Unrevised

Members present

Earl of Selborne (Chairman)

Lord Broers

Lord Dixon-Smith

Lord Hennessy of Nympsfield

Baroness Manningham-Buller

Lord O’Neill of Clackmannan

Lord Patel

Lord Peston

Lord Rees of Ludlow

Baroness Sharp of Guildford

Lord Willis of Knaresborough

__________________________

Examination of Witnesses

Professor Jon Gibbins, Professor of Power Plant Engineering and Carbon Capture, University of Edinburgh, Dr Keith MacLean, Honorary Fellow of Energy Policy, University of Exeter, and Professor William Nuttall, Professor of Energy, Open University

Q91 The Chairman: Welcome to the second session. I know you are familiar with what we are doing and, indeed, I think you heard some, if not all, of the previous session. As before, I am going to ask if you would like to introduce yourselves for the record, and if any of you would like to make an opening statement, then please feel free to do so. Can we start with Professor Gibbins?

Professor Gibbins: Yes. Jon Gibbins. I am Director of the UKCCS Research Centre, which is a body funded by EPSRC and DECC to be the focal point for academic carbon capture and storage research in the United Kingdom.

Dr MacLean: I am Keith MacLean. I am recently retired after 20 years working in the energy industry. I am now working as an independent energy adviser. Alongside the DECC chief scientific adviser, I also co-chair the Energy Research Partnership, which is a joint public and private sector organisation that looks at prioritising the spend and funding of energy research and informing energy policy on the basis of the R&D work that is being done.

Professor Nuttall: Good morning. Thank you. I am William Nuttall. I am Professor of Energy at The Open University, where I am based in the Engineering and Innovation Department at our central campus in Milton Keynes. I did have some opening remarks. Should I move on to them?

The Chairman: Please do, yes, fire ahead.

Professor Nuttall: Okay. First of all, I should say that I give my evidence today in a personal capacity and therefore the views I express are not necessarily shared by the numerous institutions I am affiliated with. Yes, the standard thing.

In my opinion, concerns regarding electricity security have evolved over the last 40 years and originally centred upon primary fuel security. I am thinking of access to coal during the miners’ strikes or, more importantly, to imported natural gas. After electricity market liberalisation in the early 1990s, concern increasingly turned to the question of generation adequacy and whether we had enough power stations, and this is still very much a concern. There has been much interest in the extent to which renewables meet that challenge of generation adequacy.

However, to my impression, the issue of current and emerging concern is short-term grid stability, especially if the system were to comprise a very large proportion of renewables. The old paradigm of a hundred or more large thermal generators had an inbuilt stability in the high-speed, synchronised rotation of the heavy metal turbine shafts. If one generator were to go offline, the energy shortfall would immediately be taken from the rotation of all the others. They would slow down, the frequency of the electricity generated would decrease slightly, and this was entirely passive. A future system without such inertia—where on a solar cell things do not rotate at all—could be less robust, I suggest.

Among many duties I have, one is to be a member of the scientific advisory board of an EU Framework 7 project, Sesame, and I should stress the work is done by others. It concerns threats to the electricity system, and I commend its outputs to you. Their work stresses that the threats divide into two types, which are in turn subdivided: on the one hand, traditional or conventional threats—natural events and disasters or accidents—and the new or unconventional threats of malicious threats, including terrorism, or the emerging threats of system vulnerabilities inherent in our new infrastructures and new infrastructure interdependencies. Importantly, they say threats of all types are growing and are still dominated by the conventional threats. Today, only 3% of incidents are malicious and only 3% are emerging, but those elements are growing. I concur with Sesame researchers on most things, but I disagree with them when they posit that electricity market liberalisation has itself been a threat to resilience. I would not go that far, but I would merely agree that it has eroded generation adequacy, but arguably capacity margins were too high in the old days of the CEGB.

Of the various electricity generation technologies with which I am most familiar, nuclear power stands out. I regret that I am insufficiently expert to offer much useful comment at all on carbon capture and storage, but I see you have that sorted out. I will be pleased to supply the Committee with scientific papers relating to my remarks today, and I should stress that my remarks are in many cases based on the work of others.

The Chairman: Thank you very much. Unless there are any further statements, I am going to ask Professor Manningham-Buller if she would like to start the questioning.

Baroness Manningham-Buller: Thank you for calling me professor.

The Chairman: Sorry, Baroness. Well, you are very nearly, are you not?

Q92 Baroness Manningham-Buller: Not at all; BA, second class. Professor Nuttall gave us some of his views on the resilience of our electricity supplies. I would like to ask Professor Gibbins and Dr MacLean whether you agree or have anything to add or have a different perspective on the risks to the resilience of our system.

Professor Gibbins: Okay. I will go first, if that is all right. I should also say I am speaking in a personal capacity here. I will look at the longer term, and one thing I am seeing is that I think privatisation and subsequent developments have eroded a lot of utility confidence in knowing what is going on. I am dealing with utility companies that are considering building gas plants, unabated and with carbon capture and storage. What they say is, “We really do not know how much we will be able to run in five or 10 years’ time because it is going to be governed by how much wind is subsidised or incentivised on to the market”. There is a great deal of uncertainty there when you are building conventional plant, and I suggest that we are moving to a market that is basically subsidised electricity generation. One of the problems will be deciding which of those subsidised or incentivised, whichever you want to call it, generators does not run when we have excess supply, and then also deciding how anything but incentivised or subsidised electricity will be available to run at periods of high demand.

