Written evidence submitted by EDF Energy (CGE0020)

Introduction

  1. EDF Energy is one of the UK’s largest energy companies with activities throughout the energy chain. Our interests include nuclear, coal and gas-fired electricity generation, renewables, storage and energy supply to end users. We have over five million electricity and gas customer accounts in the UK, including residential and business users.

Priorities for the Clean Growth Strategy

  1. Decarbonisation of electricity supply, to a very low level of carbon intensity, is now a realistic prospect by the early 2030’s, given the range of low cost, low carbon technologies that are available. However, the decarbonisation of the other main sources of UK carbon emissions (in particular, heat and transport) presents greater challenges. Electrification technologies, using a decarbonised electricity supply, can deliver an early and substantial contribution to the total reduction in emissions that is required. However, both further policy measures and continued innovation will be required to achieve complete decarbonisation of heat and transport. It is also essential to consider the impacts on local air quality (particulates and NOx) alongside issues related to decarbonisation and cost.
  2. Consequently, it is essential that the Clean Growth Strategy maintains a high priority for the reduction of emissions across each of the key themes of heat, transport and power, while recognising that the specific circumstances and decarbonisation options available in each area are different.

The Need for a Diverse Low Carbon Electricity Supply

  1. The UK must find a solution that meets consumer requirements of reliable, affordable, low carbon electricity. Our analysis suggests that a diverse mix of renewables and nuclear, combined with a limited role for gas, offers the best solution. The UK should make the most of the potential of renewable technologies (principally onshore and offshore wind and solar), which could provide up to 60% of electricity demand by the mid-2030s.  This should be complemented by nuclear power, providing reliable low carbon power which is not dependent on the wind blowing or the sun shining, and could provide around 25-30% of electricity demand. 
  2. Some flexible technologies such as gas will be needed to balance the system but, in order to meet the UK’s statutory carbon reduction targets, gas must provide less than 15% of electricity demand.  If the UK were in future to target net zero emissions from the power sector, then alternatives to fossil fuel gas (without CO2 capture) would need to be pursued as an even higher priority.
  3. The need to deliver a balanced, stable and reliable generation mix must underpin all decisions on the support for the development and deployment of low carbon electrical technology. The extent to which Government should support specific technologies or pursue a ‘technology neutral’ approach should be considered against this overarching objective, with Government using Value for Money assessments which take account of “whole system costs”, including requirements for back-up generation and grid infrastructure. In particular, Government should ensure that it does not support technologies to the extent that they produce too much of their power when it is not needed, leading to excessive costs of managing intermittency of generation.
  4. The need to deliver a diverse mix does not mean that Government should micro-manage decisions on the precise technology mix; there should be no barriers to deploying the lowest cost (assessed on a whole system basis) low carbon generation technologies compatible with the broad strategic direction.
  5. We would reiterate the key message that the full range of available low carbon technologies will need to be deployed in order to deliver Clean Growth emissions reduction targets at the least cost to the consumer. This includes onshore wind, which is currently excluded from support under the low carbon Contract for Difference (CfD) support scheme. We recommend that onshore wind is included in future auctions for low carbon CfDs.

The role of Nuclear Power in a Low Carbon Electricity Supply

  1. The UK energy system is changing rapidly. Since 2012 there has been a dramatic decrease in the contribution of coal to our energy mix. This has mostly been replaced by lower carbon gas with an increased output from wind, alongside more imports and reduced demand. Nuclear is now the second largest contributor to the system, supplying around 20% of our electricity. However, the system increasingly has to adapt to variable output from solar and wind generation, creating intermittency and inertia issues.
  2. Meanwhile, ageing infrastructure will need to be replaced as a significant proportion of capacity will have closed between 2016 and 2035. Government policy is that all unabated coal must be off the system by 2025, and seven out of eight existing nuclear power stations have their scheduled closure dates in the period 2023-2030.  We need new low-carbon generation if we are to achieve the UK’s climate commitments of 80% CO2 reduction by 2050. The UK must find a solution that meets consumer requirements of reliable, affordable, low carbon electricity. These objectives cannot be met by the deployment of renewables alone.
  3. In the past, with a generation mix heavily dominated by large power stations, considerations about security of supply have been dominated by the need to have enough capacity on the system. With an increasing amount of smaller, decentralised, sometimes intermittent technologies on the system, ensuring system stability is becoming an increasingly important issue. Nuclear generation, as well as providing reliable, low carbon power, brings important benefits to the system, such as the provision of inertia, which helps to maintain grid stability. The optimal long term mix of technologies to deliver emissions reductions will include a substantial proportion from nuclear power.  If the UK decides to target net zero emissions from the power sector, then the role of nuclear power is likely to be even more important in maintaining a reliable low carbon power supply.

