with but when and how'. The report says: ' there is an imperative necessity to augment the biomass production on a crash programme similar to the efforts made for agricultural product ion ' .

Biomass should, thus, be recognized as a major energy source in the form of wood and charcoal. This will serve as a potential weapon to ward off the impending fuelwood crisis.

As regards irrigation, the idea of replacing diesel and electric pumps with solar photovoltaic pumps, wind- mills, biogas and alcohol is just 'loud thinking' . The prohibitive cost of a solar pump makes it uncompetitive in relation to electric and diesel ones. Efforts being made to reduce its cost will take a few years to yield results. Its large-scale production is not possible at least before 1990. Moreover, even its scale-down cost will still be so high that it will be beyond the reach of small and marginal farmers.

Similarly, windmills cannot be of

much use in the country (barring some regions), as a substantial number of windy days occur during the monsoon. The device can, therefore, be used only as a standby facility when there is deficient rain. Alcohol, however, can replace diesel completely or partly, depending upon the requirements.

Thus, while efforts should be inten- sified to bring about technological improvements and cost reductions, a programme of conserving diesel and electricity and replacement of diesel pumps with electric ones could be launched on a war footing.

As for Indian industry, it is one of the most energy-intensive in the world. It is est imated that a 10 to 15% reduction in the energy consumption could be achieved in a relatively short time with marginal improvements in process technologies.

The 'Product India 2000', a Depart- ment of Science and Technology (DST) study has recommended that 'vigorous conservation' measures can

Communicat ions on energy

effect a saving of 20 to 30% of the total energy consumed by industry. This strategy of fighting energy crises in industry finds no place in the national paper.

The importance attached to hydro- power, especially small hydro, and some other sources is undisputed. But taking into account financial cons- traints, socio-economic barriers and the level of renewable energy technol- ogies, some of which are still in the development stage, biomass appears to be the most important source of renew- able energy.

To quote the NSCFB: 'suffice it to say, the biomass research and develop- ment is a crucial option for India's future development which must be ini- t iated at the highest level now in a most effective, t ime-bound manner'.

V. V. Eswaran New Delhi, India

Electricity investment planning- a UK example

Following recent criticisms of the utility responsible for electricity supply in England and Wales, an appraisal is made of some of the investment planning decisions that have been taken. Over the last 20 years demand forecasts have been consistently too high and have resulted in significant levels of plant overcapacity, the cost of which, however, has generally been overestimated. Nigel Evans shows that current plant construction programmes will not result in continued overcapacity in the medium term and may even lead to capacity shortages by the end of the century.

The Central Electricity Generating Board (CEGB), the utility responsible for electricity generation in England and Wales, has recently been severely criticised both publicly I and in the academic literature 2 for deficiencies in its long-term planning. In particular, unrealistically high forecasts of electricity demand during the 1970s have resulted in high levels of plant over-capacity far in excess of those necessary to ensure adequate supply security.

Keywords: Electricity; Investment; UK

Recent responses to this situation by the CEGB have caused even more concern - premature closures of some plants has been accompanied by announcements confirming a committ- ment to series ordering of new nuclear stations in what is seen in some quarters as a repeti t ion of past mistakes.

Up to 1965 the growth in maximum demand on the CEGB system (the quanti ty of interest when assessing new capacity requirements) was high, averaging over 8% per annum. Since

then growth has been erratic and low, the change in 1965 coinciding with the growth of gas in the domestic sector when gas started to be made from oil instead of from coal (natural gas started making further inroads after 1968). In addit ion, electricity demand growth was influenced, along with energy demand generally, by the 1973 oil price rise.

During the 1974-79 period the maximum demand met by the CEGB was increasing at an average rate of only 11/2 % per annum while the growth in total electricity supplied was just under 1% per annum. Latest figures reveal no upturn in demand growth, the total electricity supplied by the C E G B in the year to April 1981 being, in fact, the lowest for four years.

Against this background of high historic demand growth rates followed by a decline during the years after 1965 and again after 1973, CEGB long-term planning has in many ways appeared inadequate.

Results obtained from a recent detai led study 3 indicate, however, that the performance of the CEGB during the 1970s has in many ways not been as

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poor as some of its critics have claimed 4, even under assumptions of low future demand growth of between 0 and 2% per annum. Further, for reasons discussed below, it is not plant overcapacity but rather adverse mix of generating plant which most leads to unnecessarily high generation costs.

Overcapacity Turning first to the question of excess generating capacity. Throughout the 1970s the amount of installed capacity on the CEGB grid has been well in excess of peak demand, being 46% greater in 1973.

