Kingsnorth freeze means more addiction to gas

 

Britain is likely to remain dangerously addicted to gas and lose the clean coal technology race after E.ON's Kingsnorth power project fell victim to recession, environmental protests and government dithering.

The UK arm of giant German utility E.ON said on Wednesday it would put off investing in the controversial plant near London because of lower long-term electricity demand forecasts as a result of the recession.

"The energy crunch isn't coming the way we thought it was going to come. We thought it would be 2013 but it has moved now towards 2016 so the requirement for Kingsnorth isn't there at the moment and the economic conditions aren't there either" a spokesman for EON UK said.

"Short term it is going to be gas, long term it's nuclear. Mid term do we need it? Not at the moment."

UK power demand has fallen more than 4 percent since the economic crisis began and National Grid says the recession could slash demand by as much as 7.5 percent by 2016.

But if the British economy bounces back from recession strongly, as much as 200 billion pounds of investment in new plants may be needed over the next decade to replace the country's ageing power stations. Kingsnorth may be revived.

The global economic slowdown has also led to plentiful supplies of cheap gas, which are likely to continue for the next few years, making gas-fired plants more attractive than coal.

E.ON hopes its big gas-fired power plant project next to Kingsnorth - one of many gas-fired power stations planned by utilities - will see it through until its first UK nuclear reactor is ready in around 10 years time. 

Dependence on imported gas, which National Grid already expects to rise to around 75 percent of annual demand by 2019 from around half in 2009, worries many industry observers, particularly after Russia cut supplies to Europe last winter.

"Britain will face significant levels of gas imports, in particular for gas power plants to replace lost nuclear and coal-fired capacity" UK energy regulator Ofgem said on Friday.

"This increases our exposure to uncertainties in the global gas market, supply disruptions and potential price increases."

Gas prices are widely expected to surge in the middle of the next decade.

COAL ROLE

Britain has plans to plant thousands of wind turbines in the North Sea by 2020 but will need to back those up with fossil fuel fired power plants for days when there is little wind.

Security of supply concerns had sparked interest in cleaner coal plants to fill what looked like a big gap in power generation looming in the middle of the next decade.

Kingsnorth was a high-profile contender for government money to help pay for developing new carbon capture and storage (CCS) technology in the hope it could be exported to China, India or anywhere building un-tamed coal plants.

But, faced with fervent opposition from British green groups an array of competing technologies, the government has yet to decide on the winners of the billion-pound competition. 

Although it blamed the recession, E.ON seems to have grown tired of waiting for the government to make its mind up, preferring to focus on building nuclear reactors and wind farms in Britain and coal plant in continental Europe where nuclear is not an option.

"Undoubtedly, the Greenpeace campaign, public image of coal, gathering momentum behind both wind and nuclear, and the government's decision to require all new coal to be CCS-equipped are all factors that have influenced the decision," Poyry energy consulting analyst Andrew Nind said.

E.ON, which has said Britain risked losing the race to develop commercially-viable CCS if it continued consulting much longer, warned Germany last month it must pass CCS legislation in early 2010 or risk a similar fate.

Berlin may give Germany's biggest utility what it wants next year, but in the meantime E.ON is likely to focus on its already advanced carbon capture project at Maasvlakte in the Netherlands.

"The international angle of this should not be under estimated. EON has options around the world, it will pick what is easiest and cheapest" one industry observer said.

"If it takes three years to get anywhere near determining an application for a new coal fired power station in the UK then it will build it in Germany where it can be done in six months."

CONFUSION

Britain's clean energy drive, which wobbled in August when its only wind turbine factory shut because of public opposition to wind farms, is again looking shaky in the aftermath of the Kingsnorth decision.

The government and E.ON said on Thursday Kingsnorth was still in the running for the competition, which is expected to fund two projects, but it is supposed to be for plants to be completed by 2014 and doubts over the deadline have sown more investor uncertainty. 

"What this announcement highlights is that the government needs to have a clear energy strategy which will help attract badly-needed private investment" said David Hunter, an energy analyst at consultants McKinnon and Clarke.

"The race is on to clean up coal-fired generation and the UK, instead of leading the way, has taken a step backwards with this delay."