Oil Presentation7 ProgresswiththeEnergyPolicyReview JBower 2003
Transcript of Oil Presentation7 ProgresswiththeEnergyPolicyReview JBower 2003
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Progress with The Energy Policy Review: A Perspective
OIES Seminars
7 October 2003
John Bower
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Overview
What the White Paper Said
Reality Dawns
An alternative 20:20 Vision
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What the White Paper Said
UKEWP refocused energy policy away from a UK driven liberalisation agenda
GOALS AND POLICIES
1. Reduce CO2 emissions by 60% by 2050
Reduce amount of energy we consume
Central to future market and policy will be emissions trading
Raise efficiency standards in home appliances and housing
Encourage low carbon fuels and renewables through grants and subsidy
2. Maintain reliability of energy supplies
Right infrastructure / regulatory systems in UK and liberalisation of Europe
Pursue regional stability and economic reform in producing areas
Promote understanding of markets and conditions for FDI in producing areas
Forward prices will signal the need for investment
Improve contingency planning in dealing with major incidents
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What the White Paper Said
. towards an EU driven multifaceted agenda
GOALS AND POLICIES
3. Promote competitive markets in UK and beyond
Raise rate of sustainable economic growth
Support business and competitiveness through reliable / affordable energy
Encourage firms to innovate, reduce cost, deliver better goods and services
Use market based instruments to deliver policy goals
Work with business to prepare them for the low carbon economy of the future
4. Ensure that every home is adequately and affordably heated
Reduce poverty by lowering prices and raising social security payments
Improve quality of housing stock via insulation and energy efficiency grants
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What the White Paper Said
UKEWP relied on carbon trading and uneconomic/unproven technology
ENERGY SYSTEM IN 2020
1. More diverse than today
2. Much of our energy will be imported from or through the single market
3. Grid will balance supply of large plants including offshore wave, tidal and wind
4. Market will need to handle intermittent supply with backup capacity
5. More local generation from biomass, waste, wind, tidal, feeding local networks
6. More microgen from CHP, fuels cells, photovoltaics, and surplus sold to main grid
7. Energy efficiency will reduce overall demand even as new demand comes on
8. New homes will achieve low or zero carbon emissions
9. Many buildings will reduce demand with solarheating
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What the White Paper Said
. while policy on existing technology was passive or assumed it would close down
ENERGY SYSTEM IN 2020
10. A large part of energy mix will be gas
11. A smaller role for coal possibly linked to CO2 capture and storage
12. Existing nuclearplant will all be closed and new plant subject to a later decision
13. Greater role for fuel cells using hydrogen from non-carbon electricity
14. In transport more hybrid vehicles and low carbon biofuels
15. Public service vehicles and private cars will increasingly use hydrogen
16. By then nuclear fusion will be at an advanced stage of research
17. People will be more aware of climate change and reducing carbon emissions
18. Carbon content will be a differentiator as cost of carbon is reflected in prices
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Reality Dawns
During summer recess it appears a major shift in position has quietly begun
A SHIFT IN EMPHASIS OR A MAJOR RETHINK?
Britain's future energy mix will be dominated by gas powergeneration with nuclear
powerlikely to make a comeback and renewables only playing a limited part
"I wouldn't put much money on there being much of a coal generation element by
2015.