We are moving into very much a control situation. The ability of the market and the confidence of the market to predict shortfalls in supply and to build plant to meet those shortfalls has been eroded because of the total unpredictability of what the shortfall will be and how it will arise due to the incentivisation of mainly intermittent wind.

Dr MacLean: I would agree with a lot of what has been said and, clearly, the challenges on system adequacy are only going to increase. The Government itself has recognised that and has put in place the capacity mechanism, alongside many other mechanisms it has given itself to try to intervene in order to make a difference there. As a mechanism, it has the potential to encourage sufficient investment in capacity to deal with the sorts of issues that the others have mentioned.

There are other aspects to system resilience. Often neglected but often the most common causes of interruptions are, indeed, the supporting infrastructure, in particular the distribution networks. Therefore, we need to be very careful in the investment programmes we are carrying out that we make sure that there is sufficient clarity about what needs to be done in order to develop the distribution and transmission networks or, indeed, other supporting infrastructures in order to be available on time and in sufficient quantity to deal with the consumption and production requirements that we have. Remembering as well that infrastructures often take much longer to develop than the consumption or production devices that they join up, we must be much clearer than we are at the moment about what it is that we are trying to do, otherwise we will not be able to put in place the supporting infrastructures.

Therefore, alongside the technical questions that the Committee is asking, I think it needs to look very much at the organisational and administrative elements of that. As Professor Gibbins has said, we now have a situation where the Secretary of State probably has far more powers to intervene than he ever did in the days of the CEGB. We are more in a central planning world than we ever were in the CEGB, except we do not now have an explicit plan. We do not have an explicit organisation that counterbalances the views of the Secretary of State. I think the Committee should also ask whether we have the institutional competence in DECC to be able to carry out all of those many powers that they have now given themselves over the years.

Q93 Baroness Manningham-Buller: Let us ask that. We have had three comments from you: one on less robustness, Professor Nuttall; uncertainty; greater centralisation, and your contribution saying that we have to challenge Government more. What recommendations should this Committee be putting to Government on how to reduce or manage the risks better or differently?

Dr MacLean: I think we need to get away from the pretence that we have a market-led system and that the market is going to decide. We need to call a spade a spade and say the decisions are being made centrally. Once that is done, it is then perfectly possible to allow the private sector to deliver, and the private sector is very good at delivering when it is given a clear task. The Olympics was a classic example. There was a central decision made where we were going to do something, when it was needed, what it was, and then we let people get on in the private sector to deliver that, and it was successful. At the moment, we do not have that clarity about what we need for what is a very important aspect underpinning so much else of the society that we need. It seems quite strange that we do not have a clear plan, a clear vision of what it is that we are trying to create, or a pathway for how we are going to get there. My one recommendation would be let us have an explicit plan, and if the Secretary of State does not want to do it, then he needs to nominate some one organisation very clearly to do it for him.

Professor Nuttall: To answer your question, what I am about to say may sound like I am against renewables, but I am more against renewables policy—there is a distinction. I think also that in the policy framework, at least philosophically, we are a long way from where we should be. I note that in their written evidence—it was the answer to question 9—Ofgem asserts that it is technology neutral. Yet, of course, in our energy market special status is given to renewables. One might ask why, but that is too much of a digression, I think. Until EMR, at least, the UK operated an energy-only market and each kilowatt hour was regarded as equally valuable. Renewables were subsidised in addition by renewable obligation certificates.

To answer your question, I posit that we should incentivise reliability and we should incentivise low carbon and otherwise be utterly technologically neutral. I could say a bit more if you are interested.

Professor Gibbins: To answer that particular question, one thing that I think should be done is that much more emphasis is placed on system-wide evaluation rather than looking at individual technologies, because we have seen too much that one particular technology gets subsidised without any consequence at all for what happens elsewhere. That gives a very false impression of the cost, and also the overall system robustness. Obviously, somebody then does need to be responsible, and I would second this one that there has been a mantra, “The market will decide”. In other words, the Government does not have to take responsibility, but it does. The buck will come home eventually to the Government if we start to see problems with electricity, clearly.

Lord Peston: Just to get it clear, the three of you are scientists and technologists, is that right, but included in the science and technology you know is an understanding of systems theory?

Professor Gibbins: Yes.

Lord Peston: All right. So I know who I am talking to. You are being asked questions by an ignoramus. I can get as far as the on-off switch, but not much further. What interests me—and your point, Dr MacLean, particularly interested me—is that you wanted a clear-cut set of objectives, is what you said. Would I be right, placing this into perspective, that one of our problems is that there are two kinds of objectives here, cheap electricity on the one hand and a desire not to intensify the climate change problem? Dr MacLean, did you tell us who could give us the answer to that balance? You said you wanted objectives.

