1 3. Onshore Gas Distribution Gas Compressors 3.1 This Section This section covers the onshore gas distribution (gas compressors) sector ( Contract F ), as part of an overall project for DTI on EU Emissions Trading Scheme (ETS) Phase II UK New Entrants Spreadsheet revisions. The overall aim of this project is to validate and revise appropriately the existing New Entrants (NE) allocation spreadsheet. The following sub-sections present the findings for this sector. In particular, this section covers compressors in the gas distribution network. A separate onshore terminals section will cover activities (including compressors) related to gas storage, with consistency between these sections where appropriate. 3.2 Background and Sector Description 3.2.1 Background The distribution of gas to end users and mains buffering within the UK is achieved by the transportation of natural gas in its gaseous state at ambient temperature. The gas could have either been directly imported under high pressure or have been converted from LNG at dedicated LNG storage facilities. The gas is then distributed around the UK by a network of high-pressure pipelines and compressors 1. The UK gas supply system 2 has been developed to make just in time use of the supplies from the UK continental shelf. These supplies are in decline and will be gradually replaced by pipeline imports from Eastern Europe 3 and LNG imports to purpose built terminals. The annual usage of gas is expected to rise by 16% over the next 7 years for domestic and business use 4 and to power around 40% of the nation s power stations. Presently the UK only has limited gas storage capacity, enough for approximately 14 days supply, when compared to other European countries where storage capacity is in the order of 80 days. The UK gas distribution and storage system is being developed and new import connectors built to improve its storage capacity and meet predicted rising demands in the future. Gas storage is being covered in the separate section onshore terminals. 1 Gas Delivery Network, www.transco.co.uk/business/index/delivery.asp 2 The Future of UK Gas Supplies, Postnote October 2004, Parliamentary Office of Science and Technology 3 DTI, 2005, EU Emissions Trading Scheme Benchmark Research 4 National Grid, 2005, Gas Transportation Ten Year Statement.
2 The compressors situated in the UK gas pipeline network operate as required by demand for gas across the UK. The compressors keep the pressure in the main 6,400 km of pipes at about 85 bar. It is important that the pressure of the mains is kept at the correct pressure for safety reasons. In order to prevent any problems with supply that could occur due to failure of compressor facilities the system has significant over-capacity. Each compressor station consists of two or more turbines of different ratings and these are switched in and out of use as required by the continuous monitoring of the mains gas pressure. As such, the operator has extremely limited control over the overall load factor of the compressors (amount of running hours and load). All operation is reactive and driven by security of supply and safety license obligations. The operating load will fluctuate with demand and network conditions such as ambient temperatures. This variation in load influences emissions as the emissions factor and efficiency of the compressors vary at different loads. Efficiency increases with load, although for some models the peak efficiency is at a load slightly lower than 100%. Load and operating hour variability may increase from 2007 as new LNG supplies and new interconnectors come on stream, providing greater supply uncertainty with more competition in the supply market and greater choice of entry point for the gas shipping market. Key parameters in the proposed allocation methodology include: Shaft output (kw) this is the amount of mechanical power required to drive the compressor, provided by the turbine. Net heat rate (kj/kwh) this is inversely proportional to the thermal efficiency of the turbine. Both of these parameters will vary when the turbine is operated at different loads. Industry standards are for turbine performance values to be given at idle, 50%, 75% and 100% load. 3.2.2 Phase I incumbent and new entrant installations Identification of how sector is covered under EU ETS The distribution of gas in the UK is driven by twenty-three compression stations, all operated by National Grid (formerly Transco) and included in this study. All of the sites are listed in the UK NAP allocation for Phase 1, and are covered under EU ETS as combustion installations with a rated thermal input exceeding 20 MW. The main feature of the compressor stations are the gas turbines which are the source of CO 2 emissions. The fuel used to power the gas compressors is the same natural gas that is being transported around the national transmission system. There are therefore no particular issues with fuel mix that need to be considered within the allocation methodology. CO 2 emissions from sector Total CO 2 emissions from the onshore gas distribution (gas compressors) sector in recent years is presented in Table 3.1.
