The means of future energy production in Scotland must meet the following criteria:

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1 SUBMISSION FROM BCG ENERY LTD BCG Energy Ltd is a clean energy company which is focusing on the development of deep coal reserves by means of Underground Coal Gasification (UCG). By incorporating carbon capture and storage as an integral part of the technology from the outset, we maintain that clean coal can play an important part in Scotland s future energy mix. BCG Energy Ltd wishes to submit evidence to the Committee for determining and delivering Scotland s energy future by means of responses to the following questions: Question 1: What type of future is needed in Scotland in terms of the production, distribution and more efficient use of energy, given the issues of price, security of supply and sustainable development? The means of future energy production in Scotland must meet the following criteria: Very low or zero carbon emissions Independence from geo-political risks Sustainable over many decades Minimal health risk to the public Robust technology In addition, we would want it to: generate significant indigenous employment be cost-competitive compared with other forms of energy production not require public subsidy for its development or implementation. Generating energy from fossil fuels by traditional means is struggling to meet these criteria and although renewable energy in the form of wind, wave and biomass meets all the musts, so far it has met none of the wants. Question 2: How can this future be delivered in Scotland and how will we meet all the various targets and obligations? Wind power, the most significant contributor to renewable energy, suffers from intermittent supply and therefore requires to be backed up by a spinning reserve. If nuclear power is not an option, the obvious alternative is coal. Scotland has abundant coal reserves but deep mining is not commercially viable and open cast developments raise serious environmental issues. Coal gasification overcomes these problems by extracting the energy in the coal rather than the coal itself. BCG Energy Ltd 32 Carden Place, Aberdeen, UK AB10 1UP tel. +44 (0)

2 With UCG, wells are drilled from the surface directly into a deep coal seam and, by pumping in air and steam, the coal is converted in situ into synthesis gas. Synthesis gas, which is essentially the same as the old towns gas, can then be used to generate power using gas turbines or can be used as a feedstock to produce hydrogen, methanol or diesel by means of well-established chemical processes. The following diagram shows the main elements of UCG. Zero Emission Power Generation Ultra-Clean Diesel Production Gas Clean up and CO2 Sequestration Gasification Materials H2 Overburden Coal Injection Well Production Well Ignition Well CO2 Storage Unprocessed Syngas Oxygen and Steam Coal We can show that UCG meets all of the must and want criteria set out above: Emissions When used for power generation, the synthesis gas can be readily treated before combustion to separate out and capture approximately 99% of the carbon content for long-term storage deep underground. Other pollutants such as SOx and NOx gases can be removed prior to combustion. Pre-combustion capture is much easier, more effective and therefore cheaper to achieve than the post-combustion capture option which DBERR favours for retro-fitting to conventional coal-fired power stations. 2

3 Geo-political Risks It is self-evident that utilizing Scotland s indigenous coal reserves will remove any economic or political dependency on foreign sources of oil, natural gas, LNG or uranium. Sustainability Scotland has substantial coal reserves: 400 million tonnes of deep coal in the Canonbie area alone would supply Longannet power station for 80 years ( Scottish Coal shelves Canonbie deep mine, The Sunday Times, 4 th May 2008). Risks to the Public As UCG would be carried out 500 to 1500 metres underground, surface subsidence is unlikely to be significant. Concerns about possible groundwater contamination should be minimal at these depths and will be addressed by extensive surveying and environmental studies. Robust Technology The lack of UCG developments in the UK and Europe has been largely due to the availability and relatively lower cost of other fossil fuel sources. UCG has been employed in various forms in several countries, notably Russia, China and USA, over several decades, more recently in Australia and is about to be undertaken in India and South Africa. The technology has been proved during a EU-sponsored trial in Spain 10 years ago and has been positively assessed for the Firth of Forth coalfield by Heriot Watt University (DTI report available at Knowledge of coal gasification chemistry dates back to the early 1800s. Employment Although UCG will not require the size of labour force required by conventional deep mining, it will nevertheless create a significant number of high value, long term jobs by re-vitalising the Scottish coal industry. We estimate that one position will be created for every MW of installed electricity capacity. Cost-effectiveness UCG does not require the stockyards and ash handling plant associated with conventional coal-fired power stations and hence the capital cost of UCG is much lower. It also compares favourably with other low carbon energy sources: less than onshore wind turbines and one third that of nuclear. Because the coal is at a depth which would otherwise be inaccessible, coal royalties and hence operating costs will be low. 3

4 As shown in the table below, the economics are attractive without the feed-in tariff (ROC) enjoyed by renewables, even after including the costs of carbon capture and storage. Subsidies The current price of carbon allowances within the EU Emission Trading Scheme is well below that required to justify the cost of bolt-on abatement plant for conventional coal-fired power stations. On the other hand, the incremental cost of carbon abatement with UCG is close to the current price of carbon trading. It is therefore possible, particularly due to the lower cost of energy production with UCG, to consider UCG with CCS as economically viable from the outset without the need to rely on public subsidy. Cost Comparison of Alternative Electricity Generation Sources (mid-2008) Source : The Costs of Generating Electricity - The Royal Academy of Engineering ; ISBN X, March 2004 Low/Zero Carbon Energy Source Non-Renewables * Rating MW Capital Cost per KW Prod Cost p/kw-hr UCG with IGCC & CCS Natural Gas CCGT & CCS Coal (pulverized fuel) & CCS Coal with IGCC & CCS Nuclear (incl. decommissioning) Renewables ** Onshore Wind Offshore Wind Wave Power Biomass Payback years 9.5 IGCC = Integrated Gasification Combined Cycle CCGT = Combined Cycle Gas Turbine * Non-renewables : 8000 operating hours per year and 5.6p/kWh revenue ** Renewables : wind power = 30% availability; standby generation costs included; revenue = 5.6 p/kwh plus 4.5 p/kwh from Renewable Obligation Certificate 4

5 Question 3: What decisions need to be taken, by when and by whom to deliver on Scotland s energy future? The UK Government s timetable for implementing CCS and therefore for encouraging the rapid development of low carbon fossil fuel technologies is too relaxed. A single demonstration project based on post-combustion capture from a conventional coal-fired power station is not due to be complete until 2014 and the draft EU Directive on the geological storage of CO 2, which is the basis of the current DBERR consultation on CCS regulation, has set a target of 2020 after which carbon capture will be compulsory for large scale power stations. The Scottish Centre for Carbon Storage has started work on a Scottish CCS Joint Study to inform the development and economics of the CO 2 transport and storage industry, focusing on CO 2 sources in Scotland and northern England. Once the report is published in spring 2009, we would urge the Scottish Energy Minister to establish a cross-industry working party to develop a plan for implementing a regional CCS infrastructure within 3 5 years. 5