Tackling climate change

We believe that it is imperative that we deliver measured responses, based on sound economics, to the challenges presented by climate change. We fully understand the threat and support the move towards a low carbon economy. However, we are mindful that in order to make this transition, the country must have a stable and secure energy supply if growth and prosperity are to be sustained.

We have an important part to play in managing this transition and delivering a low carbon future. The central theme in our submission to the Government’s Energy Review was about improving our environmental performance to reduce emissions of carbon dioxide (“CO2”). We now need to combine the security of supply benefits of coal-fired generation with environmental improvements.

Co-firing renewable materials

Given the right energy and environmental policy framework, we could make significant reductions in our CO2 emissions. Co-firing renewable biomass materials with coal has emerged as a credible renewable technology and is the quickest and most cost effective way for us to drive down emissions of CO2, but, the policy framework must facilitate this.

Since 2003, we have undertaken a R&D programme aimed at establishing the optimal method of co-firing biomass. We have concluded that direct injection, which utilises processed biomass fuel and injects it directly into the boiler thereby avoiding the operational complications of co-milling biomass with coal, is the best way to co-fire significant volumes of biomass. This system was implemented in Summer 2005 on one of our units and we have recently received Board approval to invest in the construction of further direct injection systems and associated processing plant together capable of significantly increasing our biomass throughput.

Changes to the regulatory regime are critical to meeting our co-firing objective. Biomass is typically at least three times more expensive than coal, once all factors are considered, and we cannot embark upon a major investment scheme without confidence in the future of the Renewables Obligation (“RO”) and the market it enables. Equally, we are dependent on the development of a biomass supply chain, which in turn means that farmers and foresters must consider energy crop planting to be a viable component of their business.

Over the last few years, we have initiated a sizeable energy crop programme, entering into contracts on the basis of the continuation of the RO mechanism. We aim to facilitate the development of a local, high volume biomass industry, in particular through the production of quantities of energy crops. Long-term contracts have been signed with suppliers for short rotation coppice willow and miscanthus. Contracts for other materials are close to agreement, with several other potential fuels (including annual energy crops) the subject of active discussion.

The current regulations governing co-firing are constraining this important development work and stifling opportunities for considerable CO2 savings to be made. In response to changes in the regulatory regime implemented in April 2006, we significantly reduced our co-firing activity. Through our public affairs activities we worked hard to promote the environmental benefits of co-firing and through the Government’s report on the Energy Review, published in July, we were rewarded with recognition of the contribution that co-firing can make and proposals to reform the renewables regime.

We continue to work closely with the Government to ensure that the proposals are implemented. The reform of the RO is key to delivering sustainable emissions reductions, meeting renewables targets and mitigating the environmental impact of a continued, but necessary, reliance on coal-fired generation. We are optimistic that changes in the regulatory regime will be in place by April 2007 to allow us to embark, once again, on a high biomass throughput to meet our target for 2009 of 10% of our electricity generated coming from renewable fuels and with it a reduction in our emissions of CO2 by over two million tonnes each year.

Improving thermal efficiency

A second way for us to address our emissions of CO2 is through improving the thermal efficiency of our plant. Such improvements rely on recent advances in technology and tend to be capital intensive. Current technology options range from upgrading the turbines to retrofitting supercritical boilers.

In December, we announced the decision to go ahead with a £100 million capital investment programme to upgrade our high pressure and low pressure turbines. Installation, which will be undertaken during the planned outages for each of our six units, is expected to take place between 2008 and 2011 (although some work may be undertaken in 2007). The result will be an improvement in our overall baseload efficiency of 5%, taking it towards 40%, and an annual saving of one million tonnes of CO2.

Looking ahead, providing the confidence to invest significant sums requires a stable and certain policy framework. We are contributing to the Government’s discussions on how best to achieve this through existing policy mechanisms, such as the EU Emissions Trading Scheme.