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Delivering Security of Supply: UK Power and Gas Markets. CERT – 31 May 2005 Aleck Dadson - Director, Regulatory Affairs Centrica plc. Centrica Group Companies. 11.8 m residential gas customers 6.0 m residential electricity customers

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delivering security of supply uk power and gas markets

Delivering Security of Supply: UKPower and Gas Markets

CERT – 31 May 2005

Aleck Dadson - Director, Regulatory Affairs

Centrica plc

centrica group companies
Centrica Group Companies
  • 11.8 m residential gas customers
  • 6.0 m residential electricity customers
  • No.1 in maintenance & installation of domestic central heating
  • Offers plumbing, drain services, home electrical, and kitchen appliance cover
  • 368,000 business gas customers
  • 515,000 business electricity customers
  • 1.75 m active telecommunications services
  • 3.2 m residential & small commercial gas & electricity customers
  • 1.8 m home and business service customers
  • Approx. 80% of UK gas storage in Rough facility
  • 600,000 electricity and 200,000 gas customers in Belgium
  • Emerging SME business in Spain
  • Manages energy supply, contracts, trading and UK resources
    • 2.4 tcf proven & probable gas reserves
    • 2.9 GW power generation capability
centrica uk gas and electricity assets

70 staff

Humber Power 1260 MW

JV: 60% Centrica Energy/ 40% TFE £343/kW 2001

Roosecote 229 MW

100% Centrica Energy

£105/kW 2003

52 staff

Killingholme 652 MW

100% Centrica Energy

£218/kW 1/7/2004

32 staff

46 staff

Glanford Brigg 4x60 MW

100% Centrica Energy

£154/kW 2002

Barry 240 MW

100% Centrica Energy

£165/kW 2003

Kings Lynn 325 MW

100% Centrica Energy

£248/kW 2001

48 staff

30 staff

Centrica UK Gas and Electricity Assets

385 staff

Morecambe Bay

Gas Fields

100% Centrica Energy

150 staff

Centrica Storage

Limited

100% Centrica Group

46 staff

Peterborough 2x180 MW

100% Centrica Energy

£248/kW 2001

slide4

How can we best secure the new investment and new resources the energy sector needs?

  • UK experience is that markets can deliver security of supply
  • Features of the UK framework
    • Consistent regulatory approach for gas and electricity
    • Clear vision of the desired “end game”
    • Political support for “staying the course”
    • Government has resisted temptation to intervene
slide5

Electricity experience

Electricity generation build – historic drivers

  • High wholesale prices
  • Need for competition in generators – supported by offtake
  • Environmental pressure on coal plants
  • Delivered over 20 GW of new CCGT plant over 10 years

Going forward – new drivers

  • NETA started with an “overhang” of generating capacity: much since mothballed
  • Industry structure changed: fewer larger players, most with some vertical integration
  • Influence of Government policy/legislation
    • Low carbon future: renewables obligation, EU ETS
    • Nuclear review
slide6

Electricity prospects

  • In the near term
    • Return of mothballed plant plus renewables maintain plant margin
    • Plant margin ok but prices relatively high because of high input fuel costs
  • In the medium to long term
    • Significant ongoing investment in renewables
    • Getting close to point of new build as margins get tighter in 2008/2009
    • Several power stations have consents to build and some could go forward relatively quickly if decision to build made
    • Nuclear plant decommissioning
    • Government nuclear review
slide7

Electricity - Forward Prices and Plant Returning to the System

Return of Killingholme PG1 + PG2 (both 280 MW) - standing reserve contract

Innogy announce return of GT at Tilbury (17 MW)

50

Winter 03 Peak and Baseload Forward Prices (£/MWh) and De-Mothballed Plant

Return of Baglan-1 (500 MW)

Return of Grain unit 4 announced (675 MW)

45

Innogy announce they will operate 2 of the 3 mothballed units at Fitoots from Dec 03 to Mar 04 (220 MW)

40

Return of Dinorwig unit 2 (288 MW)

Return of Ffestiniog 3 (90 MW)

Return of Dinorwig unit 3 (288 MW)

Price (£/MWh)

35

International Power announce the return of Deeside 2 (250 MW)

30

Winter 03 Peak

Return of Grain unit 1 announced (650 MW)

25

20

Winter 03 Baseload

15

01/05/03

29/05/03

26/06/03

24/07/03

21/08/03

18/09/03

16/10/03

13/11/03

slide8

Gas experience and prospects

  • In the near term
    • UK gas prices driven to high, previously unseen levels in 2004/2005
    • Liquidity in traded market has fallen
    • Structural decline in UKCS production: UK moving to position of net importer
    • Tight UK gas supply/demand through 2005/2006 with imports filling the gap
  • In the medium to long term
    • Significant new investment in new pipeline and LNG capacity 2007+
    • Capable of meeting 20% of GB demand
    • Improving demand/supply balance
    • Over longer term, key issues will be success of European gas market liberalisation and development of global LNG market
gas europe is surrounded by abundant reserves

Available Reserves (tcf)

1659

109

67

69

54

168

48

8

Trinidad

26

1002

Nigeria

110

176

11

1410

160

46

62

Gas – Europe is surrounded by abundant reserves

* Data From BP Statistical Review

gas timing of new import projects is critical
Gas - Timing of new import projects is critical

Vesterled (existing)

13bcm/yr

Langeled

Ormen Lange Partners - 27 bcm/yr Pipeline completion due Oct 2006. Ormen Lange start-up due Oct 2007

Dutch Interconnector (BBL)

GasUnie - 16 bcm/yr

Pipeline contract awarded

Start-up due end 2006.

Milford Haven - LNG terminal

Dragon - Petroplus / BG Group - 6.3 bcm/yr due 2007. Potential expansion to 12.6 bcm/yr

South Hook - Qatar Petroleum / Exxon Mobil - 10.4 bcm/yr end 2007. Potential expansion of 10.4 bcm/yr by end 2010

IUK enhancement (currently 8.5bcm/yr)

8 bcm/yr additional reverse flow Dec 2005

Further 8 bcm/yr by Dec 2006. Possible further modifications takes total to 25 bcm

Isle of Grain - LNG terminal

National Grid Transco - 4.6 bcm/yr 2005

Possible expansion 9.3 bcm/yr in 2007+

slide11

Conclusions and Observations

  • Huge investment is required in order to secure new energy supplies: i.e. $40 billion in Ontario
  • In liberalised markets, risk of government intervention can chill investment decisions
  • In such circumstances, private investment may still be secured, but most likely only under arrangements that see risk borne by ratepayers/taxpayers rather than by investors
  • Markets may not be perfect: but there are no perfect alternatives