3 Table 3.1 Total CO 2 emissions from the onshore gas distribution (gas compressors) sector Total emissions (tco 2) 2000 2001 2002 2003 1,188,564 1,164,297 1,318,900 1,438,567 Source: 2000 2003 NAP database Note: Excluding two BGE stations located in Southern Scotland as they are part of an interconnector pipeline to Ireland. There is also a similar interconnector station for the Belgium pipeline. These will be covered separately in the onshore terminals sector. Identification of Non-benchmarked incumbents, Benchmarked incumbents and New Entrants An indication of incumbent and new entrant gas compressor installations for onshore gas distribution in Phase I of the NAP is shown in Table 3.2. Table 3.2 Gas Compressors Phase I New Entrants and Incumbents Installation Status National Grid Compressor Station, Aberdeen Incumbent Operational National Grid Compressor Station, Alrewas Incumbent Operational National Grid Compressor Station, Aylesbury Incumbent Operational National Grid Compressor Station, Bathgate Incumbent Operational National Grid Compressor Station, Bishop Auckland Incumbent Operational National Grid Compressor Station, Cambridge Incumbent Operational National Grid Compressor Station, Carnforth Incumbent Operational National Grid Compressor Station, Chelmsford Incumbent Operational National Grid Compressor Station, Churchover Incumbent Operational National Grid Compressor Station, Diss Incumbent Operational National Grid Compressor Station, Hatton Incumbent Operational National Grid Compressor Station, Huntingdon Incumbent Operational National Grid Compressor Station, Kings Lynn Incumbent Operational National Grid Compressor Station, Kirriemuir Incumbent Operational National Grid Compressor Station, Moffat Incumbent Operational National Grid Compressor Station, Peterborough Incumbent Operational National Grid Compressor Station, Scunthorpe Incumbent Operational National Grid Compressor Station, St Fergus Incumbent Operational National Grid Compressor Station, Warrington Incumbent Operational
4 Installation Status National Grid Compressor Station, Wisbech. Incumbent Operational National Grid Compressor Station, Wooler Incumbent Operational National Grid Compressor Station, Wormington Incumbent Operational National Grid Compressor Station, Bathgate Nº2 Phase I new entrant Operational Note: The two BGE stations and compression stations used for gas storage are being covered in the onshore terminals section. 3.2.3 Possible types of new entrants in Phase II Brief description of known or likely new entrants and market developments Some key market developments are summarised in Section 3.2.1. One form of new entrant would be additional compressor stations within National Grid s gas distribution network to supplement existing stations. From our discussions with the sector, it is considered possible that a small number of new compressor stations could be built during phase II. Furthermore, expansion of current gas compressor stations is also likely. Furthermore, with the increase in the number of potential gas storage facilities similar to those at Centrica s Rough Gas Facility, (whereby gas is taken out of the national grid at times of low gas price and demand to be stored under pressure until times of increased demand and price) new gas storage and compression facilities may also be commissioned. These facilities are being considered in the separate sector onshore terminals. Summary of possible types of New Entrants in Phase II A summary of possible types of New Entrants in Phase II is given in Table 3.3. Table 3.3 Summary of possible types of New Entrants in Phase II Type of New Entrant Is this type of New Entrant realistically possible in Phase II? Technology type Fuel type Examples (known or likely) Other relevant details New installation New piece of equipment to increase capacity at existing installation Yes, potentially new gas compressor stations Yes, considered to be most likely type of new entrant Gas turbine compressor Gas turbine compressor Natural gas Natural gas It is difficult to predict what capacity increases will come into force in Phase II as it is dependent upon performance in individual areas of the National Grid transmission system See above
