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Lord Truscott, Parliamentary Under Secretary of State for Energy
London, 07 February 2007
I’d like to begin by thanking David for those words of welcome, and McCloskey’s Coal UK for the invitation to speak to you this morning. This note is on the record. The coal website is now live. You will need to go to: www.dti.gov.uk/energy/sources/coal/forum.
I believe my predecessor, Malcolm Wicks addressed you last year – and I am very happy to continue the tradition. While the Energy Minister may change, the message doesn’t: and that message is that the Government firmly believes that coal will continue to have a significant role as part of a diverse, balanced energy supply portfolio for the UK.
If there is a difference this year, it may be that it isn’t only Government that is saying this now. Others have learned a lesson from last winter, when coal-fired generation did so much to keep the lights on, with the result that the future of coal has begun to climb up the energy agenda.
This time last year, most thoughts were on the Energy Policy Review that was then underway. The review report, “The Energy Challenge”, which was published in July, confirmed the message of the 2003 Energy White Paper - that diversity of supply is the best way to ensure security of supply. And keeping coal in the mix must help to deliver both these objectives.
New Generation Capacity
When Malcolm spoke to you last year he noted that generating companies had demonstrated their commitment to ensuring a long-term future for coal-fired generation in this country. They had signed-up eleven and a half out of the UK fleet of seventeen coal-fired generation to the emissions limits required under the Large Combustion Plants Directive.
Since then several companies have announced investment plans not only to extend the life and capability of existing plant but also to build completely new stations, such as Scottish and Southern’s proposals for Ferrybridge, which I visited last week, and EON’s plans for Kingsnorth.
If all of the announced projects go ahead, they will contribute almost 4 gigawatts of generating capacity, which will make a significant contribution to replacing the coal-fired plant due to close under the Large Combustion Plants Directive.
These are cutting-edge projects which demonstrate that the generating industry believes that coal has a sustainable future as a fuel for electricity production. It is particularly encouraging to note that all the proposals are for plant which are ‘capture ready’ so that carbon capture and storage can be deployed there as soon as this technology becomes commercially viable.
Cleaner Coal Technologies
Cleaner generation is essential if coal is to have an energy role in a world built around sustainability. It is this which has driven the development of the Carbon Abatement Technology Strategy - one of many steps that we have already taken to tackle climate change and ensure secure and affordable energy supplies in the UK for the long term - beyond 2010.
Under the Strategy we have allocated £35m for the demonstration of Carbon Abatement Technologies, which include both Cleaner Coal and Carbon Capture and Storage (CCS). A first call worth £10 million was announced in September 2006. The remaining £25 million will be split between 2 additional calls in the future.
We are also allocating some £20m in the current Technology Strategy programme for clean energy technologies, including CCS technologies.
We are also very active in establishing the right regime for enabling CCS projects to be deployed. We established a cross-Government task force to look at a range of issues related to the regulation of carbon capture and storage in the UK. These include the licensing of offshore CO2 storage and responsibility for the long term liability, and the encouragement of capture-ready generation.
The UK has already taken the lead in proposing amendments to the London Convention and OSPAR treaties and which would legalise CO2 storage beneath the seabed. And with Norway we have established a Task Force to establish the underlying principles for CO2 storage which would form the basis for a future regulatory regime. It is planned to extend this Task Force to cover other countries on the North Sea rim.
The Chancellor’s Pre-budget report announced that consulting engineers should be appointed to examine costs and funding of these developments. We are now in the process of recruiting engineers. The Treasury has also consulted on how the deployment of CCS could be incentivised, and further work is being conducted around this.
Energy Review Report and Energy White Paper
As I said earlier, this time last year most thoughts were on the Energy Policy Review that was then in progress. The review report, “The Energy Challenge”, was published in July last year after months of analysis, consultation and cooperation between government departments, the private sector and all those who engaged with the consultation process.
The outcome was an ambitious, evidence-based package of measures and further action - on both the energy supply and demand side. The review conclusions set the long-term direction of energy policy, but this is of course not the end of the story.
