Eon’s Sara Vaughan answers your questions – Part 2

Sara Vaughan, image by Eon

In the first of a new series of readers’ Q&A sessions, Sara Vaughan, Eon UK’s head of energy policy and regulation, tackles the burning questions you wanted answering. Eon is Germany’s biggest power company and is heavily involved in the UK market.

In the second part of the session, Sara discusses the obstacles to building new nuclear plants, how the UK measures up on low-carbon technology and the limitations of a carbon floor price.

Next in the hotseat is Ditlev Engel, chief executive of Vestas, the world’s biggest manufacturer of wind turbines. Send in your questions by the end of Friday, November 26th for consideration, to energysource@ft.com.

But for now, over to Sara:

New nuclear

What’s the single biggest threat to your plans to build new nuclear power stations in the UK?
Mark Swift, EEF

This is all about electricity market reform (EMR). The government absolutely has to get EMR right in order for investment in the right generation mix to be brought forward. Our current market rules mean that cheap will win over clean every time (with the exception of the additional support offered by the renewables obligation) so what we need is reform that encourages new investment in technology that will ensure that, alongside security of supply and affordable bills, we also get lower carbon investment.

I think it’s pretty clear that we’ll get some form of carbon floor or carbon tax but we don’t believe that such measures alone would produce the long-term stability we need to invest without the help of some sort of low carbon obligation or other similar measure that actually pulls through new investment in power stations that are cleaner.

There are other areas where we will need to see favourable outcomes as well of course, such as planning and other consents and design approvals.

UK low carbon efforts

Confidence in market arrangements is a key ingredient for investment in low carbon technologies. Your company supplies low carbon energy in many markets. How do UK arrangements compare to those in other countries?
Mark Swift, EEF

In terms of renewables, the UK compares favourably with other European markets. In fact, the UK is a focus market for our renewables activities and is currently one of the most attractive markets for offshore wind.

In terms of renewables, the UK compares favourably with other European markets

For low carbon technology investment more broadly, the energy secretary has recently indicated his view that the current market framework is not fit to deliver the low carbon investment we need. We agree with that view and that is why the electricity market reform framework that we expect the government to announce in the near future will be fundamentally important in building that confidence in market arrangements to which you refer. We’re very pleased that the government has recognised the need for some change to encourage investment and look forward to engaging further in that process.

Carbon pricing

Given the low price of carbon on the EU trading scheme, partially created by the renewable energy boom, what needs to be done to incentivise the shift away from high carbon energy production?
Bastien Yverneau

A first measure would be to look at what can be done within the EU trading scheme. The EU ETS has to be underpinned by an effective international agreement to function effectively. The outlook for carbon is particularly uncertain at present in light of limited progress so far made on a global deal.

Within the UK, the government has indicated its intention to underpin the carbon price through a carbon floor. We do not believe that a carbon floor price fits the bill on its own because it is likely to be a tax, and taxes can change. It will also become less effective as the system decarbonises, which is why it was not our chosen route forward, although we accept that it can be part of a solution. So we have been arguing for some sort of low carbon obligation, which works to bring low carbon power into the market, through making suppliers contract for it.

We do not believe that a carbon floor price fits the bill on its own because it is likely to be a tax, and taxes can change

Some form of low carbon obligation as part of electricity market reform should enable us and others to invest in the ‘right’ generation sources better than the current market framework (although I’m not sure that we can pin the current low price of carbon on a ‘boom’ in renewable energy generation – there are other factors, such as the recession, that have also played a role).

Electricity distribution

Why sell the UK electricity distribution business when Eon enjoys a regular and steady financial return from the UK’s second biggest network?
Dougie Rooney, national officer of the Unite trade union

We are in the process of reviewing our strategic options for Central Networks and that may or may not result in a decision to sell that business. I would also want to acknowledge that Central Networks makes a great contribution to Eon – its operational performance, safety and financial performance have been exemplary.

Carbon accounting

Is Eon considering including a comprehensive carbon accounting approach [a way of measuring carbon emissions at every stage of the supply chain] to see that they do result in net decreases in fossil-based CO2 emissions?
Paul McTigue

I would like to look at this question in two parts: first, around our approach to carbon accounting and secondly, can we demonstrate that our energy projects result in net decreases in fossil based carbon dioxide releases to the world’s atmosphere?

In response to the first part of the question, we take our responsibility for our GHG emissions seriously. To support us in doing this, we use the methodology generally accepted to be the ‘grandfather’ of corporate GHG reporting, the World Business Council on Sustainable Development/World Resources Institute (WBCSD/WRI) Greenhouse Gas Protocol Standard. We are also using or evaluating WBCSD/WRI global standards designed to help measure the greenhouse gas emissions of projects, products and supply chains. We recognise the development of carbon accounting methodologies is still very much in its infancy in many ways but we are keen to help support the development and improvement of existing accounting approaches.

Regarding the demonstration of net decreases in fossil based carbon dioxide releases, actual figures for carbon life-cycle assessments for power generation were produced by the Parliamentary Office of Science and Technology in 2006. This looked at the carbon footprint for a range of different technologies, including the sourcing of raw materials and decommissioning, and covered the range of evidence available at the time. It’s clear from this that the investments we have made in our balanced energy portfolio have resulted in a net decrease in fossil-based carbon dioxide releases.

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