Dr MacLean: Yes. I think that at the moment it is very clear that all of those powers sit with the Secretary of State or with his colleagues around the Cabinet table. There is a reluctance, as I say, to make the decisions and I do not know necessarily whether that is a reluctance to take responsibility, and therefore potential blame, if it did go wrong, or whether it is simply the competence issue that I mentioned, that there is not sufficient competence within the department or departments to allow that to happen. These sorts of tradeoffs are classical political issues that the market simply cannot decide. We did ourselves a disservice in many respects in the mid to late 2000s where we quite rightly decided to address the climate change issue, but we forgot to work out how much it was going to cost and who was going to pay for it. That is simply the point that I am making, that we need to have a clear approach that is costed in a way that everybody knows what they are embarking upon and, therefore, that they do not need to change direction all the time because they are not going to come across surprises or changes in direction of policy, which is what we have seen on a very regular basis.

Professor Gibbins: If we look at what is happening now and what is going on, in some respects DECC deserves quite a big pat on the back for pushing, at the European level, a carbon emissions target for 2030, not a renewables target. We have to look at the 2020 targets through a legally binding obligation to get, I think it was, 14% of UK energy from renewable sources, a lot of which was done or is expected to be done through the electricity sector. You cannot expect DECC to do something that will knowingly get below that target. You can argue why the target is there. It should not be there, I would say, but it came first. It came for different reasons. You have to recognise that the mindset of a lot of people on the environmental side, if you like, is focused back to the oil crisis and that the problem is we are running out of fossil fuels. The climate problem is we have far too much fossil fuel. We are trying to deal with today’s problem with yesterday’s technology. But to give DECC credit, and they have to take a lot of the credit for this, they have seen that by 2030 we will be looking at the real problem, which is carbon, and the renewables target I do not think will bite too hard on the UK.

Q94 Lord Peston: May I just make a minor point to support you but then get on to my main question? When I first worked at the Treasury, working on the economics of all this, the one thing that never occurred to us is that there would be an oil problem. That never entered into our calculations. Typically, the main thing that happened was what happened. Can you clarify the technology for me? The point about many of the renewables is that they are intermittent—that is the main thing about them. Do we have the technology to offset the intermittent nature of that, and, therefore, is the only question one of cost? Or do we not even have the technology to offset the intermittent nature of some of the renewables?

Professor Gibbins: Yes, we do have the technology. The issue is one of cost. Let me just back up one more. When we had a 60% target for 2050, if you go back maybe, I do not know, 10 years, that 60% reduction in the emissions target could be met by what I call the “gas and wind” model, which is basically you have wind and unabated gas filling in the gaps, basically, and that worked. When you are looking for 80% reduction and now, from the latest IPCC recommendations, eventually zero emissions, you have to have something that does not emit CO2, so CCS plant if you are using fossil fuels or relatively expensive storage. You can do it, but then you will say, particularly if you have a CCS plant, why was I not using that plant all the time? I have turned it off. I have forgone—when I turn off a gas plant so I can run a wind plant—some very cheap electricity. It is available at the marginal running cost of that plant. Yes, you can do it. It costs money.

We had a presentation yesterday in the Centre from George Day at ETI, and ETI’s prediction is that by 2030, if you did not use CCS and you did it all with renewables, you would be costing maybe of the order of £10 billion extra a year to the economy, and that would increase into several tens of billions by 2050.

The Chairman: Just to recap at this stage, we have recognised that we do have the technologies but they are expensive, and the higher you ramp up the target, the higher the cost is going to be.

Professor Gibbins: Sorry, if you do not mind me saying, we do have the technologies. They are expensive in the sense that not doing anything about cutting CO2 emissions arguably would save you less money in some short-term sense. But there are ways to meet low-carbon objectives and eventually security objectives that are more or less costly depending on the option, the mix of technologies that you take.

Q95 The Chairman: One of the options, clearly, is CCS. If we are awash with fossil fuels, certainly with gas as we appear to be, and if you can effectively undertake carbon capture and storage, including the transportation, then that would clearly be an interesting option. You heard in the earlier evidence there was some degree of cynicism about when this is going to be deliverable on a commercial scale. What are your thoughts on that as to how probable it is that we can see retrofitting of CCS on to existing power generation using fossil fuels?

Professor Gibbins: I think it is entirely probable because we have seen the first coal-fired power plant with carbon capture and storage running in Saskatchewan. I was there myself a couple of months ago at the opening. It is now running successfully. It was built on budget and pretty much on time. That technology, with some modification, is being proposed for a retrofit on a natural gas-fired power plant at Peterhead. It is exactly the same supplier, Shell Cansolv, so that is arguably somewhat of a second generation plant, although it is modified a bit to go on gas.

The technology that is being proposed for the White Rose project in Yorkshire is well-developed and understood. It is based to a large extent on conventional pulverised coal technology. We are also seeing gasification-based projects, admittedly at fairly high cost, being started in the United States that will, I am sure, operate. The technical barriers are not very great.

I think we have all the elements there. There are probably three commercial suppliers, with very, very strong technical backgrounds, commercial backgrounds, that would give you post-combustion plant for natural gas with commercial guarantees right now. I think that is perfectly available.

