UK and Ireland

Low Carbon Power Systems The Hilton Belfast Waterfront 24th April 2009

Steve Argent, Senior Consultant, ARUP

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Outline
Introduction Challenges
Secure, sustainable and affordable electricity Need for major investment - in generation and networks Difficult financial climate

Factors to consider
What type of generation? What type of networks? Evolving energy policy - free market vs intervention Resources Positive and negative impacts of an economic downturn

Potential generation mixes in 2020

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Introduction
Steve Argent
BSc(Hons), CEng, FIET, MIAM, Eur-Ing

Senior Consultant

Over 30 years experience within the energy industry

With Arup Energy Team since April 2008 Working on carbon capture and storage, grid connection applications, technical due diligence studies in Europe, plus advising Government on grid aspects of electric vehicles. 2002-08 Technical Adviser for British Energy Regulator, Ofgem. Considering security of supply, capital investment and energy policy In the 90s, involved with first UK dash for gas plus international project development and power plant acquisitions Early career in power stations, grid control, operations and planning.. 3 steve.argent@arup.com

- creative force behind many of the world's innovative projects

founded in 1946 employee owned ~10,000 staff ~ 700M turnover Broad skills base - including
Major Projects Risk Management Civil Engineering
Environmental Assessment & Management

Mechanical and Electrical Planning Policy And Consents

Road/Rail Engineering Transaction Advice

UK/Eire Electricity
Drivers

ENERGY JUNCTION

and opportunities

Affordability

Political drivers
CO2, security, cost (fuel poverty) EU policy Political change possible new emission limits
Security

Low Carbon

Steve Argent

Energy Gap
Generation closures (LCPD 2008/2016) plus ageing (nuclear) new generation build (conventional, renewables and DG) not forgetting networks and greater interconnection Consumers - new demands + smartgrids?

Regulation and Incentives

Carbon price, subsidies (e.g. ROC or feed-in tariff) Changing environmental and economic context Capacity/security incentives?

Restructuring and consolidation

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 UK 2007 Energy White Paper - four energy policy goals:

CO2 emissions reductions maintain the reliability of energy supplies; to promote competitive markets in the UK and beyond; to ensure that every home is adequately and affordably heated.

RoI Delivering a Sustainable Energy Future for Ireland

developing a regional electricity network (RoI+UK+NW Europe) new electricity interconnection + grid development strategy reducing over-reliance on natural gas for power generation encouraging growth in alternative energy sources

N. Ireland Strategic Energy Framework (2004, being updated)

achieving of a competitive, sustainable, reliable energy market, at the minimum cost necessary in an all-island, UK, and European context.

UK Electricity generating capacity by technology (total 82.591 GW)

in 2007

UK electricity generated in 2007

(total: 407,671 GWh)

Nu clo clea su r res

?
LCPD closures by 2015

?
in next 5-10 years

Demand

New build might fill gap 4GW of new CCGT to commission in next 2 years plus ~2GW renewables Plus further 50+ GW mooted

I n co nstru c

tion

Existing But no new coal or nuclear yet consented But one DECC scenario suggests UK will need 47 GW of new capacity by 2020. (about 57% of current total capacity) Requiring roughly 4 GW per year - (a level not achieved in the UK since 1974) 9

The 2008 EMO predicts

Greater variations in electricity prices

(in section 4.6.13)

as a result of the increasing amount of [high capital cost] generating capacity with low running costs but with increasing running cost of conventional plant

may bring forward the development of innovative .. arbitraging between high and low price periods.
dynamic demand management and electricity storage The future widespread use of electric vehicles could provide distributed energy storage capacity via batteries and could potentially improve the efficiency of the electricity grid by smoothing power demand between day and night.