This does not, of course, mean that the CEGB had a 46% overcapacity of plant as, in any large consolidated supply system, a margin of spare capacity in excess of anticipated demand (the planning margin) must be allowed for to ensure security of supply. Within the CEGB the planning margin is currently set at a level which would result in disconnections through shortages of generating plant for three or four winter peaks in every hundred s .

The basis for this standard is some- what ad hoc - if the planning margin was set at an optimal level the supply security would be increased to the point at which marginal supply costs of increasing reliability were equal to the expected benefits from the marginal shortage costs avoided 6. In any event it appears that a 46% margin of generating capacity over demand is excessive and will certainly have led to increased costs. The magnitude of these additional costs is related to the marginal plant on the system.

During the late 1960s and through- out the 1970s a large amount of new plant was commissioned by the CEGB. These stations, with generating sets of 500 and 660 MW and high thermal efficiencies, assumed the role of base- load operation with the result that the marginal plant on the system during the period became the small coal and oil- fired stations with low thermal efficiencies (typically between 16 and 20%). In many instances these were of some considerable age.

The cost to the CEGB of maintain- ing such a high planning margin was

therefore just the cost of maintaining these old coal and oil stations (given that all capital costs had been recovered and no fuel charges were payable as the stations were not being operated). This was considered to be worthwhile from the CEGB's view- point as high demand growth rates were still being forecast in the early 1970s and delays in construction programmes (particularly the AGRs) indicated possible capacity shortages.

By the late 1970s CEGB planners accepted the fact that the optimistic demand forecasts made 10 years earlier would not be realised and a systematic policy of plant retirement was introduced. This policy has also been criticised 7 particularly as some plant has been retired before the end of its economic lifetime.

However, much of this plant retire- ment has taken the form of routine replacement (several of the stations removed from service during the 1970s being more than 40 years old). A study of stations retired prematurely reveals all of them to be over 20 years old having small generating set sizes and low thermal efficiencies.

In addition several of these stations were oil-fired. Having made errors in demand forecasting and operated with unnecessarily high planning margins, the CEGB obviously felt that retaining this old plant on the system would exacerbate their problems.

Plant mix

Closely linked to the problem of overcapacity is the question of plant mix. It is clear that the 1973 oil price rise and subsequent further increases in 1979 were not anticipated by the CEGB.

In the year to April 1981, 16% of the CEGB's capacity was provided by oil- fired plant with almost 4 GW being met by just two stations (Fawley and Pembroke). With a further 5 GW of oil plant ordered between 1971 and 1973 due to come on line within the next two years it may be seen that a significant amount of the CEGB's newest and most efficient plant will be oil-fired by the middle of the 1980s.

The CEGB's response to the current high price of oil (which in 1980 was 50%

above the price paid by the CEGB for coal s ) has been to reduce the oil burn by resorting to single or two shift opera- tion of the large oil-fired stations and replacing generation with coal-fired plant.

The significant flexibility in plant operations displayed by the CEGB in recent years in response to the large increase in the price of oil relative to the price of coal arises from having both coal and oil plant in the group of highest efficiency stations. As relative fuel prices change, coal and oil plant may change places in the merit order and provide a greater or lesser proportion of base-load generation.

The long-term outlook for the CEGB's oil-fired plant is uncertain. If the current coal/oil price differential persists these large and efficient stations will operate with low load factors (rather than as base-load plant), the cost of which, relative to the position foreseen by the Board in the early 1970s, is likely to be considerable.

The likelihood of conversion of these stations to coal-burning appears extremely remote given the high capital expenditures that would inevitably be involved and the difficulties (both political and institutional) that might be expected in securing adequate supplies of coal at low cost.

There are two ways in which these oil-fired stations may become less of a financial burden to the CEGB than they now appear. The first is if the price of oil falls relative to that of coal (as predicted by some observers 9 and as recently occurred during the period 1977-79) in such a way that generation by new oil-fired plant is preferred to generation by older coal plant of relatively low efficiency. The second will occur if a significant upturn in electricity demand occurs during the late 1980s coinciding with a low level of new plant construction. In such a situation the oil-fired stations would be necessary to maintain an adequate level of supply security.

In addition note that the capital costs of large oil stations have generally been lower than for either coal or nuclear stations, a mitigating factor if their long-term operations as low or inter- mediate load plant proves to be necessary.

252 ENERGY POLICY September 1982

Future construction

A further area of concern regarding CEGB planning is in future levels of station ordering. In particular the Board 's estimates of likely installed nuclear capacity by the turn of the century have consistently appeared unrealistically high. ~0 The most recent view adopted by the CEGB, 11 how- ever, takes account of Government policy regarding nuclear power (15 GW of nuclear capacity to be ordered in the U K over ten years beginning in 198212) and the total installed nuclear capacity in the year 2000 in England and Wales is currently estimated to be 24 GW,

Even this figure, which is signifi- cantly below numbers quoted by the Board 's critics when discussing present CEGB planning strategy, 13 is unlikely to be realised. By the year 2000 only 6 G W of nuclear plant either currently in service or under construction will still be in operation. 14

If the Government 's 15 GW plan is implemented and all the stations are built in England and Wales (with no addit ional nuclear plant being ordered by the South of Scotland Electricity Board) , the CEGB's installed nuclear capacity will only be in the region of 21 GW.