5 Type of New Entrant Is this type of New Entrant realistically possible in Phase II? Technology type Fuel type Examples (known or likely) Other relevant details Extension to existing piece of equipment to increase capacity at existing installation No It is not likely that existing gas turbines will be modified to increase capacity 3.3 Review of Relevant Data 3.3.1 Data sources National Grid have provided data for capacity, fuel use, CO 2 emissions and load factor for each site from the past 3 years of operation to inform the validation and assessment of the existing methodology. The data consulted included FES report and spreadsheet on NER allocations for gas compressor stations around the UK and Phase 1 NAP submissions for 22 gas compressor stations. No reference documents have been found which explicitly identify BAT or similar benchmarks for efficiency for turbines at compressor stations. However, recent ISO performance data for all available turbines is available in an annual publication Gas Turbine World 2004-2005 Handbook 5. This is a bi-monthly industry publication, the annual Handbook is an associated reference publication which lists standard data for all gas turbines in production. Efficiency is one of the indicated values and the three models identified in the FES spreadsheet (Solar Titan, Alstom Cyclone and GE LM2500+) have been confirmed as the most efficient (BAT) for their respective capacity range. The general pattern is that larger turbines have higher efficiency. The turbine is at maximum efficiency near maximum load so instead of running a turbine at half load an installation will often have two sizes of turbine so that during times of low demand a small turbine can be run at high load and will be operating at higher efficiency than running the large turbine at part load. For this reason BAT should be identified for a number of capacity ranges. The choice of capacity of a turbine at a site is determined by the required shaft power of the compressor and by the demands of the grid. The size bands chosen for BAT level performance relate to turbine capacities at existing sites. These models can be categorised as either large or small turbines. For the large turbines (26-34 MW) there is one model which has a higher efficiency than other available models and therefore is identified as BAT for this range. In the small turbine range (10-15MW), of which there are a greater number installed, there is a high efficiency model in the upper and the lower part of the range. To determine the BAT efficiency for small turbines the average efficiency of these two models has been calculated. Further divisions in capacity are not considered necessary based upon trends in existing installations which will continue with new entrants. 5 Gas Turbine World, 2004-2005 Handbook, Vol 24, Pequot Publication, USA
6 3.3.2 Benchmarks used in other contexts, including other Member States Investigations have been undertaken to try to identify benchmarking approaches for new entrants in other Member States. Overall, the extent of information available within the tight timescales of this study has been limited. Furthermore, information will tend to relate to Phase I approaches, and hence may not be indicative of approaches in Phase II, which this study is focussed on. Notwithstanding this, it is useful to consider these approaches, as briefly summarised below. Denmark The Danish NAP assumes an efficiency factor of 0.9 for new entrants but no distinction is made between sectors for this factor. No discussion of new entrant benchmarks or formula. Germany New entrants are granted allocation on BAT benchmarks. These benchmarks are established for installations with comparable products, and derived from BAT for new installations in that class. Also, each product category will have a benchmark. New entrants that don t have defined benchmarks will be granted allowance based on BAT. New entrant formula (industry non-specific); where Allocation i = C i U BAT, P i i C i is an index for the installation; is the installation-specific output capacity in MW; P U i is the projected utilisation or load factor by installation; and BAT BAT benchmark for emissions per output unit, here CO 2 /MW. Netherlands A i = E v P β C Where A i = Allocation (tco 2 /year); E v = Emissions from combustion averaged for 2001 to 2002 (tco 2 /year), information not readily available on the specific approach for new entrants operational after that time; P = Production growth as a factor for the total of the years 2003-2006 (relative index); β = energy consumption of the world s best divided by the installation s actual energy consumption in the benchmark year 1999 (relative index); C = Allocation factor (relative index).
