Magued Eldaief answers your questions – Part One

In this week’s readers’ Q&A session, Magued Eldaief, the head of GE’s UK energy business, answers your questions.

In the first of two posts, he discusses the future for nuclear power in northern Europe, wind power in the developing world and whether it is better to back small- or large-scale power generation projects.

In the second post, he discusses subsidies for carbon capture and storage, legislation to curb emissions and the future of smart metering.

Next in the hotseat is Iam Simm, chief executive of Impax Asset Management. He will be answering your questions next Friday, January 28th. Send in your questions for consideration by the end of Sunday, January 23rd to energysource@ft.com.

But for now, over to Magued:

Nuclear subsidies

The UK has proposed introducing something akin to a feed-in tariff for nuclear power. This would alleviate power price risks for new build nuclear, but do the proposals go far enough to inspire investor confidence in nuclear in the UK?
Tim Probert

Weakness in the long-term carbon price signal has meant there is insufficient certainty to undertake large long-term capital intensive investments such as nuclear, and has instead encouraged further investment in carbon-emitting plants.

The government is proposing a carbon price floor to reinforce the operation of the EU emissions trading scheme in the UK – creating greater carbon price certainty for investors in all low-carbon technologies. This is intended to increase certainty for investors in low-carbon generation, improving the incentives to undertake investment.

However, whether the proposals will create an investment environment that can support deployment will depend on the detailed design and interaction between the key policy elements of electricity market reform. Planning reform is also important , as is getting the right grid connections and making sure local supply chains are in place.

We must not neglect the international dimension of these reforms. If the UK price diverges too far above the EU allowance price, this risks re-distributing emissions from the UK to continental Europe. In that case, the total level of emissions in the EU as a whole would remain the same as it would have been without the UK floor price.

Growth in nuclear power

Do you foresee stronger growth in nuclear power [for] northern European countries?
John Cataldo

Nuclear is moving forward in northern Europe even during challenging financial conditions. Strong resolve for greenhouse gas reductions as well as energy independence and fuel diversity still make nuclear an attractive option for long term infrastructure. The Baltic Rim area is the most active as new project starts and are progressing forward. The decision to allow new operators to enter the UK will provide technology diversity and drive more competitive pricing.

The decision to allow new operators to enter the UK will provide technology diversity and drive more competitive pricing

GE’s nuclear business is active in numerous projects across Europe. We have a great European supply chain for nuclear to support construction as it moves forward. We use state of the art construction technology and simple designs.

Rebuilding investor confidence is critical by achieving the results from our first-of-a-kind Advanced Boiling Water Reactor, which was constructed in less than 40 months. These construction results and methods have been incorporated into our Economic Simplified Boiling Water Reactor reducing construction costs while producing the lowest risk of reactor accident fuel damage of any plant design in the world.  These increased safety levels and project predictability will return investor confidence in nuclear.

Wind power in the developing world

What incentives will be offered to welcome wind energy in less developed nations?
Varsha Ramharrack

Amid a global recession, the deployment of renewable energy, energy efficiency, carbon capture and storage and other environmental goods and services creates an opportunity to stimulate domestic economies and global commerce through the creation of new industries.

Today, wind turbines for electricity generation employ a proven technology, supply energy on a reliable and sustainable basis, and at good sites are competitive with conventional sources of energy. Many countries, especially in the developing parts of the world, have considerable wind resources that are still untapped.

A key barrier in these countries can be a lack of the right policy framework and the technical expertise, concerning both methods of site selection and technical aspects of wind power.

Economic growth and emissions reduction can be achieved simultaneously, but only with sound policies that promote trade and remove onerous restrictions.

As nations throughout the world become more focused on reducing carbon emissions and increasing the amount of energy produced from renewable sources, global trade in these environmental goods and services will play a critical role. An environmental goods and services agreement could seize the momentum and provide a trade-related contribution to fight climate change by reducing the costs that Governments impose on these.

Intellectual property rights

Industrialised countries have also committed to help enhance technology transfer to developing countries through various structural funding programmes complemented by strong intellectual property rights and rule of law to support the process. Strong intellectual property rights are not a barrier to technology transfer but allow innovative companies to capture the value of R&D activity and stimulate investment that would not otherwise occur.

We regard green certificate schemes as an effective market-based mechanism to incentivise companies with strong balance sheets to invest in higher risk technologies. Offshore wind has operational costs of three times and capital expenditures of at least 2.5 times the amount of onshore wind. Therefore financial support mechanisms must have a multiplier effect or alternative support mechanism, such as a capital grant scheme, for technologies that cost more to build.

Large-scale v small-scale projects

What should be the balance between micro-generation and large-scale projects and how do the investment parameters differ?
Daniel White, commercial consultant, Global Energy Systems

A diverse mix of generation is the right solution and all fuel sources will be vital to meet the UK’s wider energy challenges of security of supply, climate change and affordability. In seeking to achieve the right mix it is important to recognise the different paths that investment can have and how these are affected by various impediments.

Analysis suggests a wide range of scenarios and pathways could allow the UK to meet its goals, but it is widely agreed that while demand for fossil fuel needs to fall dramatically in order for the UK to fully decarbonise, this will be complimented by an increase in demand for low-carbon electricity as more electricity is used in the heating and transport sectors.

The extent to which companies and consumers will deploy low-carbon technology will depend on the expected certainty of return on investment (both financial and environmental). This relies on the way in which they believe factors such as fossil fuel, carbon and electricity prices, technology costs and regulatory or planning risks will evolve over time.

Considerable uncertainty continues to impact all energy delivery technologies, including:

  • Low-carbon technologies are disadvantaged by low or zero carbon prices. They are capital intensive and require long term visibility of the carbon market that values low or zero emitting technologies
  • The economics of some renewable technologies (e.g. wind) is impacted by intermittency.
  • Gas investment has lower capital costs and lower emitting technology compared to coal. Fuel price risks can be managed and the cost of their carbon allowances is likely to be factored into the electricity price. Coal is disadvantaged by expensive carbon and assisted if carbon is cheap.

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