The Challenges of Decarbonising Transport

  1. The widespread use of electric vehicles (EVs) as a key driver of the decarbonisation of transport is a way to accelerate the shift to low carbon transport that is immediately available. EDF Energy supports the electrification of transport, as EVs have very considerable potential to assist the transition to a low and ultimately zero carbon energy system as well as delivering benefits in terms of improving air quality. Government has put in place a range of significant incentives to encourage the early adoption of electric cars and vans. These incentives will need to be regularly reviewed and adjusted to respond to the out-turn rate of EV take-up.
  2. However, beyond these initial steps, it will be important to consider carefully the longer term challenges and opportunities that EVs will bring, to ensure that the right decisions are made to deliver decarbonised transport cost-effectively. This will require careful consideration of the impacts on electricity networks and how the charging of EVs should be managed.
  3. While the impact of EVs on total electricity demand will be manageable, there is the potential for significant additional impacts if EV charging is not managed smartly.  If a large proportion of EV charging occurs during hours of peak electricity demand, then there will be additional system costs. These costs arise from the need for extra generation capacity, increased curtailment of renewable generation and increased pressure on the capacity of local distribution networks.  Peak hour charged EVs may also be using electricity generated from gas, negating the CO2 saving benefits which would otherwise be achieved from a switch to EVs.  Conversely, EVs charged at off-peak times and with smart, time-adjusted management will substantially reduce the need for further investments in generation capacity and network reinforcement. Off-peak charging enables EVs to take advantage of baseload low carbon nuclear power and also flexibly absorb surplus renewable generation. 
  4. It will therefore be critical to ensure that the majority of EVs are charged smartly for the majority of the time.  This is an achievable outcome that can be based on technology that is already available. The roll-out of smart meters and half hourly settlement in the domestic sector should facilitate a greater adoption of smart charging.  However, while off-peak charging will be cheaper, the convenience of fast charging options, at any time of day, means that a smart outcome for the system as a whole is not guaranteed.  Government and stakeholders should therefore continue to promote smart outcomes and technology and monitor progress in this area.
  5. More broadly, a balance will need to be struck between:-
  1. EDF Energy will support regulatory approaches which seek to deliver the right balance between these options, with a proportionate, but not excessive, level of network investment.
  2. EDF Energy also considers that, while currently at an early stage, “vehicle-to-grid” (V2G) technology presents a potentially valuable opportunity to further enhance the electricity system benefits of EVs, through provision of large volumes of cheap storage and flexibility. Policy and regulation which facilitates cost effective adoption of V2G technology would therefore be appropriate.  However, V2G will need to be combined with other options for the management of the overall electricity system, as there will be insufficient free capacity in EV batteries to provide sustained volumes of power for more than a day.