Given the fact that the 15 GW pro- gramme is falling behind schedule already with work on the first UK PWR not starting before 1984 (assuming that the conclusions of what promises to be a far-reaching public inquiry are favourable) it would appear that an estimate of 20 G W for the CEGB's installed nuclear capacity in the year 2000 is not unreasonable.

It is perhaps worthwhile to compare current and planned construction programmes with likely requirements. If one adds the 15 GW of nuclear plant which may be constructed in the period to the year 2000 to the capacity of all plant currently under construction, one obtains a figure for gross capacity of approximately 27 GW.

By the year 2000, 26 GW gross of steam driven generating sets currently on the system (out of a total of 57 GW) would be 35 years old or over with only 1 G W being large plant of 500 MW or greater. In addition, a further 27 G W of generating sets, principally of 500

and 660 MW capacity, will be 25 years old or over by the end of the century.

Current CEGB plans allow for major refurbishment of stations with large generating sets of this type, an attractive scheme from many points of view but one which will nevertheless necessitate significant capital expen- diture and will inevitably result in plant outages which, for the stations concerned, will be measured in years.

It would, therefore, appear from the above discussion, in which no consi- derat ion has been given to possible future growth in demand, that the C E G B may actually have problems of under-capacity by the turn of the century.

In reality this may not be the case as the CEGB currently has great flexi- bility in its mix of generating plant and would be able to respond (albeit at high cost) to limited increases in demand in the 1990s, for example, by maintaining very old stations as peak load plant.

Nevertheless, these considerations lead to conclusions which are very different from those presented else- where is and indicate that planning margins in excess of 40% will not be observed in the 1990s and during the first years of the next century even with no growth in electricity demand. With a significant upturn in demand growth in the last decade of this century capacity shortages become a real possibility.

Given that some new plant construc- tion will be necessary before the turn of the century the choice of plant type has been the subject of much debate. It is now clear that nuclear power in the UK does not have the significant cost advantages over coal that has histori- cally been assumed to prevail due to significant capital cost escalation and long delays in the current A G R programme.

The present situation appears to be one in which the cost differential between coal and nuclear generation is small, one recent analysis TM indicating, at least under one set of assumptions, that coal costs are the lower. A significant degree of uncertainty regarding cost estimates exists however due, at least in part, to the methods chosen by the CEGB to present cost data.

C o m m u n i c a t i o n s on energy

Conclusions

In conclusion, the following general points may be made regarding past and current CEGB planning. First, demand has been overestimated in the past and high planning margins have been observed. The cost of maintaining this high overcapacity has not been as great as is thought in some quarters due to the large amount of old, inefficient plant on the system at the time. Second, it is obvious that the 1973 oil price rise was not foreseen by CEGB planners and the large amount of oil- fired plant which will be in operation by the mid-1980s will result in unneces- sarily high costs, the magnitude of which depends on future oil price levels.

Finally, it is not clear that plans for future new capacity are excessive, particularly if consideration is given to the fact that the CEGB are presumably not indifferent as to whether demand is over-est imated or under-estimated (high planning margins may well be preferred to blackouts). The choice of plant to fulfill the requirement for new capacity is not straightforward, however, and there appears, at present, to be no clear economic case for all new base-load plant being nuclear.

Nigel Evans Cavendish Laboratory

Cambridge, UK

~The Monopolies and Mergers Commission, Central Electricity Generat- ing Board: A Report on the Operation by the Board of its System for the Generation and Supply of Electricity in Bulk, HMSO, London, May 1981. -'Raphael Papadopoulos, 'Growth and overcapacity in the UK electricity industry', Energy Policy, Vol 9, No 2, June 1981, pp 153-155. 3Nigel Evans, Electricity Supply Modelling: Theory and Case Study, Energy Discus- sion Paper 14, Energy Research Group, Cavendish Laboratory, Cambridge, UK, September 1981. "Papadopoulos, op cit, Ref 2. 5The Monopolies and Mergers Commission, o19 cit, Ref 1, paragraph 4.44. 6Mohan Munasinghe, The Economics of Power System Reliability and Planning: Theory and Case Study, Johns Hopkins University Press, for the World Bank, Washington, DC, 1979, p 28. 7Raphael Papadopoulos, 'Nuclear power:

ENERGY POLICY September 1982 253

Communications on energy~Research file~Letter to the editor

the enduring connection', Energy Policy, Vol 9, No 4, December 1981, pp 319-323. 8UK Department of Energy, Digest of United Kingdom Energy Statistics 1981, HMSO, London, 1981, p 125. 9peter R. Odell and Kenneth E. Rosing, The Future ofOil, Kogan Page, London, 1980. ")Figures taken from the CEGB 1979-80 Development Review appear in the report by The Monopolies and Mergers Commis- sion, op cit, Ref 1, Table 5.1. IUbid. Figures from the 1980/81 Development Review are also presented.