7 Sweden Allocation 05-07 = k x Projected output 05-07 x BM / BAT Where k = Scale factor applied to fuel-related emissions from combustion installations in the energy sector. For non energy sector sites, k = 1.0; Projected output 05-07 = emissions in accordance with projected produced quantity of installation-specific product 2005-2007. Only production based on fossil fuels is meant for electricity and heat production; BM = Benchmark emission factor; BAT = Corresponds to estimated specific emissions at installation (tco 2 /t product). Other Member States For a number of other Member States, the readily available information simply indicates that new entrant allocations are to be based on BAT levels of performance. This applies to Czech Republic, Ireland, Malta, Portugal (explicitly stating BAT Reference Documents), Slovenia (also referencing BAT Reference Documents), and Spain. 3.4 Review of Phase 1 Benchmarks 3.4.1 Characterisation of existing New Entrant allocation benchmarks A characterisation of the existing New Entrant allocation spreadsheet is given in Table 3.4. Table 3.4 Characterisation of the existing New Entrant allocation spreadsheet Item Parameter value / details Justification for choice of parameter value / details given by FES Source of data Coverage of activities (how does the coverage of activities included in the spreadsheet compare to the activities in the sector that are covered by EU ETS) Good compressor stations use uniform technology Only relevant type of technology used at compressor stations National Grid Level of sector differentiation (Is there one set of formulae / parameter values for the whole sector, or are there separate formulae / parameter values for different technologies, fuels, products etc) High amount of differentiation in the makes and models of gas turbines. Otherwise all other parameters uniform BAT models used in FES methodology National Grid Degree of standardisation of formulae (i.e. what types of input parameters are required in the formulae?) Reliant upon operator for prediction of likely loads. Methodology only takes account of three specific models of turbine not useful for new entrants NOT using those specific models BAT models used in FES methodology although if turbine is not one of the three that are listed then reference is made to the offshore spreadsheet. Not specified
8 Item Parameter value / details Justification for choice of parameter value / details given by FES Source of data Technology / process types (What types of technologies / processes are used as the basis for the parameter values?) Uniform type of technology (gas turbine), but high number of models and makes of gas turbines Simple logical approach National Grid Fuels assumed (What types of fuels are used as the basis for the parameter values?) Natural gas single fuel Only relevant fuel National Grid Emission factors (What are the fuel CO 2 and Process CO 2 emission factors?) Emission factor for natural gas Reliable source of data DEFRA No process CO2 emissions. Capacity utilisation factors / load factors (What are the values for these factors?) Reliant upon operator predictions Justification not clear. Not specified Overall, the formulae that are used in the existing New Entrant allocation spreadsheet are: A = U j * EF t Allocation = Hours at specified load * Emissions Factor at specified load tco 2 Hours tco 2 / hour Where: Parameter / Variable U j idle U j 100% U j 75% U j 50% EF t idle EF t 100% EF t 75% EF t 50% Value hours at idle hours at 100% load hours at 75% load hours at 50% load tco 2/hr at idle for XXX turbine model tco 2/hr at 100% for XXX turbine model tco 2/hr at 75% for XXX turbine model tco 2/hr at 50% for XXX turbine model The operator selects their turbine models from drop down menus, which automatically populates a table with standard CO 2 emissions at 100%, 75%, 50% and idling loads for each model. In practise idle loads are not used since there is no useful output power at idle. The operator then enters predicted hours of operation for each turbine at each of the four loads. Results are then given for a total sum hours of operation, an annual CO 2 emissions value for each turbine, an annual energy allowance allocation and a total phase 1 allowance allocation.
9 3.4.2 Validation of Existing New Entrant Allocation Spreadsheet To attempt to validate the existing new entrant spreadsheet, emissions were calculated for the four sites which only have those turbines listed in the spreadsheet. Where there is more than one model at a site the mean emissions factor of the different models was used, this is a source of error as it is not known which turbines were running for how many hours. The number of hours at each load for each site was provided by the operator and used in the calculation. The existing methodology does not clearly indicate how calculations should be performed if the site includes other turbine models. The results of this validation exercise are presented in Table 3.5 below. Table 3.5 Validation of existing New Entrant allocation spreadsheet Site Reference Ratio of allocations if existing NE spreadsheet was applied / Actual Emissions in Specified Year(s) 2004 Data 2005 Data Average A 99% 120% 110% B 105% 121% 113% C 125% 122% 124% D n/a 90% 90% Average 110% 113% 109% This shows that the existing NE allocation spreadsheet appears to give a nine percent higher overall allocation of CO 2 emissions than is actually experienced. It should be noted that only four of the incumbent sites only make use of any of the three models of turbine specified in the benchmarking methodology. The spreadsheet cannot be used to calculate the allocation for the remaining sites as these installations include models outside the selection in the spreadsheet. This results in only a limited number of possible data points for the validation. Furthermore, the data provided by the operator grouped all operating hours together for all compressors at their sites; in other words, if there was more than one model and size of compressor at a site, the loads and operating hours provided were not specific to each individual compressor model but grouped together. This may introduce some uncertainty into the validation, although the extent of this is not known. Furthermore some uncertainty may be associated with how the spreadsheet simulates actual loads. The efficiency value used as BAT is based upon the ISO 100% load value, for some turbines the efficiency curve may show the best operating efficiency is achieved at a slightly lower operating load. In practise the operator may run at this load to achieve the higher efficiency. The standard rated operating values are divided into three steps. The reality is that the turbines can operate on a continuous load, so whilst running at 90% load the allocation would be based upon emissions associated with 100% load. The values used in the calculation are based upon ISO standards. The altitude, ambient temperature, inlet losses and exhaust losses of an actual installation will all alter the running conditions which may result in deviation from the standard figures.
