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Energy policy in flux: implications for electricity markets

Jim Watson, Research Director

LCRI Conference: Low Carbon Market Transitions, Llandudno, Nov 2013

Click to add titleOverview

The UK’s low carbon transition

Energy policy tensions

What roles for electricity markets?

The UK’s low carbon transition

Keep the lights on at the same time

Source: Committee on Climate Change

The UK’s low carbon transition:so far, so good?

Source: Department of Energy and Climate Change

CO2 emissions are down 19% since 1990

But emissions rose 20% (1990-2009) on a consumption basis

Click to add titleThe UK’s low carbon transition

19701972

19741976

19781980

19821984

19861988

19901992

19941996

19982000

20022004

20062008

20100

50000

100000

150000

200000

250000

300000

350000

400000UK Electricity Generated and Supplied

Conventional thermal & other CCGTNuclear Non-thermal renewables & storage

GWh

The UK’s low carbon transition:CCC projection for 2020

Source: Committee on Climate Change (May 2013)

12GW of fossil and 3.5GW of nuclear plant retiresEU renewables target: 30-35% of electricity by 2020Energy efficiency; two CCS demos; 5GW unabated gas

The UK’s low carbon transitionCCC scenarios for 50g/kWh in 2030

Source: Committee on Climate Change (May 2013)

The UK’s low carbon transition?‘[A] substantial investment in gas generation and gas import infrastructure here in the UK is completely consistent with Britain’s plans to cut carbon emissions, set out in our Carbon Plan. In electricity generation alone, I expect new gas capacity of around 20GW to be built between now and 2030’

Ed Davey, 8th October 2012

The UK’s low carbon transition?‘An enterprise strategy means investing in renewable energy, and opening up the newly discovered shale gas reserves beneath our land.

We are today consulting on a generous new tax regime for shale so that Britain is not left behind as gas prices tumble on the other side of the Atlantic.’

George Osborne, 8th October 2012(Simultaneously!)

The UK’s low carbon transition?

Source: DECC Gas Strategy

These scenarios exclude carbon capture and storage (CCS)

Important for many reasons:• High energy prices since mid 2000s• Geopolitics and conflicts (e.g. Iraq war;

Russia-Ukraine gas disputes)• Impacts of extreme weather events (e.g.

power blackouts; hurricane Katrina)• Ageing and/or inadequate infrastructure

(power plants; gas storage capacity)

Debates often focus on international risks, but many risks closer to home

Domestic energy sources are not always more secure than imports

Maintaining energy security

1980 1985 1990 1995 2000 2005 2010

-200.0

-100.0

0.0

100.0

200.0

300.0

400.0

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600.0

Exports Pipeline Imports LNG Imports Net Imports

TW

h

Source: DECC

Maintaining energy securityFrom gas exporter to importer / trader

Maintaining energy security:from gas exporter to importer

Maintaining energy security:from gas exporter to importer

Source: DECC Energy Security Strategy (2012)

Maintaining energy securityFrom gas exporter to importer / trader

Maintaining energy security:will the lights stay on?

Scenarios from DECC and Ofgem

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

100

200

300

400

Gas Electricity

Inde

x (2

000

= 10

0)

Gas prices have trebled since 2000

Electricity prices have doubled since 2000

Affordability:Domestic gas & electricity prices

Affordability: domestic electricity and gas prices

Click to add titleAffordability and Fuel Poverty

Source: Department of Energy and Climate Change

Affordability: what is causing higher bills?

AffordabilityImpacts of policies to 2020 (DECC)

Affordability: what is causing higher bills?

Trade-offs between policy goals

Click to add titleWhat roles for markets?

Focus in 1990s on privatisation, liberalisation and economic efficiency: sustainability got lost

From late 1990s, environmental and social dimensions started to come back into regulation & market design

Planning (or co-ordination) has made a recent return: but can problems of State-owned era be avoided?

So what roles can markets play in future?

Click to add titleWhat roles for markets?

Click to add titleWhat roles for markets?

Click to add titleWhat roles for markets?

Tensions between need for investment from ‘Big 6’ and market reforms to bring in much needed new players. Should the Big 6 be broken up?

Electricity Market Reform promises more certainty through contracts: in theory, competition moves upstream (in practice, competition is scarce so far)

Increasing pressure to reduce ‘green taxes’; but efficiency policies (important for bringing down bills) could be under constant threat

Smart meters (and smarter systems) could help to open up markets in the medium term: but will benefits outweigh the costs?

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Thanks

http://www.ukerc.ac.ukhttps://twitter.com/watsonjim2