Association of Electricity Producers . "We are fast approaching a 'generation gap' and about 100bn needs to be spent on new and greener power stations
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Plus significant investment in networks

GB - DPCR4/TPCR4 Replacement of ageing assets plus new connections already costing ~2bn pa
DPCR5 capex set to increase (7bn13bn)

GB - Electricity Networks Strategy Group Britain needs to invest up to 4.7 bn to upgrade

its electricity grid by 2020 to accommodate new power generation, including renewables and nuclear plants. Incl. HVDC subsea links Scotland England

Plus new offshore transmission and international interconnectors >10bn Plus T&D capex in N.I. & Ireland >5bn
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So what type of new generation

and how low carbon will it be?

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Factors which drive electricity generation investment

Not just unit cost estimates (levelised /MWh) which used to drive nationalised industry investment. Now more complex as it requires a view on future costs, cashflow, risks and uncertainty.
Governments employ regulations and incentives to steer market outcome, but even generous incentives may not always deliver as expected.
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Price fixer or taker? Capex-Opex balance? Future price volatility? Future carbon price/incentives? Exchange rates?

Energy now higher political profile = new challenges

Will policy makers continue to take an economically rational view of the world and believe in free trade?
Decisions rarely based on actual situation, but on perception or interpretation of the situation (George Soros) Was assumption that financial markets are self-correcting an important cause of the current crisis Was recent Gazprom/Ukraine blip purely a trade issue?

Market consolidation and/or national champions? Risk of greater protectionism?

(due to security of supply and local economy/jobs concerns)

Public support?
E.g. B&Q Study indicating that some rooftop wind turbines (costing 1,500) consume more electricity than they generate
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How do we decipher mixed messages?

Industry mutterings - lack of investment = future energy shortages and delays renewable energy projects - seek Government support. Alstom expects power generation orders to fall by a third in 2009 House of Lords economic affairs committee (Nov08)
higher costs of renewables would add 80/year to a household bill.

Planning/consents delays for new infrastructure Renewable generation brings system operation challenges/opportunities
Balancing / Reserve capacity / storage / DSM / smartgrids

Differing roles/responsibilities/markets in RoI and NI/GB

Pool vs BETTA / capacity rewards / divestments e.g. ESBEndesa, BE

Gordon Brown green recovery Budget? Obamanomics - Trillion dollar boost to the US economy
specifically into new transmission lines and green energy production 15

General picture is somewhat bleak

UK & Eire economy in recession
Industrial electricity demand reduced

Financial crisis has hit confidence Access to funds has dried up

Cost of capital perhaps 1.5% higher

Government finances under pressure Cashflow

affordability becomes more significant (favours lower Capex)

Skills shortages
Made worse by 10% decline in 16-24 age group by 2020?

But Investment in Energy Sector will still grow

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Future Generation Mixes?

Dynamics of GB Generation Investment Detailed Analysis July 2006

Just one scenario from Energy Review Modelling

Note: vestm in plies Im

Status Quo DTI Base Case

1 b nt of ~ e

r year n pe

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Dynamics of GB Generation Investment Detailed Analysis July 2006

can be nar i os er sce erent ut oth te diff B qui

Third Dash for Gas with Diversity Obligation Certificates

Volatile World without Capacity Obligation Certificates

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Future Generation Mixes?

My personal predictions for 2020
Mostly CCGT in UK and RoI
Due to lower initial capex

Open cycle GT in RoI

As RoI market values capacity

Onshore wind will be main renewable Offshore wind development will be slower than expected Biomass will be significant Very little new nuclear, CCS-coal or tidal by 2020 Plus market for HVDC is rosy
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EU mandatory 2020 renewable energy targets

[UK target = 15%, RoI=16%] Consequences of not achieving?
Governments pay fine to Europe? Or claim force majeure? Or buy surplus from other states? Or fudge the answer?

Will this matter? Will lights stay on? Will rise in consumer prices be tolerable (say 20%)? Ethan Hunt for Energy Minister?
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Concluding comments
Challenging time for Power Engineers Lots to do And the outcome has global significance Belfast (H&W) is already playing its part
Barrow Windturbines

ENERGY JUNCTION

Affordability

Security

Low Carbon

Steve Argent

Photo - courtesy of MCT

I hope you all are too

Questions?

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