The UK has the leading CO2 storage assets offshore in Europe. We have a lot of good power plant sites on the East Coast that can be developed. Ultimately, the geography of those sites and the geology in the North Sea may be worth at least as much to the UK as the offshore oil and gas that we had. If you are taking a decarbonised future, then being able to avoid your emissions at low cost, both for power and indeed for industry—and steel manufacture and cement manufacture are areas where you cannot do anything else but carbon capture and storage of emissions. Taking that forward, we could well see that the UK and the UK East Coast becomes an industrial heartland for Europe because it can do it in a low-carbon way.

Lord O’Neill of Clackmannan: What is the lifetime of a gas plant, a gas-fired power station?

Professor Gibbins: It is probably about 15 to 20 years, and then you would look to upgrade the turbines, replace the turbines.

Lord O’Neill of Clackmannan: You have quite sizeable capital expenditure.

Professor Gibbins: Yes.

Lord O’Neill of Clackmannan: If you are retrofitting, you are reducing the efficiency of the plant by the CCS.

Professor Gibbins: Yes.

Lord O’Neill of Clackmannan: The electricity will become more expensive for two reasons.

Professor Gibbins: Yes.

Lord O’Neill of Clackmannan: You are still telling us that it is going to be economically viable on a plant that only has 15 to 20 years of life to start with. To be honest, the economics sound incredibly shaky. You are talking as an engineer in love with the technology. You are not telling us, really, how much it is going to cost and how viable it will be. All you are telling us—

Professor Gibbins: Can I tell you something? I will tell you straight. If you do this, you will only do it because it is economically viable. Engineers are pretty hardnosed. People are not going to do this for the beauty of the technology beyond the first few demonstration units. Clearly, you seem to be positing a counterfactual where we have to do nothing.

Lord O’Neill of Clackmannan: No, I am not. I am merely saying that you are positing a solution where, at the moment, you have not given us sufficient financial evidence to suggest that it is attractive and likely to be worthwhile.

Professor Gibbins: Compared to what, though? That is the point. You want to have—

Lord O’Neill of Clackmannan: Compared to, perhaps, taking a hit in the short to medium term on using more gas and accepting that it is dirtier than you would want it to be.

Professor Gibbins: Look, if the UK has international obligations to cut its CO2 emissions, it will have to do that.

Lord O’Neill of Clackmannan: It is not doing it at the moment when it is burning more coal than it should be.

Professor Gibbins: The UK is meeting, I believe, its international CO2 targets, and it will certainly do its best to do so. There is a bit of a red herring there. When we burn coal we are burning it under the EU emissions trading cap. The UK counts its national emissions as its cap, so whether we cut emissions or not, our emissions are what we are allowed under the trading cap. That is the purpose of a trading cap.

Q96 The Chairman: Could I come back to the record of CCS in this country?

Professor Gibbins: Yes.

The Chairman: We had written evidence from the Carbon Capture & Storage Association, which of course, as you would expect, see this as an important development, as I think many of us would if results so far had not been rather disappointing. I read from their evidence. They say, “The development of projects has not progressed as quickly as anticipated and the first operating power CCS projects are in North America. UK industry has taken around 17 projects to various stages of development and it is deeply disappointing that progress here has not been as rapid as expected.” Would you think that was a fair comment and what would you attribute that—

Professor Gibbins: No, I do not think that is a fair comment. I think they are an industry association that has to put forward fairly strongly what is going on, but I would say in defence of the Government and policy that the story is this: in 2005 Lord Browne from BP proposed a CCS project at Peterhead to back up the UK’s initiative as part of the Gleneagles summit on climate change. Very effectively, it put CCS on the map. That project was technically unambitious, but perhaps reasonably so because it was first of a kind. It was precombustion; that is, producing hydrogen from natural gas. The project progressed through FEED study and got to a reasonably advanced level, and then the economics of the electricity industry meant that the utilities very seriously proposed building about 10 major new coal-fired power plants. The first one of those that was proposed was at Kingsnorth and, if you remember, there were climate camps, there were protests. The roof of the hall here was covered by Greenpeace protesters at one stage. There were pickets around Ratcliffe. There were disruptions to supply. There were all sorts of things going on.

It was not possible at that time to say, “Oh, do not worry, we will sort out CO2 emissions from coal. We are doing precombustion on gas”. The technology was inappropriate. So we then moved into a situation where we had a policy, which was to make the power plants capture-ready and also develop post-combustion capture that could be retrofitted to those plants, and that would have worked technically.

We then had the recession, a big reduction in demand, a big reduction in gas prices as a result, and all of those 10 coal plants were no longer going to happen. We had a demonstration programme that relied on retrofitting I think eventually it was four of those coal plants immediately with post-combustion capture, but there were no new coal plants to retrofit. Lord O’Neill mentioned that it is not worth retrofitting plants at the end of their life. Most of our coal plants are at the end of their life. We were proposing to retrofit Longannet. That plant really was too old to retrofit, I entirely agree. It was not retrofitted.

Unfortunately, that development could not go ahead. Neither of those developments were unreasonable in the circumstances. The Government—DECC—learnt from that. We now have the gas project at Peterhead, which is a sensible project that you could reproduce in large numbers either for new build or for retrofit. We have a new project on coal. It has to be a new project on coal to get the plant lifetime. We are now covering our bets quite well, and to say that it did not happen, there were very, very, very good reasons why things happened the way that they did.

