The UK’s woodland was depleted by the needs of industry, urbanization and agriculture and fell to little more than 6% of national land area in the early 1920s. Wood was virtually absent from many lowland areas in England. A recovery in the area given over to woodland means that about 12% of the UK is now forested but this number is only rising very slowly. Net new forestation is now well below 10,000 hectares (100 sq km) a year, much of which is in Scotland.

The UK is significantly behind other countries in Europe.

Percentage of land area under forest and woodland

Source: Combating Climate Change: A Role for UK Forests (Edinburgh: The Stationery Office, 2009), p. 1.

As trees grow, they extract CO2 from the atmosphere by photosynthesis. Young trees don’t capture much as their absolute growth is slow. Old trees have largely ceased to grow and also don’t extract much carbon dioxide. The UK’s newer woods, mostly planted thirty to fifty years ago, are now just past their peak at sequestering carbon. The 2005 figure was about 16m tonnes CO2. In 2010, the figure will fall to about 10m tonnes, and by 2020 the figure could be as low as 5m tonnes (less than 1% of national emissions).

Combating Climate Change, a report commissioned by the Forestry Commission makes a powerful case for a sharp increase in the rate of new planting.[1] It suggests that 1m new hectares, about 4% of total UK land area, should be given over to forest cover by 2050, increasing the planting to almost 25,000 hectares a year, triple today’s rate. This would, says the report, reduce UK emissions by about 15m tonnes of CO2 a year by mid-century. Parliament has legislated to cut UK emissions to about 150m tonnes of CO2 by this date. New forestry could therefore reduce the national CO2 total by about 10% below its expected level.

Is a million new woodland hectares possible? Easily. About 4m hectares are given over to rough pastureland in England alone. I haven’t got the exact figures for Wales, Scotland, and Northern Ireland, but these countries probably have another 4m hectares. So transferring a million hectares into woodland is perfectly feasible.

What about the cost? The report suggests that it strongly depends on what sort of forestry we use. ‘Energy forestry’ using, for example, coppiced hazel and willow for fuels may well have a net cost below zero per tonne of CO2 saved. (That is, the wood fuel costs less than the fossil energy it replaces.) At the other extreme, the creation of new broadleaf woodlands, managed for biodiversity, is estimated to cost about £41 per tonne of carbon dioxide. The Climate Change Committee says that any proposal costing less than £100 per tonne is potentially cost-effective. So although £41 per tonne is almost certainly greater than the cost of, for example, carbon capture at coal power stations by 2050, it is in line with other projects for reducing CO2.

The cheapest form of reforestation – giving over large plantations to single species for frequent harvesting of wood for heating and electricity generation – is broadly unpopular in the UK. Even still, it probably needs to be considered carefully. Using biomass to generate electricity is a very good way of providing ‘dispatchable’ electric power, electricity that can provided exactly when needed. The last few weeks of cold, still weather in the UK should remind us that we need huge amounts of biomass as a reliable source of renewable power as a backup for wind.


Footnote
[1] D. J. Read and others, Combating Climate Change: A Role for UK Forests: An assessment of the potential of the UK’s trees and woodland to mitigate and adapt to climate change: The Synthesis Report (Edinburgh: The Stationery Office, 2009). Available here as a free PDF from the Forestry Commission website.

The existing Kingsnorth power station. Image source: E.ON.

E.ON’s £1bn plan for a new coal-fired power station at Kingsnorth is waiting for approval from the UK government. Other generators have shifted away from coal. Drax, which owns by far the largest coal power station in the UK, is investing in biomass. Other companies have focused on new gas plants. Why is the world’s largest investor-owned utility pushing ahead with a project to burn coal without carbon capture?

