Role of Gas in Power Generation

David Cox

Managing Director

29 April 2013

The Gas Forum

Advocate for gas and voice of the UK gas industry:

• Represents the views of gas shippers, suppliers and other

wholesale participants active in the UK market

• Offers strategic advice to the UK and European government

and regulatory bodies on key issues such as gas liquidity and

security of supply

• Responds to government / regulatory consultations on behalf

of the UK gas industry

• Seeks to influence current and future energy policy and

regulation via proactive lobbing

• Administers the Industrial and Commercial Code of Practice

Current situation

• Number of gas plant closed or mothballed e.g. Teeside,

Keadby, Shotton, Barry etc…

• Current economics do not support CCGT plant – poor

spark/spread

• At this time it is not clear when/if plant will return as

there is insufficient confidence in the forward curves

• Does continued shutting/mothballing of gas plant bolster

support for coal, conversion to biomass?

• Is there a degree of ‘politicking’ as CCGTs push for

greater rewards under EMR?

Power market – 2015 onwards

• LCPD out plant all shut – around 12GW

• Will know which IED plant is in or out – another @20GW

• Assume some conversions to biomass in progress - ?GW

• First capacity mechanism auction happens in 2014

• Progress on nuclear – how much and by when?

• Delivery of 2020 renewable goals – total wind capacity?

• Role of gas as ‘transitional’ fuel to a low carbon economy

• Current outlook very uncertain for gas – carbon price

support (CPS), EMR, IED, transmission charges, cash-out

review, EU ETS, etc.

Capacity AssessmentsDe-rated margins and capacity changes

Source: Ofgem- capacity statement Oct 12

Source: DECC/Ofgem- Dec 12

Why EMR?

• DECC assert we need EMR as no new build coming on stream

• TEC register full of new build – mainly gas and wind

• Some very big nuclear plants – around 9.9GW

• Government identify problems as:

– Peak prices not high enough – confusion over Balancing

Mechanism

– Managing peaks uncertain – means no real forward curve

– Policy uncertain

– Investment climate is not condusive

– Liquidity makes forward sales difficult

• Can all agree with some of these issues but answers more

difficult!

Capacity mechanism – supporting gas

• Obligation on central body (NG) to maintain a capacity margin

• NG advise Ofgem on Capacity Assessment – published on

5/10/12 – suggested capacity needed

• Descending clock auction for capacity (really energy delivered

not capacity) to meet the set margin

• Margin can be set under current Energy Bill

• DECC original EMR doc noted volume of 5GW (10%) to 2030

needed to maintain margin

• Expected first year of delivery is 2018/19 – so auction 2014

Gas Demand – NG Scenarios

Massive variations for both total

demand and generation gas demand –

which, if any, is correct?

Future issues

• Gas generation will need to be highly flexible in future with

lower load factors – DECC estimates between 15-43%

• Can the NTS support increased flexibility?

– Impacts on linepack

– Access to offshore/imported flexibility

– Volume of gas storage

• Need for more STOR plant to support local power needs?

– Is there sufficient flexibility within the DNs to support

growth in this area?

• Will capacity mechanism obligations compel generators to

secure firm supplies/capacity?

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