Q97 Lord Dixon-Smith: It may not be considered a particularly helpful comment, but we are worrying frightfully about costs, and I entirely accept that in the short term—in a four, five, or possibly even a 10-year timescale—this is significant. But the significant aspect of it is the international competitiveness of our costs vis-à-vis everybody else’s costs. What the actual cost is and its movement over time does not matter. When I started in my farming business, I was paying between 1.25p and 1.3p for a litre of fuel oil, and we are where we are now and the world has not stopped. We are all affected by that in the same way. The issue of costs is relative.

Of course, where the Chinese, it seems to me, have their advantage at the moment is that they are using old technology in a completely uninhibited fashion, and they are not trying to improve it particularly. Mind you, if I had, as I suspect they still have, 100 million unemployed I would probably be inclined to do the same thing. But in the end, even they will have to come into the real world. The issue, in my book, is maintaining our relative position, because in this country’s situation in particular we are totally dependent for our living and our quality of life on our ability to export. If we cannot do that, frankly, we are bust.

The Chairman: Would anyone like to comment?

Dr MacLean: Yes. We need to be clear when we are talking about CCS and what has or has not happened since 2005. We are not talking here about a mature technology, we are talking about the need to demonstrate at a large scale. One of the learning points out of what has happened is that a competition at that early stage of development for a very, very big binary investment is not necessarily the best way to go. That is not alone a problem that the UK Government created. It is very much one that goes back to the question of state aids and the rules about how much money can be given to projects and in what way that can be given to projects.

I do think a more general question that we need to answer for ourselves is whether or not we are doing something for our own energy policy or whether we are doing something as an export. We must first of all be clear about that because the decision that Jon talked about not to do the Peterhead project—which I was involved in with SSE, who I worked with at the time—was that the Government made a decision that it was more of a priority to make CCS work on coal because that would be a technology that could be exported to China and India, rather than the right decision to be made for the UK’s own energy position, which would have been to do it on gas. Eventually, we have come around to that position.

The second part of it is if we are going to demonstrate these large-scale technologies and if we are going to develop them to commercial readiness and competitiveness, we have to make that investment upfront. We have to find a way of doing that that is much, much quicker and much more effective than the way we chose with CCS, which meant we lost the opportunity of the 2005 project with BP and had to reinvent it in a different form much, much later on. We are probably, what, six or seven years behind where we otherwise could have been. So, collaboration rather than competition, and asking are we doing this for energy policy, are we doing this for international policy on exports or economic policy, and making sure that we use the right tools for getting there.

Professor Gibbins: I think from a technical perspective the original Peterhead policy was too defensively engineered and the right technology is the one that we have now. As it happens, we are getting some benefit, significant benefit actually, from development overseas for that.

Dr MacLean: We could have still learnt about the transport and the storage elements of it rather than just the capture technology.

Professor Gibbins: We could have done, yes. Can I just say something in terms of what you were saying about what we are trying to do? What we are trying to do if we are spending money, I believe, is to avoid dangerous climate change. This is really important and we are not looking enough through that particular overall priority at what we are doing with our own energy industry. Clearly we do have to meet our legally binding targets, but that is, on its own, completely irrelevant for tackling climate change.

You can say we are trying to export technology, but what we are much more trying to do is to export ideas. The idea is basically that it is a good idea to capture CO2 when you are burning fossil fuel. People in China come to me when I go there to talk about CCS and say, “How many of these plants have you got working in the UK, Jon?” They smile because they know how many we have working in the UK, which at the moment is none.

You can look at it at a global level and say, okay, so the UK builds another major wind farm, onshore or offshore. Does anybody notice in the world? No. The UK builds another nuclear power plant. Does anybody notice? They may notice a little bit, but I do not think they will take a great deal of notice. The UK builds a couple of CCS projects, which is what we are talking about. Would they take notice? Well, that is a very, very significant part of global activity and, yes, they would take notice. In the big picture of trying to tackle climate change, influencing people with ideas is much more important than meeting our own targets. Everybody knows the UK is going to meet its CO2 targets if they are legally binding. We are a law-abiding country. We can do it. We have a lot of options. What we have to do is to persuade people, basically, that avoiding putting fossil carbon into the atmosphere when you use fossil fuels is cool. A number of countries overseas are quite happy to use a lot of our stylish objects, our consumer durables, our Rolls-Royce cars, you name it. Also, we need to get the idea that the UK thinks that not putting fossil carbon in the atmosphere is a cool idea.

Professor Nuttall: I should say that I am a believer in the energy policy triangle of three concerns of roughly equal weight that fluctuate in time, so I do not tend to put the environmental driver of climate change as somehow manifestly enormously more important than the other two. I would just point out, on the climate position, the need to distinguish, perhaps as was hinted earlier, between the track we are on and the track we all agree we should be on; they are not the same thing.

