Andrew Horstead, director, of energy markets, Utilyx, at the CBI's energy conference. London, September 2010.

1. Energy Market Trends CBI Energy Conference 15 th September 2010 Andrew Horstead Director Energy Markets, Utilyx

4. Gas price development reflects transition to oversupply In 2009 as US prices fell below European hub prices, spot LNG supplies pressurised EU prices lower Source: Bafa, Nymex, ICE – analysis Utilyx Research Tight market conditions of 2006 & 2008 forced buyers to compete for LNG cargoes with the US and Asia Lag in long term contracts meant falling oil has taken longer to feed into gas prices

5. Market responding due changing fundamentals Source: Bloomberg, IHS McCloskey – analysis Utilyx Research Due to lower demand and increasing supplies, gas prices drop below coal Gas responds to LNG shortfall and summer maintenance Despite coldest Jan in 30yrs and highest gas demand, gas did not go substantially above coal switching price

6. Coal generation traditionally profitable in Winter Source: Bloomberg – analysis Utilyx Research Prior to March 2009, CDS spiked during the winter, reflecting the seasonality in gas contracts 1 2 3 4 As gas becomes more competitive, coal has moved to mid-merit with gas as baseload

7. Coal burn remains depressed relative to gas Gas generation has increased relative to coal Source: Enappsys– analysis Utilyx Research

8. Gas consistently outperformed coal through 2009 Source: Bloomberg – analysis Utilyx Research Throughout 2009, clean darks were consistently below clean sparks

9. Gas prices to trend higher over longer term UK prices likely to be bound by oil-indexed and US Henry Hub levels Source: Bafa, Nymex, ICE – analysis Utilyx Research

10. But…potential for gas softening in period ahead IUK exports have been well above average, but maintenance period could mean extra gas available to the UK market Source: Interconnector, National Grid – analysis Utilyx Research LNG flows have returned to pre-maintenance levels which could exacerbate the supply situation

11. Coal prices governed by Pacific market fundamentals Source: Bloomberg, McCloskey – analysis Utilyx Research Drought conditions in China, Indian buying and port and rail strike action S.A. providing strong boost to coal prices $ weakness against £ limits impact of change in coal price

12. Winter-10: gas resumed traditional place at the margin Source: Bloomberg – analysis Utilyx Research Uncharacteristically coal was the price setter for W-10 during Mar / Apr SRMC is the cost of the fuel and carbon allowances at standard conversions Climate spread is the difference between the clean dark and clean spark spread (CDS- CSS) Since July climate spread has narrowed in line with softer gas from £8 to £2/MWh

13. Summer-11: gas competing with coal Source: Bloomberg – analysis Utilyx Research Coal pushed back to the margin in Q1, but rising gas prices from April has seen coal becoming increasingly competitive SRMC is the cost of the fuel and carbon allowances at standard conversions Climate spread is the difference between the clean dark and clean spark spread (CDS- CSS) Since July climate spread has narrowed in line with softer gas to £0.50/MWh

14. Gas remains at the margin …but for how long? Coal currently competitive relative to gas but with gas sentiment bearish, order could change Source: Bloomberg – analysis Utilyx Research

15. The emerging energy gap Source: Utilyx Research Under our scenarios plant margin falls sharply over the coming decade reflecting weak investment signals and policy uncertainty

16. Prices set to rise over the long-term Source: Utilyx Research

17. Non-commodity charges also expected to rise Source: Utilyx Research

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20. Andrew Horstead Director Energy Markets, Utilyx [email_address] T: +44 (0) 20 7087 8644 M: +44 (0) 7825 661 021 www.utilyx.com