"The emergence of carbon trading will slightly penalise gas, but it will punish coal,
and it could begin to favour nuclear
Renewables will be limited -- nuclear will come back"
Martin O'Neill, Chairman of the UK Parliament's Trade and Industry Select Committee. 29 September 2003
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Reality Dawns
Gas has been the subject of much Parliamentary debate and questions of late
GENERATION TECHNOLOGY CAPACITY SHARE IN ENGLAND & WALES (Apr 1990 Mar 2004)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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pr-90
O
ct-90
A
pr-91
O
ct-91
A
pr-92
O
ct-92
A
pr-93
O
ct-93
A
pr-94
O
ct-94
A
pr-95
O
ct-95
A
pr-96
O
ct-96
A
pr-97
O
ct-97
A
pr-98
O
ct-98
A
pr-99
O
ct-99
A
pr-00
O
ct-00
A
pr-01
O
ct-01
A
pr-02
O
ct-02
A
pr-03
O
ct-03
CapacitySharebyFuelandG
enerationTechnology
OCGT
Oil
Pump Store
Small Coal
Medium Coal
CCGT
Large Coal
Magnox
AGR/PWR
Hydro
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Reality Dawns
BP Amoco objections have just been brushed aside to get Ormen Lange pipeline built
ORMEN LANGE PROJECT
Kristiansund
Kollsnes
Statfjord Gullfaks
TrollOseberg
Vesterled: 10 BCM
St. Fergus
Krst
Dornum
Draupner
Ekofisk
Zeebrgge
Dunkerque
Trondheim
Frigg
Sleipner
Emden
Ormen Lange
Europipe II: 21 BCM
Europipe I: 13 BCM
Norpipe: 14 BCM
Franpipe: 15 BCM
Total capacity: 86 BCM
Zeepipe: 13 BCM
Source: Norsk Hydro
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Reality Dawns
and electricity security a high priority after NYK, London, Sweden, Italy blackouts
BRITISH ENERGY HEADLINES
28 Aug 02 British Energy drained by low prices-minister
01 Sep 02 British Energy ponders US sale
06 Sep 02 Nuclear firm British Energy begs for bailout
07 Sep 02 British Energy shares suspended as company warns of insolvency
08 Sep 02 Ministers offers 410 million loan to British Energy
09 Sep 02 British Energy falls almost 80 pct after LSE lifts trading curbs
26 Sep 02 Ministers extend loan to British Energy and increase it to 500m
18 Sep 03 Government sets deadline on British Energy restructuring
22 Sep 03 Nuclear plants may get new lease of life
02 Oct 03 British Energy rescue complete subject to approval by parties and the EU
03 Oct 03 Ministers switch on to winter power fears
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Reality Dawns
To get back on 2050 target track CO2 emissions must fall 35% from 1990 level by 2020
A POLICY VACUUM
?0
20
40
60
80
100
120
140
160
180
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
AnnualCO2Em
issions(MtC)
Power Stations Domestic Services Industrial Transport Other 2050 Target
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Reality Dawns
Right now DEFRA is designing the UK mechanism for EUETS 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 2007
SOx, NOx, dust
ELV or NP
Derogation Phase
2008 2015
SOx, NOx, dust
ELV or 20k hr derogation
Precursor
2002 - 2003
National Plan
Formulation
EU
LargeCombustion
Plant Directive
Source: EIA
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Reality Dawns
with 75% of CO2 reductions coming from closure of coal fired power stations
EUROPEAN ELECTRICITY GENERATION OUTPUT 2000
Source: EIA
0
100
200
300
400
500
600
700
800
900
Russia
Germany
UK
Italy
Poland
Spain
Turkey
Ukraine
Netherlands
CzechRepublic
France
Greece
Kazakhstan
Uzbekistan
Belgium
Romania
Portugal
Denmark
Belarus
Finland
Ireland
Hungary
Yugoslavia
Bulgaria
Azerbaijan
Austria
Turkmenistan
Slovakia
Estonia
M
acedonia,TFYR
BosniaandHG
Sweden
Croatia
Slovenia
Moldova
Armenia
Lithuania
Malta
Georgia
Latvia
Kyrgyzstan
Switzerland
Other
Norway
Tajikistan
Albania
Iceland
AnnualGene
rationOutput(TWh)
Thermal Nuclear Hydro Geothermal and Other
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Reality Dawns
but Domestic and Transport emissions are caused by voters so reductions difficult
SECTOR CARBON DIOXIDE REDUCTIONS ACHIEVED BY 2002
-50.00%
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
Power Stations Domestic Services Industrial Transport Other
C0
2EmissionsRedu
ctionAchieved
2020 Interim Target-35% -35%
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Reality Dawns
Electricity and Industrial sector will trade CO2, increase efficiency, or shut plant down
TONNAGE OF CARBON DIOXIDE REDUCTIONS REQUIRED 2002 - 2020
7.9
9.9
3.1
9.9
13.0
-0.3
-2
0
2
4
6
8
10
12
14
Power Stations Domestic Services Industrial Transport Other
CO2
EmissionsReductionRequired(MtC
)
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Reality Dawns
but DTI effectively admits no real progress in Services, Domestic, Transport sector
PROGRESS ON DELIVERING THE WHITE PAPER
SERVICES/ DOMESTIC (Energy efficiency and CHP)
Defra has announced a budget of 268 m for spending on energy efficiency andfuel poverty programmes in 2003/04 10 for each home or business address!
Working party to establish how to create an effective market in energy services has
been set up to provide initial advice by 30 Sep and final advice by 31 Dec 2003;
a Better Buildings Summit to improve energy efficiency will be held on 21 Oct 2003;
Ministers started talking to the industry on heating aspects of building regulations.
TRANSPORT
an ultra low carbon car competition was launched on 29 April 2003.