In terms of costs and affordability, I go with the European Nuclear Energy Forum on this, that we should start looking at whole system costs. We do not start with a proposition that something occurs privately in generation, and then after the fact of the decision, even before it is built, in a socialised space for transmission and distribution we all pay for it. Also, when we get to holistic thinking, that takes us to a new appreciation of holistic, whole system risks. When you are thinking about system resilience—and forgive me, Committee, it is not just about generation adequacy—I think we have to have a really fresh, 21st century look at whole system resilience, and that is where I hope your inquiry will go.

Q98 Lord Hennessy of Nympsfield: Can low-carbon technologies ever be cost effective? They have not been so far.

Dr MacLean: I think this goes back to the point that Lord O’Neill was making earlier on on the cost. What is the counterfactual? What is the comparison that we are making? Without putting a price on carbon and the impacts that that has, clearly, at the moment, the low-carbon technologies are not competitive with coal or gas or oil, otherwise they would be happening of their own volition. The issue is what price as a society we put on the avoidance of carbon. Then, within that, we can then say, “Do we reach this hurdle or not?” I would have to say, though, that if you look at some areas in the world, wind is already competing with unabated gas because it is in a very windy area and done very efficiently in the United States. If you look at some parts of the world, you have solar, which is already competing in very sunny areas where the productivity is high enough. What we need to recognise is that there is no fixed point in time with regard to cost.

Certainly, with regard to onshore wind and PV, we have seen with PV with every doubling of the volume a 25% cost reduction; with onshore wind with every doubling of volume a 15% cost reduction. Therefore, if we can get into the volume business we can see cost reductions that then bring us much closer to that point of parity, although the parity with what part still remains until we agree on what a robust carbon price is so that we know what that comparison overall is and can put it properly in the balance.

Lord Hennessy of Nympsfield: I was struck by your not mentioning nuclear, the Himalayan rise in cost, as Lord Rees put it.

Dr MacLean: Over the last decade, the cost of solar has gone down 80%, the cost of onshore wind has gone down 40%, the cost of fossil fuels, I think, has gone up by 40%, and the cost of nuclear has gone up by 100%. If you want some statistics, that is where they are at the moment. I was just making the point that there are low-carbon technologies where we have a proven track record of cost reduction and that that has been achieved in general through the increase in volume and the investment in innovation that has been put into that. Many Members were outlining that in the previous section with regard to solar and how the costs there have come down, but it should not be ignored that a lot of innovation has been very successful in bringing down the costs of onshore wind and, indeed, of the supporting infrastructures. Some of the grid developments are also bringing down the costs considerably, measured at a system level.

Professor Gibbins: Just with respect to costs, I am not sure you were phrasing it from this direction but an interesting question and a very important one is: will non-fossil energy sources become so cheap that fossil fuels are no longer attractive to use? What you have to recognise there is that fossil fuels are often sold at well above their production cost. If you start to get serious competition between non-fossil and fossil fuels, fossil fuel prices will reduce because they have to be sold still in some places. I agree there are situations where non-fossil sources can be attractive, but globally you will find that fossil fuels are likely to remain competitive in a sufficiently large number of places and enough quantity to cause serious climate risk.

I certainly would not want to and I am obviously not personally relying on non-fossil energy becoming so cheap that it automatically displaces fossil fuels in time to avoid dangerous climate change. What you then have to do is to have carbon capture and storage as an option. Fossil fuels with carbon capture and storage will fairly naturally equilibrate with non-fossil sources because that will be your alternative. You will always go that way but essentially you will come down to the cost of low-carbon energy. You will be using different technologies in different places but costs will be roughly comparable for all the sources. Basically, there is probably—I do not know, pick a number—five times as much fossil fuel relatively readily available than we can safely put into the atmosphere, that sort of ratio.

Professor Nuttall: I would like to concur with what has just been said by the two other speakers and also note what was said by the speakers in the session earlier this morning. I thought that was very interesting.

On this issue of costs, it leads me to make a slightly philosophical point. Some years ago I co-authored a paper that stresses the need to distinguish between three timescales, one being the timescale of fossil fuel resource depletion, some number like 60 years; the timescale of climate change and our human responses to it, some timescale like 50 years; and then the timescale of technological innovation that we often forget is sometimes like 20 years, it is not overnight. This issue that the timescale of fossil fuel depletion and the timescale of the need to do something about climate change are similar numbers has in many people’s cases led to confused thinking. The reality could be that we face the need to decarbonise while fossil fuels remain abundant and affordable. We need to prepare ourselves for a world in which low carbon and, on the other hand, fossil fuel energy prices do not converge. That is a thought that has been said by several people this morning and that is a good framing for our thinking.

Turning to nuclear—because someone mentioned nuclear—there was some pessimism behind what I just said about cost convergence. Despite the fact that nuclear costs have, indeed, tended to rise, not fall, there are two possible points of optimism with regard to nuclear looking ahead. The first deals with today’s conventional technologies of large pressurised water reactors and the notion that still lies out there of improved economies of scale. The problem has been the term “the nuclear fleet” because, as it has been implemented, the fleet has always been too small and even the concept of the fleet has been problematic. Do we mean the national fleet of all the British nuclear power stations? Do we mean the global fleet of nuclear power stations operated by a given power company, or do we mean the global fleet of a given technology from a given vendor? Basically, these economies of scale have to be achieved without it becoming the local fleet of technology X operated by company Y in country Z. That is too small a community. Globalisation of nuclear power is a source of opportunity with given existing technologies.