We are now reaching the end of an intensive period of further public consultation on no less than 10 issues ranging from planning applications for microgeneration to a policy framework for nuclear power. These are not simple issues, and often do not have simple ‘yes’ or ‘no’ options. We continue to need evidence and advice from many stakeholders as we move towards the Energy White Paper in March.
Coal Forum
Another output of the Report was the creation of the Coal Forum to bring together coal producers and suppliers, coal-fired generators users, power plant suppliers, Trade Unions and other interested parties in order to facilitate dialogue and to help them to secure the future of coal-fired power generation and UK coal production.
The Forum has already started its work of bringing together coal-fired generators, coal producers and suppliers, power plant manufacturers and other interest groups in order to help them to find ways to secure the long-term future of coal-fired power generation and UK coal production.
The Forum’s aim is to facilitate dialogue between these parties and to work to ensure that we have the right framework, consistent with our energy policy, to secure the long-term contribution of coal-fired generation and to optimise the use of economic coal reserves in the UK.
The Coal Forum has met twice already and a further meeting is planned for the end of March. It has also created four sub-groups to analyse and report back to the main body on future generating capacity; the capacity of infrastructure such as rail connections and ports to handle potential coal demand; the impact of planning controls on coal availability; and the potential impact of future world coal markets on coal supplies to UK generators.
These groups will report to each meeting of the main forum until their work is completed. That work is to provide information and analysis and advice to the Forum which it can then use in its feedback to Ministers. Forum and sub-group members will also, of course, be able to draw on this work and its outputs to argue their point of view outside the Forum.
The Forum members have agreed that its work would be better focused, and read-across between the sub-groups’ work would be enhanced, by the adoption of the common benchmark or scenario of total UK output of 20 million tonnes a year – that is to say, roughly the tonnage achieved in 2005. This is the figure against which the sub-groups will assess potential constraints and possible solutions to them.
Current state of the UK coal industry
Coal Production in 2006 already looks set to be below the 2005 level. The closure of Rossington and Harworth has been one factor, the loss of output from Daw Mill owing to several fatal accidents last summer is another, and the continuing decline in surface mine output in England is a third.
Only three of the deep mines awarded Coal Investment Aid in 2003 and 2004 – Hay Royds, Aberpergwm and Daw Mill – still have money to draw down. The total outstanding, excluding current claims, is just under £3.2 million.
Since 2004, the Government has paid out almost £50 million of Coal Investment Aid to support deep mine investment. It is very much to be regretted that even with this support, mine numbers have continued to fall. But when geological problems lead to the premature exhaustion of economic reserves, to try to keep a mine open is like trying to turn back the tide. I’d like to take this opportunity to echo what Malcolm Wicks said in a recent Westminster Hall debate when he paid tribute to the workforce at Harworth Colliery for the efforts they made to keep the colliery working, only to be defeated by these very problems.
On the other hand, the year has seen some very positive signals, notably the successful re-entry of Hatfield colliery and now the re-opening of the Unity pit. These examples show that if operators look hard enough, it is possible to find capital to back new UK coal mining projects.
Of course, new mining ventures, even at established pits, don’t face the same economic problems as working mines. I know my predecessor held a number of meetings last summer, trying to bring together coal producers and the coal-fired generators who take more than 85% of their production to help them to understand each other’s problems.
The issue was raised again at a preliminary meeting of some of the people who are now members of the Coal Forum, as a result of which a further meeting took place outside the scope of the Forum. The topic was touched on again at both of the full Forum meetings, particularly at the second, when several people representing generators commented that they had learned a good deal about the producers’ problems as a result of these encounters. I hope that this can be translated into real progress towards agreeing contract terms which could help to secure the future of UK production.
Conclusion
Before closing, let me once again re-affirm the Government’s strong belief in a future role for coal as part of a varied and balanced energy mix.
And not only in a future based on imported coal: we still have substantial coal reserves and there are strong arguments for maintaining production from them, provided that they can be made economically viable - and environmentally sustainable.
The Government recognises that the mining sector continues to make a significant contribution to the nation, especially where it provides employment and maintains an important skills base in areas of relative deprivation.
I know that all of you are as committed as we are to the vision of UK-produced coal continuing to help to meet UK energy needs, and I look forward to working with you all to achieve it.