10 Finally, there may be some difference between actual and assumed CO 2 emission factors. Within the national transmission system there are regional and seasonal variations of the gas composition and therefore emissions factor. The mean emissions factor for natural gas is used however there is a variation of around 5% in the calorific value, from which the emissions factor for the turbines is derived from. Overall, the abovementioned factors mean that it is difficult to draw any firm conclusions regarding the potential over / under allocation of the spreadsheet. 3.5 Assessment of Phase 1 Benchmarks and Proposed Revisions to these Benchmarks Key concerns raised relating to the Phase I methodology are that: there is only a limited number of compressor types specified in the allocation spreadsheet, so that any new entrant in Phase II could not necessarily be accommodated; and annual hours of operation for each turbine at given loads are user specified. However, given the uncertainties in operational hours at any one individual compressor station, it is not believed possible to predict this parameter over Phase II of the EU ETS with any accuracy; and verification of such a parameter would seem problematic. A more generic methodology has therefore been investigated, whereby irrespective of the make and model of the compressor, an allocation can be deduced. Any new methodology is also required to be repeatable and robust without requiring any complex calculations or hard-to-find parameters. Within this methodology, the user will enter their required shaft power input for their compressor at 100% load, this equates to the shaft output of the turbine and can be verified with a manufacturer s specification sheet. The shaft outputs for 75% and 50% load are calculated from the 100% load value. The entered capacity will fall into either the small or large turbine range. In each range the BAT net heat rate has been identified for each of 100%, 75% and 50% turbine loads. The hours of operation have been standardised for each load. This is based on a weighted average for hours at each load for all UK installations for 2004-2005 multiplied by the average annual operating hours of each installed turbine. The annual operating hours have been calculated by taking a weighted average for the percentage of actual turbine running hours against maximum possible turbine hours (ie: all turbines running non stop) for all UK installations. The calculation is applied individually to each turbine (at each load) at the compressor station and then summed to give the total allocation for the installation.
11 A = C j * U * EF * HR * Con Allocation = tco 2 Capacity - Shaft output kw * Utilisation Hours per year * Emissions Factor kgco 2 / MJ * Net heat rate kj/kwh * Conversion factor Where: Parameter / Variable C i 100% C 75% C 50% U 100% U 75% U 50% EF HR 100% HR 75% HR 50% Value kw Turbine capacity (shaft output) at 100% load kw Turbine capacity (shaft output) at 75% load kw Turbine capacity (shaft output) at 50% load Hours per year at 100% load Hours per year at 75% load Hours per year at 50% load 0.0586 kg CO 2 / MJ (net) of heat input kj/kwh at 100% for turbine capacity range kj/kwh at 75% for turbine capacity range kj/kwh at 50% for turbine capacity range CO 2 emissions allocation is in tonnes per annum, with appropriate conversions of units in the formula to derive this. Three turbine models have been selected as these representing BAT levels of efficiency for different levels of output: up to and equal to 15000 kw - Solar Titan and Alstom (Siemens) Cyclone (SGT 400); outputs above 15000 kw - GE LM2500+. These models have been used to select the standardised heat rates for each operating load. The Cyclone and the Titan have similar heat rates and so the values used for the small turbine range are the average from these two models. The heat rate values for the LM2500+ have been derived from data in the Phase 1 spreadsheet as it has not been possible to obtain data from the manufacturer within the timescale of this project. For the other two models, heat rate values have been obtained from the manufacturer. The following table briefly considers the key elements of the existing NE allocation spreadsheet and summarises details of proposed revisions. The proposals are then justified against the agreed evaluation criteria in the following section.
