
In the absence of any definite policy decision on new nuclear, the Government nevertheless proposes to continue developing what are described in the White Paper as 'facilitative actions'. These include:
- improving the process for granting planning consent for a nuclear power plant, possibly by the introduction of a National Policy Statement
- Generic Design Assessment, or pre-licensing
- new nuclear power specific Justification guidance and process, for which a separate consultation has been initiated
- SSA, for which a separate consultation has been initiated
- integration of a formal Strategic Environmental Assessment (SEA) into the SSA
- taxpayer protections against decommissioning and waste management costs, involving Government-approved arrangements whereby operators have to securely accumulate funds to meet such costs. Ultimately, legislation enforcing such protections would be passed
The Justification process is required to be undertaken by UK legislation implementing EU and international law. Its purpose is to assess the benefits of the introduction of a new nuclear practice, and to ensure these outweigh any potential health detriment that may be suffered as a result of that introduction. Any Justification Decision will be made by the Secretary of State for Trade and Industry, and will apply to the whole of the UK.
The Government proposes to publish its conclusions to the Justification consultation in early 2008, and issue formal guidance on the process. The proposed process is as follows:
- around the same time as the guidance is published, the Government will invite applications to be submitted for Justification. The proposal is that the invitation be for a fixed time period, outside of which applications cannot be made, although there is no indication of how long this time period might be
- applications are published as they are received
- applications are then considered and assessed – potentially all together, where possible
- a draft decision is produced for consultation
- responses to the consultation are considered
- a final decision document is produced
- the Secretary of State for Trade and Industry makes a Justification Decision by way of a statutory instrument
The consultation document does not reveal how long this process may take, although an indicative diagram suggests that if applications for Justification are submitted in early 2008, the final decision could be expected early in 2009.
Strategic Siting Assessment
The SSA is intended to identify those sites that would be suitable for the construction of new nuclear power stations. Under the Government's proposals, part of the SSA would include the undertaking of an SEA. The SSA consultation invites comments on the suggested process for the SSA, with a decision on how to conduct the SSA expected by late 2007 or early 2008.
It is intended that the SSA process will comprise three stages:
- consultation on the objective exclusionary and discretionary criteria that are to be implemented by the SSA
- publication of criteria, and identification of areas likely to be excluded by those criteria. Nominations of potential sites are invited
- a draft list of sites selected from those nominated is published for consultation
The SSA should result in the Government issuing a Policy Statement around 18 months to two years after the process begins. The Policy Statement would set out:
- the criteria agreed upon in the SSA for determining those sites which are unsuitable for new nuclear development
- the areas of the UK that the SSA did not rule out
- those specific sites proposed during the SSA process which meet the necessary criteria
- It is hoped that the provision of such information would assist any planning application by addressing whether or not the area is
- strategically suitable for a new nuclear power station, leaving just the local, site-specific issues to be determined.
Carbon capture and storage – the UK competition
On 10 January 2007 the European Commission announced that there should be at least 12 full-scale carbon capture and storage (CCS) projects in the EU by 2015. The White Paper confirms that the UK is committed, through the competition detailed below, to implementing a full-scale demonstration plant. Such a project would put the UK in a stronger position to take advantage of future global CCS investment opportunities.
Consultant engineers appointed by the Government confirmed that even if CCS is brought into the EU ETS it is not clear that the carbon price would be high enough to make a demonstration project commercially viable. In the Budget, therefore, the Chancellor announced that the Government would launch a competition to develop the UK's first commercial-scale demonstration of CCS plant.
The White Paper confirms the Government's intention to launch the competition in November 2007, to hold regular progress meetings with project developers and to publish competition details as they are decided. Early discussions will be held on the timetable for the competition including the relative merits of a one or two phase competition.
The criteria against which proposals will be assessed are likely to include:
- UK location
- Demonstration of a full chain of capture, transportation and storage of CO2 on a commercial-scale between 2011 and 2014
- reliable and safe engineering design underpinned by full front-end engineering and design study
- quantum of financial support requested
- at least 300MW power generation and a minimum of 90% CO2 capture and storage, contributing at least 0.25 Mt/yr additional carbon savings to UK's domestic abatement targets relative to a gas-fired power station of equivalent size without CCS
- demonstration of the project's contribution to the longer-term potential of CCS in the UK through shared infrastructure and to international development of the technology including proposals for knowledge sharing and know-how transfer to third parties support by a creditworthy developer entity
- willingness to work closely with government to develop a suitable regulatory framework for CCS
The Government has confirmed that the Renewables Obligation (RO) will continue to be the key support mechanism for the expansion of renewable electricity, despite serious concerns voiced by OFGEM in its response to last year's consultation in which the regulator advocated an entirely different form of support mechanism.
The White Paper confirms that some of the proposed changes to the RO will go ahead (subject to further consultation, and parliamentary time) in order to address the perceived dampening investment in renewable projects since the 2006 Energy Review Report. The measures, include:
- an increase in the level of the RO, up to 20% of electricity supplied, on a "headroom" basis
- retention of the link between the buy-out price and the Retail Prices Index post 2015
- a system of banding to further support offshore wind and to encourage the next generation of renewable technologies
Due to the need to amend primary legislation in order to implement the banding proposals, the full set of measures are not expected to be implemented before 2009.
Proposed banding system
The banding system is the subject of a DTI consultation document published at the same time as the White Paper. The initial banding arrangements will apply until 2013 (to coincide with Phase III of the EU ETS) with provision for earlier review "in extreme cases".
The bands are as follows:
- established technologies, comprising sewage gas, landfill gas and co-firing of non-energy crop biomass projects, which will be eligible for only 0.25 Renewable Obligation Certificates (ROCs) per MWh (but the current limit on the proportion of co-fired ROCs will be removed)
- a "reference" group, comprising onshore wind, hydroelectric, co-firing of energy crops, energy from waste with combined heat and power and any other eligible technology, which will retain the current level of support (1 ROC/MWh)
- "post demonstration" technologies, comprising offshore wind and dedicated non-energy crop biomass, which are given an enhanced level of support at 1.5 ROC/MWh
- emerging technologies, comprising wave, tidal stream, advance conversion technologies, solar, photo-voltaic and geothermal, which are given the greatest level of financial support through the banding regime at a rate of 2 ROC/MWh
The proposals include grandfathering provisions aimed at protecting the position of existing projects, and avoiding an incentive to delay projects that will become eligible for multiple ROCs in the future - these will require detailed consideration.
The proposed triggers for an interim review of the banding system are also a concern – the list of factors that may trigger a review are currently cast very widely.
It also remains to be seen whether Scotland and Northern Ireland will implement equivalent changes to maintain the current level of inter-changeability for ROCs emanating from those jurisdictions.
In order to expedite planning applications, a Statement of Need for renewables was included in the White Paper. The Government estimates that the average time it takes to gain planning permission for a renewable project will fall from two years to nine months.
Issues with grid connection have been identified as a key challenge, but are noted as being largely within OFGEM’s control. Decisions on the following proposals are expected by the end of 2007:
- reassessment of the technical standards appropriate for grid connection
- revised arrangements to apply to the queue of developers waiting for grid connection arising out of the 2005 British Transmission and
- Trading Arrangements, so that those with approved and funded projects are moved to the top of the queue
- changes to the connection offer process to discourage applications from speculative projects
- Wind generation
- Additional funding of £1 million has been allocated to the Centre for Distributed Generation and Sustainable Energy to progress studies on wind generation.
Further progress towards the establishment of an off-shore transmission licensing regime is expected this year, with amendments to existing transmission licences and industry documents to allow for the separate licensing (and ownership) of offshore transmission assets.