The answer, unsurprisingly, is that burning coal to generate electricity is extremely profitable. Very low prices for emissions permits and tumbling coal costs mean that a profit-seeking management team is highly incentivised to try to push for permission to use coal in power stations. This article provides the background calculations for an estimate that the new Kingsnorth will generate an operating profit of about £300m a year if current fuel and carbon prices persist. Additionally, it also tries to show that the cost of fitting CCS equipment and running the plant to capture the large majority of all carbon emissions is likely to add no more than about 1.5p per kilowatt hour to the cost of generating electricity at current coal and carbon prices. This means that a new coal fired power station with CCS may have operating costs only marginally above gas power plants

Nevertheless, E.ON has just asked for government subsidy to install CCS at Kingsnorth from day one. The purpose of this article is to offer an estimate of the maximum the government ought to offer E.ON in order to get it to invest in CCS prior to opening the new power station.

***

As the UK Climate Change Committee’s report of December 2008 showed, generators will generally wish to develop coal, rather than gas, power stations if carbon costs are low. E.ON’s persistence in the face of the widespread opposition to Kingsnorth is testament to the truth of this assertion. Coal is today’s fuel of choice. Speaking to investors on 3 March 2009, Dorothy Thompson, the CEO of the enormous coal power station at Drax, said that in current conditions ‘coal plants tend to be more economic than gas plants’. The company also said without equivocation that ‘coal remains the most attractive fossil fuel’.

The Kingsnorth project
The new Kingsnorth will be a ‘supercritical’ coal plant composed of two 800 mW units. Total output will therefore be about 1.6 gW when the station is running at full capacity. E.ON has entered the competition for a grant to fit CCS on a portion of the new power station. It has said that it will fit CCS on the rest of the plant when it makes sense financially, and not before.

E.ON has a point. It is in business to make money. CCS will always add – probably significantly – to the cost of generating power. So it wants the UK taxpayer to fund the incremental cost. Other generators around the world have made similar requests, though rarely in so bold a way. E.ON’s great rival RWE has proposed a 450 mW plant with carbon capture at Huerth in Germany, and has made pointed remarks to Chancellor Merkel about subsidy for construction costs. US coal-fired generators have proposed an imaginative scheme for encouraging early CCS projects.

The wily folks at E.ON must have noticed the fixed and discomfited smile on ministers’ faces when talking about Kingsnorth. Which politician wants to go down in history as the person who approved a new unabated coal power station just before the Copenhagen climate change negotiations begin? E.ON seems to have offered a tempting political bargain – give us the cash and we will fit CCS from the opening of the plant. It all comes down to money.

The economics of Kingsnorth
Coal stations need maintenance, both planned and unplanned. Drax managed to be available for operation for about 85% of the time last year. Its position as the lowest cost fossil fuel station in the UK meant that its output was actually asked for about 75% of the hours in the year. Other coal stations were similarly busy. Kingsnorth will probably run about 80% of the year, slightly more than Drax. It is newer and will have a lower marginal cost to operate. (Its position in the ‘merit order’ will be behind only nuclear and wind.)

Drax has already sold much of its output for 2011. The price is about £63 a megawatt hour. If Kingsnorth achieved this price its yearly output of approximately 11.2 terawatt hours would be worth about £702m. (11.2 terawatt hours is about 3% of UK electricity use.)

The primary costs of operating Kingsnorth will be coal purchases, carbon permits, coal transport, and operations and maintenance (O+M).

Coal
Kingsnorth will be very efficient for a coal-fired power station and turn about 42% of the heat value of coal into electricity, but to be conservative I have used a figure of 40%. To generate 11.2 terawatt hours, Kingsnorth will need to buy about 3.4 million tonnes of coal. At current spot prices – which may not be representative of levels in five or ten years, or of prices for long-term contracts – this will cost about £163m. (Although coal prices are currently low, they are still above the costs of extracting the fuel.)

Carbon
Kingsnorth will generate about 8.6m tonnes of carbon dioxide. At today’s European permit prices, this will cost about £103m. (I assume that by the time the station is opened power stations will have to pay for their entire allocations of permits.)

Coal transport
The current cost of shipping coal to Drax from non-UK sources is about $17 a tonne. It should be lower at Kingsnorth because the station is on the Kent coast and can receive its own coal shipments by ship. Nevertheless, I have taken the Drax figures. This adds about £42m to the costs of running Kingsnorth.