12 Table 3.6 Summary assessment of existing New Entrant allocation spreadsheet and proposals for potential revision Tests to be applied to existing NE allocation spreadsheet Differentiation: should there be less or more differentiation within the sector (i.e. differentiating based on subproduct, raw materials, technology, fuel, efficiency etc)? If so, what should it be? Answer / Details of proposed revision There is insufficient accommodation for new entrants who do not operate the specific models of turbines specified in the existing methodology. A more universal method for determining the likely emissions is considered based upon two ranges of turbine capacity. As before, fuel is standardised on natural gas. Source of data Level at which benchmark is set is the emission factor consistent with sector best practice 6? If No, what should it be? The three specified turbines in the existing spreadsheet represent BAT levels of efficiency for different ranges of output. As such, the same turbines are used to determine the BAT efficiency for small and for large turbine output ranges for use in the revised spreadsheet. Efficiency data derived from the existing spreadsheet and obtained from published literature. is the load factor realistic for new entrants in that sector? If No, what should it be? In the existing spreadsheet the hours of operation at given loads are actually specified by the operator. It is considered difficult to predict with any accuracy the load factor of a new entrant turbine over the Phase II period. Installation specific data for existing turbines for most recent years (2004-5). As such, it is proposed that a revision is made to standardise hours of operation based on weighted average performance of existing installations using latest available (2004-5) data. 3.6 Evaluation of Proposed Benchmarks Feasibility The only user specified parameter is shaft output. This data should be readily obtainable from the equipment vendor, and should be straightforward to verify. The net heat rates are standardised and should be easy to replicate, as they are also based on vendor data. These correspond to BAT levels of emissions performance as the revised methodology selects the net heat rate data for the most efficient turbine at any level of shaft output. The methodology is standardised on gas. Hours of operation is standardised and is based on weighted average hours of operation, including hours at specific loads, for all existing UK compressor stations in the gas distribution network. This standardised approach is preferred to a user defined approach as it does not seem possible to predict the load factor of any one compressor station with any accuracy. 6 Interpreted as Best Available Techniques (BAT), as defined in the IPPC Directive. In practice, within the scope of this study it will only be possible to assess this in broad indicative terms at a sectoral level. It is clearly not within our scope to define BAT at the level of detail that would be required for a site specific PPC Permit.
13 Incentives for clean technology From the perspective of incentives, the key issue is to have as little differentiation as possible with regard to technology choice (including the type of fuel used). The proposed benchmark does not include technology or fuel as operator choice. It includes different efficiencies depending on the load. The only operator input is the capacity (in terms of shaft output power) for each level of load. Therefore, the proposed benchmark provides an incentive to choose the most energy efficient turbines. This contrasts with the existing spreadsheet which develops allocations based on the specific type of turbine. Competitiveness and impact on investment Objectives such as security of supply are likely to be important for establishing sufficient capacity in the distribution network to meet peak demand and to be able to manage supply in case of faults on a compressor station. How these concerns are included in the distributors contracts including tariff reviews etc. cannot be addressed here. The key issue in relation to the new entrants benchmark is that there is incentive to install the most energy efficient compressors and that is discussed above. The use of average loads seems to be the best possible way to give an overall allocation that meets the site s needs without too high a risk of either over or under allocation. The significant variations in loads imply however, that a new compressor station might deviate from the average load, therefore leading to a risk of either over or under allocation. There seems to be no way to avoid that and as already mentioned, this issue seems to be a matter for the regulator. If it is assumed for example that there will be 2 new compressor stations in Phase II (see Section 3.2.3), and the actual load factors of these are 50% higher than the weighted averages used in the proposed revision to the allocation method, the absolute quantity of underallocation would be approximately 50kt CO 2 7, or about 4% of the overall CO 2 emissions from all the compressor stations. This is relatively small in percentage emission terms and very small in terms of the expected value of the allowances to the turnover of National Grid. Consistency with incumbent allocations The emission factors implied by the revised approach should be consistent with best practice incumbent performance, assuming the incumbents are using the most efficient currently available turbines. Load factors are standardised (averaged) under the new approach and hence are likely to deviate from observed load factors at any one individual station. However, over a number of stations, the standardised load factor should approximate more closely to actual performance. It has not been possible to calculate allocations for incumbent sites using the revised methodology due to the time constraints of this project. 7 Assuming new compressor stations are of average size compared to existing ones.