The Challenges of Decarbonising Heat

  1. The decarbonisation of heat is widely recognised to be challenging and will require a combination of regulatory changes and financial support for low-carbon alternatives. While there are some clear actions that can be taken immediately, further work and trial projects are required to develop the evidence base to decide on a comprehensive strategy. The next steps should therefore be a combination of “no regrets” actions which can be taken now and further work to develop the long term strategy and associated policy measures which will incentivise technology development and deployment to deliver heat decarbonisation.  
  2. Currently, the only proven, immediately available technology option for large scale decarbonisation of heat is electrification, although there are some challenges including technology costs, need for space, lack of consumer awareness and need for some behavioural changes.
  3. The short-term “no regrets” actions will include action on energy efficiency, including improvement in quality standards, further deployment of heat pumps and work to improve consumer understanding of low carbon heat technologies. In all areas, consideration should be given to use of heating networks, whenever it is possible to develop large scale heat production from renewable and/or low carbon sources.  This should be reflected in planning policy to ensure a consistent approach. 
  4. Emissions associated with burning natural gas must decline if the UK is to meet its decarbonisation ambitions in the near term to 2030, with continuing reductions thereafter and a strategy. Associated policy interventions will be required if this is to happen. We support an approach that will prevent the further installation of high carbon fossil fuel heating systems; the Government has already proposed such an approach for off gas grid consumers during the 2020s.  Given that a move away from gas central heating is a major challenge and will be a significant cultural shift for many consumers, a longer timescale for this change will be needed, to mitigate the impacts on consumers and the supply chain. However, in long term, a switch away from fossil fuel for heating is essential to deliver heat decarbonisation.
  5. There is a role for Government support (financial and other forms) to increase the level and impact of research and development for new technologies and for innovative approaches in the heat and energy efficiency market.  A key area where this is required is for more cost effective solutions for insulating solid wall properties. 
  6. Further work is needed to understand whether the wide scale use of hydrogen could potentially offer a realistic and cost-effective option for decarbonising heat in the longer term in the UK. This will require consideration of how the hydrogen will be produced, including the likely reliance on carbon capture and storage to support this, the economic viability of low carbon hydrogen production, impacts on gas networks and customers and a full assessment of the risks associated with a hydrogen strategy.
  7. Providing investors and suppliers with as much certainty as possible over policy on heat is key. Long term policy and regulatory signals, such as the phasing out of high carbon heating systems, will help to provide such clarity.
  8. It will be important to develop a policy package and incentives which maintain a steady stimulus to the low carbon heat industry, encouraging technology development and deployment and limiting peaks and troughs in delivery. Lack of certainty creates an unstable market which creates problems for supply chains, with increased risk and decreased investment. 
  9. Comparison with the policy measures which are today driving electrification of transport may be instructive for heat, with a mix of long term targets, incentives for consumer purchase and a favourable tax regime all supporting EV adoption, along with continued support for R&D to assist in technology improvement.


The role of nuclear in decarbonising heat

  1. We expect electricity demand to increase over the period to 2035 because of population and economic growth, the move towards electric vehicles and the electrification of heat, with these factors only partly offset by energy efficiency. The scale of electrification of heat is uncertain but, if electrification is to play a major role in the decarbonisation of heat, then we believe that significantly greater nuclear capacity will be required.
  2. Additional electricity demand from heat will depend on a range of factors including the technologies adopted and the extent of associated energy efficiency measures. With very widespread electrification of heat, the additional demand for electricity could be in excess of 100 TWh.  This scale of additional demand challenges the pipeline of every low-carbon generation technology, making a solution comprised of a combination of technologies indispensable, including a substantial role for reliable low carbon new nuclear generation.
  3. As electricity demand for heat increases, it will be necessary to provide the right signals to manage the shape of daily heat demand for electricity, to ensure efficient use of both generation and network capacity. In particular, a key objective will be to minimise the level of additional winter peak capacity that would be idle in summer. Measures such as time-of-use pricing and smart heating controls will help to minimise the impact on peak demand, as could the widespread adoption of hybrid heat pumps.
  4. Even with reductions in battery costs, it is still likely that it will be cheaper and more efficient to store energy in the form of heat whenever this option is available. For example, experience from France, with a predominantly nuclear generation mix and where a sizeable share of homes are electrically-heated, shows that these challenges can be addressed with relatively modest measures, including time-switched overnight heat storage (hot water tanks).

The role of Research & Development (R&D) in the development and deployment of low cost, low emission technology

  1. EDF Energy is committed to supporting research and innovation, working with UK universities on applications relevant to our generation activities, and finding innovative solutions for our customers. Research and innovation is important to drive down costs of low carbon technologies, in, for example, the nuclear value chain (from construction, through operation to decommissioning) and offshore wind (such as our Blyth demonstration project which has pioneered new technology developments). Research and development has potential to drive down the costs of flexibility and energy efficiency and to support the development of new business models.
  2. For very immature low carbon technologies, specific R&D support will often be a better approach than support mechanisms based on generation output, such as feed in tariffs. It is also important that Government ensures that there is continued support for UK research and innovation where EU sources of funding cease to be available as the UK leaves the EU.
  3. Areas of particular importance for innovation, research and development include:- 
  1. Close collaboration between industry and research institutions to ensure that efforts are focused on innovations of real value will maximise the impact of R&D funding. Specifically, the UK must work to close the gap in Technology Readiness Level (TRL) of research between universities and industry. EDF Energy already works successfully with various universities and other bodies across the UK to tackle real world projects, and to encourage the development of skills that will be essential for the future success of the industry. The UK lags behind many other developed nations in terms of the proportion of GDP dedicated to R&D and we therefore welcome the Government’s commitment to increase funding for domestic R&D programmes.

 

 

October 2018