O+M
Drax cost about £230m to operate last year. This includes the cost of maintaining the station and keeping it running flat out for most of the year. A substantial problem at one of the six turbines probably slightly inflated this figure. I have calculated an O+M cost for Kingsnorth, pro-rated by the respective electricity outputs of the two stations. This is about £101m.

I estimate net operating profit at just under £300m. (Drax operates at an approximately zero net working capital position, so this figure would be approximately the same as the cash generated by the plant before any tax.)

Summary estimate of the operating profit of the proposed Kingsnorth plant

If these numbers are correct, E.ON can expect an annual return of about 30% on its proposed £1bn investment.

The impact of adding CCS
Dr Golby, the CEO of E.ON UK, says that first generation CCS will reduce the efficiency of the plant by 20%. This is a surprisingly low estimate; others have produced much higher figures for the efficiency loss. In effect, E.ON is saying that to produce the same amount of electricity it will need about 25% more coal.[2]

Adding 25% to the cost of coal purchases will cost £41m. This is about 0.36 pence per kilowatt hour. The capital cost of a plant will be much higher if CCS is installed and its operating costs will rise. E.ON has estimated elsewhere that these extra costs total about 2p per kilowatt hour. (See ‘Carbon, costs and consequences’ from the E.ON website – I have estimated this figure from the bar chart on page 9 of the PDF.) So the additional cost of adding CCS is about 2.4 pence per kilowatt hour.

But the plant will save most of its cost of CO2 permits. Most power engineers assume that CCS will cut emissions by 90%. Only having to buy 10% of the existing volume of emissions will save E.ON about 0.83 pence per kilowatt hour.

The net consequences of adding CCS to the Kingsnorth project are therefore approximately as follows:

At current gas and coal prices, the prospective future margins for electricity generation are about 1 pence per kilowatt higher for gas than for coal.[3] (It is fair to note that gas turbine power stations are cheaper to construct than coal-fired plants, which will somewhat reduce the significance of this figure.)

The implication of this is that at today’s fossil fuel and carbon prices, and using E.ON’s own estimates, adding CCS to Kingsnorth leaves this coal power station only marginally more expensive to operate than a new gas-fired power station. Coal with CCS may be only about half a pence a kilowatt hour more expensive than gas.

Why does this matter?
E.ON’s recent announcements have opened a negotiating door. The company is clearly signalling that it wants a deal over CCS. It seems to be asking for a guaranteed price premium. Rather than see Kingsnorth open without CCS, the government might be prepared to agree a deal. The purpose of this note is to suggest that the premium should not be large; analysis seems to suggest it can be well under 1p per kilowatt hour.

To the outside observer E.ON’s tactics do not look pleasant. The government knows that the electricity supply situation looks grim beyond 2016. It may have to accept more coal. So E.ON is offering to make that new coal capacity more environmentally acceptable – provided we all pay the additional cost. In my view, the government should do the deal, provided it can keep the cost below 1p.



Footnotes
[1] Operating profit takes no account of interest payments or depreciation.
[2] If efficiency goes down by 20%, it will fall from 40% to 32%. To get the same daily output, coal use would have to rise by 25%.
[3] The ‘Dark Green Spread’ less the ‘Green Spark Spread’.

Photograph: Christopher Whalen.

George Monbiot rightly observes that the earth’s resources of biomass are limited and cannot be simultaneously claimed for multiple uses: liquid biofuels, fuel for heating, biogas, and biochar. This presentation (available for download in PowerPoint or PDF) looks at the globe’s land and biomass production to assess how much space can be given over to non-food uses and how much energy this can generate. This is one of the crucial questions facing the world: how much energy can we use from biomass before this affects the ability of the world to provide enough food for nearly 7bn people, rising to at least 9bn by 2050?

Ten Technologies to Save the Planet was listed as one of the Financial Times Science Books of the Year 2008.