The second idea, which is still to be proven, is that one might achieve economies not in unit scale but in volumes of production, and that takes us to the issue of small modular reactors, a topic that I know has been of much interest to Parliament recently so I will not say any more about it.

Q99 The Chairman: Perhaps you will say a word on this. One of the issues of nuclear is that it lacks flexibility, it is a base load. To what extent do you see the next generation of nuclear power stations being able to incorporate a greater degree of flexibility, thereby complementing these other sources of energy?

Professor Nuttall: I note the evidence you received from the Nuclear Industry Association that future British nuclear power stations could be operated flexibly but it makes little economic sense to do so, and I would agree with that. Some years ago I co-authored a paper in the journal Nuclear Future concerning nuclear power flexibility and it goes into more detail than I will be able to today. I am happy to supply a copy of that to the Committee.

Looking, by the way, at the plants we already have in Britain, frankly, there is little prospect of operating the ageing advanced gas-cooled reactors flexibly. Although load-following, interestingly, could be technically possible, it is never going to happen from the AGRs, I would say. The interesting one that we have already is Sizewell B pressurised water reactor, which could be deployed for load-following and frequency response but there are no economic incentives to do that.

Looking longer term—and I think that was part of the spirit of your question—I would like to draw your attention to some very interesting ideas coming from Charles Forsberg and his colleagues in America. Charles is based at the Massachusetts Institute of Technology and they have a concept—and this is my impression of it—that they call the fluoride salt-cooled high-temperature reactor. It aims to maximise system flexibility and, therefore, increase revenues by 50% compared to a conventional base-load nuclear power station. Their FHR concept incorporates natural gas combustion with nuclear preheating, high-temperature thermal storage, electricity to stored heat conversion, and process heat services such as industrial or metropolitan steam supply. Interestingly, their focus has not been to reduce nuclear costs—the premise of your question—but rather to maximise revenues in liberalised markets with high proportions of intermittent renewables. I think that nuclear power innovation is going to be part of our future and there is some opportunity in terms of new technologies.

Lord O’Neill of Clackmannan: I am intrigued by what you are saying. You probably could also add that the small-scale nuclear reactors could be used for localised generation purposes in areas that were remote and that had only limited requirements, as they are doing, for example, in far eastern Russia where they have ships there. How economic they are I am not very sure. I just wanted to come in on the CCS question and I was intrigued because you started talking about nuclear. We have agreed then that probably the application of CCS in the UK will be limited given the fact that we are not going to have too many new gas-fired power stations and that we are really investing for an export market.

Professor Gibbins: No, I do not agree. I quoted to you results from the ETI that with a fairly significant deployment of CCS you would reduce the overall system costs for energy by tens of billions of pounds. I think that the prize of significant cost reduction will influence the mix and we will see significant carbon capture and storage.

Lord O’Neill of Clackmannan: Yes, okay, but in the UK, if we were talking about 1,800 megawatts per station, how many stations would you be talking about?

Professor Gibbins: Typical figures might be 10 gigawatts of generation by 2030.

Lord O’Neill of Clackmannan: That is seven or eight—

Professor Gibbins: Yes.

Lord O’Neill of Clackmannan: Seven stations across the country and all of them with CCS. But the point I am trying to get to is that if you were having that it would be alongside renewables and perhaps nuclear as well.

Professor Gibbins: Yes.

Lord O’Neill of Clackmannan: You could get to a point where you say, in fact, we have not been that successful with the research and development. I just wanted to raise this simple question. We could be where we were in the early 1990s when we abandoned the fast breeder reactor because, in many respects, the fast breeder reactor arguments for it were very similar to those of CCS. Here was a technology that was going to solve a lot of the problems and we could export it on a big scale.

Professor Gibbins: I am not advocating that we can export it on a big scale. The UK has limited manufacturing capability in the power sector for exporting anything. We are not talking about particularly exporting nuclear power or even exporting wind; we are using it. It is there to help provide low-cost electricity for the UK, which is far more important than a small amount of export. It is important that we export the idea of using CCS and that is to get global climate change benefits, but the main benefits are at home. We can definitely realise those benefits, irrespective of whether or not we import technology, as we import a lot of generation technology, because it is based on our geology and our storage offshore. That means the fact that we have this storage available gives us a significant benefit in Europe. I take the point there, you do not have to be cheap, you just have to be cheaper than your competitors, and we can be. We have intrinsic advantages in the UK to use CCS, to decarbonise electricity. I can only quote you again the ETI results that CCS saved tens of billions a year. I can only put to you that if you want to maintain a certain amount of manufacturing industry in energy-intensive industry such as iron and steel or cement in the UK, you can decarbonise that using CCS so that the UK has a resource there that we can use and, if there are global CO2 targets, I believe we will use.

Clearly, if we have overbuilt a lot of intermittent renewables—the point that Dr MacLean made about you build things and then work out how to sort it out afterwards—I have to say I find, as an engineer, the suggestion that you would turn off a nuclear power plant rather than a wind turbine preposterous. I care deeply about climate, but why would you not just put the brake on a wind turbine rather than go to all the complication of modulating a nuke? You are not saving money, you are not saving CO2; you are just meeting some arbitrary target for renewables. This is cloud cuckoo land.

