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Energy for Growth

Energy for Growth. The agenda for today. UK faces large economic challenges. 2009-10 saw the greatest disparity between public expenditure and public revenue since 1979.

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Energy for Growth

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  1. Energy for Growth

  2. The agenda for today

  3. UK faces large economic challenges 2009-10 saw the greatest disparity between public expenditure and public revenue since 1979. The OBR’s central projection predicts public debt to rise, reaching 107% of GDP by 2060-61, with demographic factors being a key driving factor.

  4. UK Government focus on 2 goals Preventing waste and stop spending Reduce the Deficit 1 Transforming public services Promote Growth Looking for new ways to support business and stimulate opportunities for growth. 2

  5. Energy for Growth supports 3 agendas

  6. Energy for Growth – Concept & Commerciality John NangleCrown Commercial Lead - Energy

  7. The problem and opportunity Problem Customers exposed to long term energy price uncertainty. Generators require some price certainty to access low cost funding • Opportunity • To match these two opposite risk positions in a way that maximises value creation for the benefit of both parties Good, long term deal for customers Growth, low carbon, EMR

  8. Energy Stakeholders Government participates in the market in many ways: Customer • Central Government and Wider Public Sector Contracting Agent • Government Procurement Service Funding • Green Investment Bank and HM Treasury Onshore Landlords • Forestry Commission/MOD/Local Authorities OffShore Landlords • The Crown Estate Policy Maker • DECC Policy Maker and owner of HMG investments • BIS & the Shareholder Executive

  9. Power Purchase Agreement TYPE 1 – Marketing Service for Power, ROCs and LECs TYPE 2 – Fixed price • Prices offered are linked to short term quoted market prices • Attractive to Generators/Investors comfortable with power price risk • An out of the money put option is incorporated into the PPA to provide a Floor Price • Price might include escalation linked to inflation • There are very few providers of this type of PPA • Very attractive to the low cost providers of long term finance 

  10. Chris LaneGovernment Procurement ServiceHead of Sourcing and Category Management – Energy

  11. The Government Procurement Service buys a range of services and commodities on behalf of all Central Government Departments and much of the Wider Public Sector HMG Central Government Wider Public Sector Cabinet Office Home Office BIS HMRC HMT MoD DWP DH FCO DfE MoJ DECC Defra DCLG DCMs DIFID DfT 250 Local Authorities Emergency Services 85% English NHS Trusts GPS is an Executive Agency of the Cabinet Office (a Crown Trading Fund) GPS The Marketplace

  12. GPS Key Facts 2000+ suppliers >50% SME 14,500 customers Central Government & Wider Public sector

  13. GPS procures c.£1.5 worth of energy per annum £1.5bn £1.5bn Gas Strategy ambition (50%) Electricity Pilot PPAs (2%)

  14. Government Procurement Service – Energy Trading Magnus WalkerHead of Trading

  15. Current energy trading at GPS • Generation Teams and Experience • Full time traders with a combined experience of over 25 years in energy and commodity markets • Access to real time prices from all energy brokers and exchanges • 2 Full time risk managers, UK utilities background in managing large portfolio risk GPS

  16. Traded energy products Months Seasons Quarters April Q2/14 May Summer 2014 June July Q3/14 August Sept Oct Q4/14 Nov Winter 2014 Dec Jan Q1/15 Feb March Curve Prompt

  17. Strict controls and reporting Management reports Basket position Seasons vs Months (Tactical performance) Risk Reporting Real Time Trading Desk Sophisticated system of governance and control against agreed approved strategy.

  18. The smart, innovative next step GPS Challenges PPAs/ Other trading routes  • Trading beyond market • Evolving risk management strategy • Long term price certainty • Supporting DECC and Ofgem initiatives • Increasing volume transacted • Evaluating deals How ? GPS energy team pricing deals, identifying and quantifying risk using market data, risk measures and analytical resources

  19. PPA Procurement ProcessScott BuckletonHead of Business Development

  20. PPAs - Diversifying supply of energy to HMG Roles and responsibilities / key parties Up to 4 years Wholesale Market GPS Energy Framework Supplier Public Sector Demand Generators Up to 25 years

  21. Technical contract models Trade confirms/model contracts/connection agreements /financial flows Wholesale Market Supply Agreement CAA Framework Agreement GPS Energy Framework Supplier Public Sector Demand Generators PPA Connection Agreement

  22. Procurement Procedure/Registration EU ‘Open’ Procedure • Pass / fail qualification criteria And - Qualitative and quantitative evaluated criteria All documents published online Key Documents Pilot – Up to 50MW and 25 years baseload. Fixed price • OJEU issue latest mid January 2013 • Bidders conference after issue • Award by end March 2013 • Delivery of energy before April 2017 Timescales Registration – https://gpsesourcing.cabinetoffice.gov.uk OJEU notification (TED) http://ted.europa.eu Dedicated Webpage http://gps.cabinetoffice.gov.uk/i-am-buyer/categories/energy/energy-for-growth Next Steps

  23. Q+A Session

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