Future Energy Systems in the UK. Hergen Haye

Transcription

1 Future Energy Systems in the UK Hergen Haye

2 The Context for Electricity Market Reform (EMR) The UK s electricity market faces big challenges Fifth of plant closing by 2020 Long run electricity demand could double Weak signals in the market for low carbon generation Current market suits gas, but harder to build low-carbon plant 2

3 Business as usual is therefore not an option Every generation technology carries its own risks therefore the key to ensuring protection for consumers and security of supply is to build a diverse mix Without reform: higher risk of blackouts over-reliant on gas imports paying more for our electricity than we need to higher risk of not meeting our climate targets 3

4 Our objectives for the electricity market mirror those of the wider energy system Security of supply: Electricity demand may double by 2050 We need diverse reliable and resilient electricity supplies to keep the lights on Climate change: by 2050, we need 80% reduction in carbon emissions (across the economy) on 1990 levels By 2020, we need 15% of energy from renewables sources Affordability: Minimise costs to taxpayers and keep energy bills down 4

5 Wider context Budget increases for low-carbon (the Levy Control Framework): Set at 7.6bn total in 2020 (real, 2012 prices) Setting a target to decarbonise the electricity sector: Taking powers to set a 2030 decarbonisation target range Level to be set on advice of Climate Change Committee on 5 th Carbon Budget, to be received in Role of Gas: Continuing and significant role under EMR up to 26GW of new gas generation could be required by 2030 to ensure lights stay on. 5

6 Our aim is to transition to a world where low carbon technologies compete on cost Long term vision An electricity market where low-carbon technologies compete on cost and the cheapest win the biggest market share Currently we are a long way from this Significant intervention in current arrangements Technologies at very different stages of development Big carbon and security challenges 6

7 The long term transition Stage 1 (to 2017) Stage 2 ( s) Stage 3 (mid 2020s) Stage 4 (late 2020s) Support levels set administratively Support levels set through technology specific auctions Support levels set through technology neutral auctions Wholesale market + carbon price Running of new and existing schemes together Long term contracts Long term contracts Possible capacity auction Possible capacity auction Possible capacity auction Possible capacity auction 7

8 8 The market reform framework that will deliver our vision Government Sets overall policy direction and sets out key parameters System Operator (National Grid) Provides analysis to allow Ministers to set key policy parameters (e.g. CfD strike prices and capacity market auction volumes) Contracts to develop low carbon generation signed by single counterparty body Market wide capacity contracts: open to all forms of capacity Existing wholesale market (plus small scale FiTs) Investment in low-carbon generation also supported by Carbon Price Floor & Emissions Performance Standard

9 Strike Prices how does it work? CfD provides long-term revenue stability, lowering risk to investors and costs to consumers Generator sells power as normal, but receives variable top-up to the strike price If market reference price goes above the strike price generator must pay back the difference 9

10 Carbon Price Floor Bolsters / tops-up the price of carbon in the EU Emissions Trading System (EU ETS) Source: HM Treasury

11 Helping the market to transition to EMR Renewables Obligation and early investors 11

12 Nuclear: Scale of UK opportunity 40-70GW of low carbon capacity may be needed by Each new nuclear plant could create up to 5,000 construction jobs and employ 1,000 people in operational roles, in addition to significant long-term UK manufacturing opportunities for the nuclear supply chain Industry has set out plans to develop up to 18GW of new nuclear power by approximately 2030:

13 Getting Started EdF Hinkley EdF plans to commence construction in 2013; BUT needs: CFD Price Setting that works for consumers and Investor's (including costs of waste management) Regulatory approvals (planning and generic design assessment, site licensing) Secure financing (new investors required) Building to time and budget Securing significant share for UK plc (business/jobs)

14 Horizon Nuclear Power Securing Hitachi as purchaser for Horizon Nuclear Power is a vote of confidence for the UK nuclear industry & economy; but there are challenges: FID for Wylfa expected 2015/16, with electricity fed into the grid in the first half of the 2020s Long Term financing Generic Design Assessment of reactor technology, expected to be complete within 4 years Realising 60% UK economic benefit commitment

15 NuGen (Iberdrola/GDF Suez) NuGen forms third new build consortium 2-3 reactors at Sellafield (FID expected 2015) Site investigation work underway; but key challenge Need for further investors Have not selected a reactor technology First reactor expected to be operational 2022

16 Role and Action for Government: Supply chains, Growth and Jobs Develop vision with UK industry, setting out realistic ambitions for near and long-term Exploit tools available to deliver vision (innovation, R&D, skills, access to finance, develop SME capability) Establish effective Nuclear Industry Council, with coordinated cross govt input (DECC, BIS/UKTI) More effective marrying up of R&D spend and industry ambitions (includes SMRs as near market opportunity) Supply Chain Action Plan published

17 Thank you and any questions? 17