Energy efficiency: Chemicals industry entering challenging new phase

The likely position of chemical plant operators by 2020 should be considered in the context of the progress made in improving energy efficiency over the last two decades, according to Nick Sturgeon, head of climate change and energy at the Chemical Industries Association (CIA):

Over the period 1990-2006 THE UK’S chemical sector energy efficiency improved by 35% under a voluntary agreement with the government and, more latterly, the Climate Change Agreements (CCAs) that superceded it, under which the industry qualifies from relief from the Climate Change Levy [CCL].

This record has only been achieved by addressing all areas open to improvement:

• Process upgrading and use of process control
• Plant improvement/replacement
• Debottlenecking/capacity expansion
• Implementation of combined heat and power (CHP)
• Boiler efficiency, steam distribution systems and heat recovery
• Motors and drives
• Compressed air
• HVAC and lighting
• Energy management, including shutdowns and operating pattern

CHP has been a particularly key contributor to efficiency during the late 1990s and early years of the new millennium. Competitive gas prices saw increased implementation of CHP such that a third of the chemical industry’s power is now supplied from these installations. This is not, however, to underplay the contributions made under the other areas that have also been significant.

Overall, though, the good track record means that much of the “low hanging fruit” has been implemented. Increasingly, significant efficiency improvements in the UK chemical sector can only be achieved from major plant replacement or step-change process innovations. For this to happen, companies need to be certain that the UK will be a competitive manufacturing base into the future.

There is still potential for increased penetration of CHP, though heat:power demand balances mean there are some chemical sub-sectors where it is not feasible or appropriate, for example, industrial gases and fertilisers. Other key factors are expectations about the relativities between future market prices for electricity and gas and the regulatory framework, which for combined heat and power has many elements.

At this stage, the economics for new renewables are determined by regulatory incentives. The Renewables Obligation (RO) is currently incentivising some sites to implement wind turbines and energy-from-waste (EfW) schemes. And we can anticipate that the Renewable Heat Incentive (RHI) will drive more renewable heat installations that will largely be based on biomass.

Of the renewables considered, the contribution of wind turbines is most limited - and even where feasible they tend to only contribute a portion of a medium-sized site’s power needs.

Making the switch
Detailed work by management consultant McKinsey for the International Council of Chemical Associations (ICCA) also identified additional important technologies in this area as including: process intensification; catalyst optimisation; fuel mix change to biomass; and carbon capture and sequestration (CCS). CCS is one of the most expensive and unproven abatement options and is therefore unlikely to be applied to industrial processes before later in the 2020s and 2030s.

A key factor that will determine the level of progress in implementing these technologies is whether UK energy supplies can be competitive and secure in future. A major transition lies ahead as we become more dependent on imported gas supplies and seek to replace our ageing power generation fleet with low-carbon sources, such as new nuclear, clean coal and renewable energy.

While renewables have a role to play in diversifying our energy mix, many - including the CIA - argue that the UK should rebalance its energy mix towards less costly and more reliable sources, such as nuclear and clean coal.

In addition to the costs of the new energy infrastructure that will be required, an added dimension arises from the costs imposed by the climate change policy instruments - CCL, RO, EU Emissions Trading Scheme (EU ETS), the Renewable Heat Incentive and the Carbon Capture and Sequestration (CCS) Incentive - that the government is using to drive carbon reductions across the whole of the economy.

In this regard, a recent independent study for the Energy Intensive Users Group (EIUG) and the TUC shows that if the impacts on energy-intensive sectors are left unchecked, the cost of climate change policies and energy supply changes could result in a doubling in our UK energy costs by 2020.

Price plans
The CIA is working both directly and indirectly through the Energy Intensive Users Group and CBI to ensure that the cumulative impact of these costs on energy-intensive sectors exposed to international competition, such as chemicals, are mitigated.

Announcements in the UK government’s Comprehensive Spending Review that the RHI and CCS incentive will be funded from the central coffer rather than through a levy on energy use is a step in the right direction towards providing a sustainable business environment for our businesses.

A globally-inclusive, international agreement will also help to reduce the risk of competitive impacts from the EU being the only market block where industry is subject to carbon pricing (under EU ETS).

Until then, the CIA will continue to work to ensure that the rules for free allocations to cover our EU allowance help to address the risk of competitive impact - Phase 3, 2013-2020 arrangements are due to be adopted early next year. We also need to see the next term of the CCAs go ahead to ensure that, in exchange for challenging energy targets, our members’ entitlement to relief from the CCL is renewed.

While being mindful of impacts on sectors exposed to international competition, it will also be important to ensure that there is a sufficient framework, supported in the right way, to drive low-carbon investments where these are new technologies whose economic implementation cannot be driven by the price of carbon alone.

In addition to the renewables and CCS incentives set out above, support for R&D and skills/academic research are further examples of the framework we need. Add to this the availability of alternative fuels, such as the need for sustainable biomass.