energy presentation15...

8/10/2019 Energy Presentation15 Analternative2020visionoftheUKenergysectorEnergyTradingSolutionsinaCarbonFreeWorld JBower 2004

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An alternative 20:20 vision of the UK energy sector

ENERGY TRADING SOLUTIONS IN A CARBON FREE WORLD

SmartestEnergy One Day Seminar10 June 2004

John Bower


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Alternative 20:20 Vision 2John Bower

Overview

What the White Paper Implies

Decision Drivers

Reality Will Dawn


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UK EWP refocused energy policy away from a pure liberalisation / competition agenda

GOALS AND POLICIES

1. Reduce CO2 emissions by 60% by 2050 - REDUCE 30% BY 2020

2. Maintain reliability of energy supplies - DIVERSE OF SUPPLY

3. Promote competitive markets in UK and beyond - LOW PRICES

4. Ensure every home is adequately / affordably heated - LOW PRICES


4/14Alternative 20:20 Vision 4John Bower


with power generation squeezed between a hard objective and soft implementation

IMPLIED UK ENERGY POLICY ASPIRATION FOR CO2 EMISSIONS 1990 - 2020

Source: DEFRA data and authors estimates


5/14Alternative 20:20 Vision 5John Bower


UK energy policy in power generation is now really driven by EU ETS and LCPD.

EU EMISSIONS TRADING SCHEME AND LARGE COMBUSTION PLANT DIRECTIVES

Precursor

2003 2004

National Plan

Formulation

Phase I

2005 2007

CO2 only

Allocation only

Phase II

2008 2012

CO2 + other gases

Allocation + Auctions

EU

Emissions

Trading

Scheme

Phase I

2004 2007SOx, NOx, dust

ELV or NP

Derogation Phase

2008 2015

SOx, NOx, dust

ELV or 20k hr derogation

Precursor

2002 - 2003National Plan

Formulation

EU

LargeCombustion

Plant Directive


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. with UK policy providing weak and diverse signals on marginal CO2 abatement costs

UK ENERGY TAXES AND PERMITS: IMPLIED MARGINAL CO2 ABATEMENT COST

Nominal Unit Price Marginal CO2 Price

EU ETS (2005 mid) 6.00 / MtCO2 on marginal CO2 abated = 6.00 / MtCO2

Electric (CCL + VAT) 7.30 / MWh on domestic follow on units = 10. 60 / MtCO2

UK ETS (subsidy) 15.00 / MtCO2 on all CO2 abated = 17.50 / MtCO2

ROCs (buyout) 30.00 / MWh on marginal unit = 33.30 / MtCO2

Petrol (Duty + VAT) 0.60 / litre on all units supply = 300.00 / MtCO2

Source: Authors estimates


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Decision Drivers

At EU ETS15/MtCO2 old coal will delay new CCGT entry until LCPD bites in 2011 - 12

EXPECTED MINIMUM MARGINAL COST OF GENERATION IN 2008 - 12

Key

DecisionAxis

BaseloadPrice



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Decision Drivers

At EU ETS45/MtCO2 prices spike, dash for gas and CHP/nuclear/onshore wind interest

EXPECTED MAXIMUM MARGINAL COST OF GENERATION IN 2008 - 12

Key

DecisionAxis

Key

Decision

Axis

Baseload

Price



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Decision Drivers

Low CO2 prices mean UK will buy JI/CDM/ETS permits and cut CO2 only 20% by 2020

UK EMISSIONS IN A LOW EU ETS PRICE SCENARIO



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Reality Will Dawn

Even a 20% cut will need a massive CCGT investment but price signals are not clear yet

ACTUAL AND LIKELY FUTURE PLANT MIX 1990 - 2020

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 2000 2010 2020

OCGT

Oil

Pump Storage

Other Thermal (mainly CHP)

Dual Fuel

Coal

CCGT

Nuclear (Magnox)

Nuclear (AGR/PWR)

Renewable (mainly Wind)

Hydro



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Reality Will Dawn

. and renewable will only reach 10% of generation output but CHP will grow rapidly

ACTUAL AND LIKELY FUTURE OUTPUT MIX 1990 - 2020



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Reality Will Dawn

Future demand growth will offset falling CO2 emissions intensity in power sector

ACTUAL AND LIKELY FUTURE PLANT MIX 1990 - 2020



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Reality Will Dawn

. so HMG must stop pretending power generators can deliver the UK EWP at zero cost

ACTUAL AND LIKELY FUTURE POWER SECTOR EMISSIONS AND INTENSITY 1990 - 2020



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Speaker

John Bower is a Senior Research Fellow at theOxford Institute for Energy Studies which is an

independent research charity affiliated to Oxford

University and dedicated to advanced research in the

social science aspects of energy. John joined OIES in

November 2001 and his research interest is in the

emergence and evolution of integrated cross-border

electricity and gas markets. Specifically; the

development of efficient pricing and investment

mechanisms for energy, transmission capacity, and

emissions.

Before joining the OIES, John completed his PhD at

London Business School and his previous career was

in the commodity industry. His experience ranges

from energy trading, at Marc Rich & Co, to risk

management consultancy, with Coopers & Lybrand,

advising commodity traders, producers andprocessors in base metal, precious metal, softs and

energy markets. Immediately prior to his PhD he was

Global Controller Metals/Commodities at Deutsche

Morgan Grenfell.

Oxford Institute for Energy Studies

57 Woodstock Road

Oxford OX2 6FA

United Kingdom

Telephone: +44 (0)1865 889 125

Facsimile: +44 (0)1865 310 527

Email: [email protected]: http://www.oxfordenergy.org

energy presentation15...

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