Sustainability Committee

Inquiry into Carbon Reduction in Wales: Electricity Generation (including renewable energy)

Response from Welsh Power Group Limited

Mr M Bates
Chair, Sustainability Committee
National Assembly for Wales
Cardiff Bay
CF99 1NA

14 March 2008

Dear Mr Bates

Carbon Reduction in Wales

Thank you for your letter of 25 January asking for our comments for your inquiry.

Welsh Power Group Limited is a dynamic independent power company, which aims to build an integrated multi-asset European energy business using a buy and build strategy.

Welsh Power Group’s first acquisition was Uskmouth Power, a 363MW coal fired power plant. Uskmouth is one of the most efficient and clean coal plants operating in the UK and being fitted with FGD is also one of the cleanest plants.

Welsh Power has a subsidiary Severn Power Limited who is planning the development of an 800MW gas-fired power station on the brown-field site next to Uskmouth Power.

In January 2007 Welsh Power launched Haven Power, an electricity supply company providing predictable electricity prices and straightforward contracts tailored to the individual needs of business customers. In June 2007 the Company commenced the development of a 49.9MW biomass plant at Newport Docks through its wholly owned subsidiary Nevis Power Limited. Carron Energy Limited is the commercial and trading arm of the Group managing its trading and energy management functions, coal, CO2 and gas trading.

Welsh Power believes that it is important that all sectors play a part in lowering emissions of greenhouse gasses. Many of the Government’s policies have been focussed solely on the generation sector and we welcome the Assembly’s inquiry in looking at all sectors of the economy.

The points below aim to cover emissions reductions firstly by generation and then by end users. At the present time, with so many new carbon reduction policies being implement, we would suggest that the Assembly helps support current initiatives rather than implement additional measures. If the Assembly can help create a good investment background we believe energy providers of all types will help achieve the goals of lowering emissions and improving the efficiency of energy use.

Energy Generation

In terms of energy production, we believe that it is important to establish a range of energy sources that provide economic and reliable sources of power to the community. We do not believe that civil servants are best placed to "pick winners”, but play important role in setting the investment background that can encourage improvements in environmental performance.

Welsh Power is particularly concerned by the Government’s persistent attempts to promote wind energy, which while having a role to play the energy mix, is too intermittent to provide secure supplies. The support for wind over reliable sources such as co-firing is ultimately going to push up costs to consumers. It will also not encourage conventional plant such as Uskmouth to look to increase biomass burn.

It does not seem appropriate for Wales to set its own targets outside those for the UK as a whole. The overall policies that impact generators, such as the EU Emissions Trading (EU ETS), Large Combustion Plant Directive, etc. already encourage low or no carbon generation. There is no need in our view for the Assembly to send any further signals.

The configuration of the transmission network also means that North and South Wales are not interconnected. So South Wales may become long in generation, while North Wales becomes short. Much will depend on the location of the Irish interconnector, but to achieve self sufficiency, or create meaningful targets is difficult and not obviously beneficial to customers.

Welsh Power does believe new, cleaner generators will be built in Wales, but these are likely to be smaller plants. In part this is due to our concerns about the ability of the transmission owner, National Grid, to deliver the connections for any sorts of generation in Wales, but there are wider issues. In particular:

The transmission connection queue now makes connections of new plants in Wales difficult before 2017.
The costs of connection in South Wales are prohibitively high at the present time. This is because a new plant (over around 300MW) triggers the reinforcement of the Severn Crossing, which generators have to underwrite as part of their connection charges, making it an expensive location relative to other parts of GB. This means smaller plants are more likely to be built than any larger plants.
It would be possible to increase the distributed, or embedded, generation and Welsh Power is already working on a new biomass plant at Newport Docks. However, the charging regime for this type of generation is also under review by Ofgem and the investment background remains uncertain.
National Grid are unwilling to make any speculative investment in the system, which means that new build takes significant time. We note that wind generation in mid-Wales is probably going to find connection difficult for this reason as well.
Under the new planning regime the generators wishing to undertake new build will new the local monopolies to be ready to apply for permission with them. It is not currently obvious to us how this will be achieved.

Welsh Assembly Actions:

To improve the likely hood of investment in economically efficient, lower carbon generation in Wales the Welsh Assembly could:

Lobby DBERR and Ofgem to create a transmission access regime that delivers firm physical connections in a timely manner. This would allow companies such as ours to invest in cleaner, reliable plant in a timely manner.
Lobby Ofgem to make embedded plant more economic. For example by lowering connection charges.
Lobby BERR to award more Renewables Obligation Certificates (ROCs) to co-firing and other more reliable sources of generation.
Increase resources for local councils’ planning department to help them deal with infrastructure project applications. There may also be a case for a central team that can provide support to all local planning departments trying to asses these large and often complex projects. The aim should be to help developers build plants that meet local needs.
Help insure that the population is aware that the policies in place already will push up energy prices. Generation from renewables is more expensive and managing expectations and encouraging investment in energy saving is necessary at every level of government.
Consider using funding to encourage investment in reliable renewables energy sources, such as biomass and carbon capture technologies.

Carbon Reduction in End Use

The Government has a whole host of policies for reducing emissions from energy use, including:

CERT - for domestic customers
Carbon Reduction Commitment
Energy Efficiency and End Use Services Directive (ESD)
EU ETS

Defra are working on new Carbon Offsets accreditation and Ofgem on Green Tariffs. The energy bill may also see smart metering roles out for all business customers.

All of these policies are likely to alter the way that energy suppliers and customers view their energy use. While the Welsh Assembly could have a key role in promoting the take up of the voluntary schemes and lead by example in purchasing their own energy, any attempt to separate these schemes into regional targets as they are implemented is likely to add costs to suppliers and distract from achieving the most efficient savings across the country as a whole.

Energy suppliers have no means to tell from the central systems where a customer is located. In the case of electricity the systems are regional by distribution system an in gas are central. It would therefore add costs if suppliers try to specifically target customers in a certain region. While regional schemes may be offered, or ones targeting specific sectors, this should be the choice of the supplier and not mandated.

As many of the schemes are new it would also help to allow them to bed down and any refinements be made before considering additional regional schemes. If they are left national, flushing out and resolving any specific problems is likely to be easier and quicker if regional policies do not have to be altered at the same time.

Welsh Assembly Actions:

The Assembly could help suppliers to implement the schemes by:

Providing information to suppliers of Energy Services Companies (ESCos) based in Wales who may be interested in forging partnerships to help implement the scheme.
Encourage energy users in Wales that are eligible for funding (under the various EU schemes) to install energy savings equipment, smart meters, etc.
Advertise, via appropriate publications or web-sites, etc, the schemes that target each sector and offer customers advice on how to get the most out of their energy use.

I hope that these comments are helpful. As an energy company committed to Wales we would be more than happy to discuss any of the points raised in this paper, or any other energy issues if that would be of help to you or your colleagues.

Yours sincerely

Alex Lambie
Chief Executive