Source: www.dti.gov.uk/energy/sepn/index.shtml#del_wp
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Reality Dawns
Renewables lobby admit value of carbon not be enough to cover cost of renewables build
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40
50
60
70
80
Old Nuclear Old CCGT Old Coal New CCGT New Onshore
Wind
New Nuclear New Coal New Offshore
Wind
Marginal
Cost(/MWh)
Fuel O&M LCPD EUETS Capital
EXPECTED MARGINAL COST OF GENERATION IN 2005 - 2010
Source: Authors own estimates. See also www.oxfordenergy.org Oxford Energy Comment UK Offshore Wind Generation Capacity: A Return to Picking Winners
Firm Focus
DTI Focus
HMT Focus
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An Alternative 20:20 Agenda
Energy security will increase if DTI stops picking winners and lets price direct investment
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2002 Actual UKEWP 2020 20:20 Agenda
GrossGenerationOutputMix
Renew (Other)
P. Store
Hydro
Other
Renew (Therm)
Nuclear
Gas
Oil
Coal
GENERATION OUTPUT MIX
Source: Authors own estimates applied to Digest of UK Energy Statistics Table 5.6 Electricity Fuel Use, Generation and Supply www.dti.gov.uk/energy/inform/energy_stats/electricity/
369.8TWh
505.3TWh
505.3TWh
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An Alternative 20:20 Agenda
Electricity CO2 reduction greater with 20% nuclear or growth slows to 0.75% p.a.
2002 ACTUAL VERSUS 2020 FORECAST CO2 EMISSIONS FROM ELECTRICITY
Source: Authors own estimates applied to Digest of UK Energy Statistics Table 5.6 Electricity Fuel Use, Generation and Supply www.dti.gov.uk/energy/inform/energy_stats/electricity/
0
5
10
15
20
25
30
35
40
45
2002 Actual UKEWP 2020 20:20 Agenda
AnnualCO2Emissions(MtC)
Other
Gas
Oil
Coal
2020 Interim Target
35.2MtC
35.2MtC
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An Alternative 20:20 Agenda
Transport CO2 emissions will only fall if car marginal commuting cost exceeds train cost
MARGINAL DAILY COMMUTING COSTS OXFORD - LONDON
Train Car Car
Railway Charge 17.50 0.00 0.00Motorway Toll 0.00 0.00 20.00
Congestion Charge 17.00 5.00 10.00
Fuel 0.00 1.30 1.30
Fuel Tax 0.00 4.25 0.00Office Parking 0.00 0.00 10.00
SR Marginal Cost 34.50 10.55 41.30
Season Ticket -18.70 0.00 0.00
Insurance 0.00 1.15 1.15Road Tax 0.00 0.30 0.30
Maintainence 0.00 1.50 1.50
Depreciation 0.00 3.00 3.00
Capital Cost 0.00 0.40 0.40
LR Marginal Cost 15.80 16.90 47.65
Oxford - London
Return JourneyPeak Return +
Zone 1 PassCommuter 2020Commuter 2003
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An Alternative 20:20 Agenda
Domestic / Service CO2 emissions will only fall if property is made more energy efficient
DOMESTIC + SERVICE SECTOR EMISSIONS TREND AND TARGET
0
5
10
15
20
25
30
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
AnnualCO2E
missions(MtC)
Domestic - Trend Service -Trend Domestic - Target Service -Target
+ 0.75% p. a.
- 3.0% p. a.
- 1.5% p.
- 2.0% p. a.
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An Alternative 20:20 Agenda
Poverty will increase if EUETS/LCPD effect not offset with changes to tax/benefit system
FUEL POVERTY
1. There is no such thing as fuel poverty only poverty itself!
2. Eliminate VAT, RO costs, fuel duty before introducing emissions taxes
3. Mandate minimum emission standards for social and low cost housing
4. Stamp duty rebate on all private house sales where emissions standards met
5. Increase fuel component of benefits and pensions
6. Prevent market abuse in retail energy sector using new competition powers
7. Do NOT load the cost on the energy industry or impose a retail price cap
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Conclusion
These issues go far beyond the UK and similar debates will be had elsewhere
OECD IMPLICATIONS
1. Hard decisions on how to trade-off between security, competition and environment
2. Security is now the dominant theme with environment and competition subsidiary
3. Existing technologies will deliver medium term goals not emerging technologies
4. Market designs may be modified or reinvented to create a price signal for security
5. Politicians are being pressed for subsidies to counter perceived market failures
6. Swing back to central planning by proxy through formerly independent regulators
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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 atLondon 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 311 377
Facsimile: +44 (0)1865 310 527
Email: [email protected]
URL: http://www.oxfordenergy.org