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CBI energy conference 2011 - Rupert Steele


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Presentation by Rupert Steele, director of regulation, Scottish Power, at the CBI's energy conference. London, 2011.

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CBI energy conference 2011 - Rupert Steele

  1. 1. CBI Energy ConferenceReforming the Electricity MarketRupert Steele – Director of Regulation14 June 2011
  2. 2. Investment Gap The UK needs to attract investment funds into the power generation sector in the face of stiff international competition UK existing plant margin to 2025 30GW+ investment by 2025 for 100 security & decarbonisation 90 80 70 60GW 50 40 UK situation more difficult due 30 to age and mix of portfolio 20 10 0 2010 2013 2016 2019 2022 2025 Nuclear Coal CCGT Potential for rapid demand New CCGT OCGT & Oil Hydro growth post 2020 Renew Peak Demand Peak Dem + 20% Need for right investment climate and reduced regulatory risk 2
  3. 3. EMR Headlines Overall we welcome the focus on delivering new energy investment and believe we can work within the EMR framework1. Carbon price support 2. FIT/CFD for low carbon generation• Not a bankable mechanism • Need solid basis for new nuclear• Adversely impacts UK industrial investment whilst supporting renewables competitiveness • A smooth transition for renewables is key - need to avoid investment hiatus3. Capacity mechanism to supportexisting / new thermal generation 4. Emissions Performance Standard• DECC consultation preferred a targeted • EPS levels must be realistic to avoid un- scheme nerving investors• Strong case for market-wide scheme • Grandfathering principle essential and should be enshrined in primary legislation Policy intent is positive but really important to get the details right 3
  4. 4. Variable Premium FITVariable Premium FIT demands less precision from Government than a CFD: a band rather than a specific strike price Premium Premium Collar FIT payment within band Cap Market Price Market element in pricing gives Simpler settlement process some flexibility in setting than a CFD, as not a two-way support levels mechanism A narrower band becomes very similar to a CFD 4
  5. 5. Avoiding investment hiatusCutting support for onshore wind in the RO Banding Review would slow down Scotland’s renewables sector – negative impact on consumers Source: Oxera analysis for SP, March 2011Adjustment to currentincentives would slowrate of deployment inonshore windTo maintain renewablesprogress, more wouldbe needed offshore - athigher consumer costCCC report onrenewables recognisesneed to maximiseonshore delivery Net consumer cost could be £100s of millions per year by 2020Project TransmiT – flatter locational charges support renewables investment 5
  6. 6. Capacity Mechanism (1) DECC consultation favoured a narrowly applied capacity schemeDiagnosis of the capacity problem 0 – 8 hours 8 – 48 hours Days / weeks Reserve Flexibility InvestmentHaving sufficient Having enough flexible Having enough sparefrequency response thermal plant to cover capacity / reserve marginplant available to cover night and day-time load to ensure acceptableloss of wind, demand and similar predicted energy security of supplyspikes or unplanned variations arising from (eg. Winter cold snap /plant outages wind patterns zero wind) Really important to understand what problem we are trying to solve 6
  7. 7. Capacity Mechanism (2) Alternative would be a market-wide capacity mechanismPayments address ‘missing money’problem Days / weeksDownward pressure on electricityprices addresses ‘double reward’Scheme must be stable to avoidstranding riskNeed a clear timetable to promoteupgrades and new investment 770 Narrowly designed scheme unlikely to resolve security of supply risk 7