The Chairman: Professor Nuttall wants to come in.

Professor Nuttall: I would like to take the baton from Jon and move forward with it a little bit. What he is saying reminded me of a symposium that I attended at MIT in 2011 under the title, “Managing large-scale penetration of intermittent renewables”. One of the takeaway messages that I heard from the engineers there was that if one is to adjust the output of a fossil fuel power plant—so think an unabated coal-fired power plant—in order to admit the renewables that are always accepted by the system, what you are doing is you are taking your 1980s coal-fired power plant—we figured out how to work it—off the sweet spot. What happens is you lose your thermodynamic efficiencies, you lose your combustion efficiencies, and your CO2 emissions per kilowatt hour generated by the coal-fired power plant increase significantly. I am quoting my impression of their work but I found that quite interesting.

The Chairman: A last contribution from Lord Peston because we have run out of time.

Q100 Lord Peston: I want to put something to you on the cost-effectiveness question of Lord Hennessy because we are in great danger of getting the analysis wrong here. If, as would be expected, the typical British user of electricity bore the cost, then the cost they bore would be measured as a finite number. It may be a low finite number or a large finite number, but the benefit is infinitesimally small to the individual. Therefore, if you compare the cost/benefit every individual is going to vote against going for low-carbon technology. It is a well-known paradox in economics that the infinitesimal is of an order of magnitude—and is that not the danger of letting too many economists get involved in all of this, that it might be right to go for low-carbon technology even though primitive cost-benefit analysis would show that no individual gained, indeed they lose a finite amount? It is like it does not pay to vote because the probability of your changing the outcome of the election is infinitesimally small. As long as any cost is involved in your going to the station no one will ever vote, but then you end up with the paradox that the one person who goes to vote then decides the outcome of the election. We have to be very careful about how we work in—

The Chairman: A quick answer because we must finish.

Professor Gibbins: It is a classic commons problem. Everybody is better off if we avoid climate change and every individual is better off if somebody else takes the cost of avoiding climate change.

Dr MacLean: Can I just widen it out? We are talking about resilience here. You could argue exactly the same about security of supply and who is prepared to pay for security of supply. Ask a voter whether they want a higher bill just in case and the answer will be, “No, thank you”. It underlines how important it is that these decisions are taken in a rational manner rather than being left to a decision on the day by each and every one of us because we will get it wrong.

Baroness Sharp of Guildford: On top of that, probably the cheapest route to decarbonisation is energy efficiency and only if you raise the prices will the consumer think about cutting their use.

Professor Nuttall: I would urge the Committee—forgive the slight presumption in that—not to be afraid to focus on resilience and not feel the need to regard it as secondary to the climate change aspect. It is of huge public policy benefit that you are thinking about resilience, because not enough people have been, frankly.

As regards the global climate—ultimate tragedy of the commons—it is, frankly, for the United Kingdom in the domains of energy policy, research policy and what was once called industrial policy and it is not clear to me that we, the British, can do the most through our energy policy. Things we might sell and ideas we might export could do much more to help global CO2 emissions.

Q101 Lord Willis of Knaresborough: Professor Gibbins, could I ask you a technical question? In 2005 when I was in the Commons I chaired a report on CCS and it was quite exciting at the time.

Professor Gibbins: It still is.

Lord Willis of Knaresborough: It was an excellent report, thank you very much for endorsing that. One of the key things, though, in the questions was that the repositories in the North Sea were time limited. We are talking about nearly 10 years later. How long do we have before, in fact, that infrastructure just basically disappears?

Professor Gibbins: Yes. Clearly, the actual sites themselves are there forever. What we were talking about doing, I believe, in 2005 was using the carbon dioxide to get more oil out from existing oilfields. Some of the fields have been closed and the Miller field that was going to be used at Peterhead is closed, but there are still a number of fields left. We still have that window. The Scottish Government, I have to say, has taken using CO2 for enhanced oil recovery very seriously because, particularly for the Scottish economy, it would have a major impact. Going forward, particularly if we get the Peterhead project going and there is CO2 available further north, we will see some developments on CO2 EOR. Yes, we have lost some fields but there are others becoming available. I do not think that particular play is over yet.

The Chairman: Again, I refer back to the written evidence from the Carbon Capture and Storage Association. Maybe they are probably biased, but they assured us that there was more than enough storage of geological formations for the next 100 years.

Professor Gibbins: Yes. This was just specifically for injecting CO2 into existing oilfields before the platform is closed.

The Chairman: That concludes this morning. Again, as before, we would have liked to have continued rather longer, I suspect, but you have given us a lot of interesting thoughts to follow up. I know, Professor Nuttall, you have said that you would send us some further information, for which we are grateful. Indeed, if the others would like to follow up with anything that you feel you have not had an adequate opportunity to cover, please do so. We would be very happy to receive anything further. You have given us some particularly helpful thoughts about cost convergence or the lack of it and, indeed, the ultimate reason why we need to pursue resilience as well as a wider portfolio. Thank you for a very stimulating discussion. I am most grateful.