~2Mr David Howell, the then Secretary of State for Energy, made a statement to the House of Commons on 18 December 1979 in which he outlined plans for future ordering of nuclear power stations. Mr Howell's statement, along with some reactions from the House of Commons, appears in Atom, No 28, February 1980, pp 34--37. 13Raphael Papadopeulos, op cit, Ref 2. Note that the 40GW quoted here refers to the whole of the UK not just England and Wales. There is, at present, 1.3GW of

nuclear capacity in Scotland with a further 1.2GW under construction. 1"This assumes that all five AGR stations currently in operation or under construction will eventually attain their design net capability of 1200MW and all Magnox reactors, which would vary in age between 29 and 38 years by the year 2000 if still operational, will have been retired by the end of the century. ~SRaphael Papadopoulos, op cit, Ref 2. 16Nigel Evans, op cit, Ref3.

Research file British Institutes' Joint Energy Policy Programme

The British Institutes' Joint Energy Policy Programme was formed in mid- 1981 by the Royal Institute for Inter- national Affairs and the Policy Studies Institute (PSI), in association with the British Institute of Energy Economics. It is a programme of research and analysis into factors affecting energy policy in the UK and overseas, with strong emphasis on the problems of turning research into policy, and policy into action.

Directed by Robert Belgrave, for- merly a Director of BP International, the Programme is staffed by re- searchers at Chatham House and PSI. Work on a particular topic involves selecting a writer and forming around him study groups, bringing in people with technical expertise from companies and other institutions. Six studies have now been published as

part of a series of Energy Papers. The first paper, East European Energy and East-West Trade in Energy by Jonathan Stern, was published in May 1982. The impending energy crisis in Eastern Europe, and increasing Western dependence on fuel imports from the USSR (particularly natural gas) and from Eastern Europe are two related developments of major importance to East and West.

Through the 1970s, Eastern Europe was cushioned against the energy crisis, but in the 1980s Soviet stringency and hard currency requirements have led to cuts in oil deliveries. Eastern Europe is the USSR's major energy problem and this is the critical context for the debate on Soviet oil production.

East-West energy trade will be in- creasingly dominated by Soviet natural gas exports, involving considerable

interdependence between and benefits for all partners. In the last analysis, argues Stern, it is the West's overall perception of the Soviet threat, rather than energy supply questions, that divides the Atlantic alliance on East- West trade.

Further Energy Papers published are: Oil Supply and Price: What Went Right in 1980?, Daniel Badger and Robert Belgrave; Energy Conservation in Japanese Industry, Ronald Dore; UK Interests and the International Energy Agency, Louis Turner; Energy, the UK and the European Community, Nigel Lucas; Oil Supply and Price: Future Crisis Management, Robert Belgrave. 1

1Information about the Programme and its publications can be obtained from Anna Stabrawa, Royal Institute of Intemational Affairs, Chatham House, 10 St James's Square, London SWlY 4LE, UK (telephone 01-930 2233); or from Policy Studies Institute, 1/2 Castle Lane, London SWlE 6DR, UK (telephone 01-828 7055).

Letter to the editor The economics of Magnox reactors

The CEGB regularly publishes figures for generation costs per kilowatt hour (kWh) at Magnox and several coal and oil stations. These have been criticized by Select Committees and most recently by Professor Jeffery 1 for being expressed in historic cost accounting terms rather than in constant price terms. My purpose is to discuss how the economic performance of Magnox reactors can best be judged.

There is more than one measure of economic performance because there is more than one use to be made of the measure. Professor Jeffery says, 'The purpose is to try to use past experience in the most appropriate way as a guide to future action' ie when it comes to real costs would electricity have been cheaper or dearer under different scenarios. This however seems to combine two questions:

• Can past investment decisions be validated by post audit?

• Can future investment decisions be improved from what we have learnt from such post audit?

The CEGB however publishes its generation cost per kWh figures primarily to answer the question: Would the consumer be paying more if it had invested in one form of primary energy rather than another?

Post audit of past investment

The CEGB has an elaborate and well- documented method of appraising the alternative options for new capacity as compared with the cost of retaining old

254 E N E R G Y P O L I C Y September 1982