UK Energy Futures. Richard Smith Head of Energy Strategy & Policy

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1 UK Energy Futures Richard Smith Head of Energy Strategy & Policy September 2012

2 Our 2012 scenario development Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Stakeholder workshops (London & Glasgow) Bi-lateral stakeholder meetings Stakeholder feedback published >150 stakeholder organisations engaged 2012 scenarios published 2011 scenarios Axioms Stakeholder feedback Feedback key themes: Macro uncertainties: Government policy Costs (new technologies, economics) Economy Fuel price (fuel supply, carbon prices etc) Demand: Capture a range of demand uncertainties Supply uncertainty: Capture a range of energy supply options General feedback: Tension on breadth of scenarios Is a central case? Assumptions Modelling 2012 scenarios Data 2

3 Axioms and your feedback An axiom is a premise or starting point of reasoning. It is a logical statement assumed to be true. The first GB large scale commercial (gas or coal) CCS station will become operational in: < >2035 Never No view Our 2011 view: Slow Prog. Acc. Growth You said: 13% 39% 18% 4% 15% 11% Our 2012 view: Acc. Growth Slow Prog. 3

4 Our scenarios Overview Main changes vs 2011 Targets performance Government climate targets missed / abandoned Continued economic hardship, low GDP growth Limited energy efficiency / Green Deal impact Domestic gas demand broadly flat, higher in power generation Electricity demand Nuclear generation Renewable generation Interconnection Thermal generation Heat pump deployment Electric vehicle deployment carbon 2050 carbon renewable carbon 2020 targets 2011 scenario outcome 2012 scenario outcome 4

5 Our scenarios Overview Main changes vs 2011 Government climate targets met, balanced approach Modest GDP growth in medium term at historic averages Energy efficiency is driven / Green Deal is effective Gradual decline in gas demand Electricity demand Nuclear generation Renewable generation Interconnection Thermal generation Heat pump deployment Electric vehicle deployment = Targets performance carbon 2050 carbon renewable carbon 2020 targets 2011 scenario outcome 2012 scenario outcome 5

6 Our scenarios Overview Main changes vs 2011 Government climate targets met early Sustained economic growth in medium to long term Significant energy efficiency Significant reduction in gas demand Electricity demand Nuclear generation Renewable generation Interconnection Thermal generation Heat pump deployment Electric vehicle deployment = = Targets performance carbon 2050 carbon renewable carbon 2020 targets 2011 scenario outcome 2012 scenario outcome 6

7 Economic background EU economic hardship Scarcity of finance Low GDP growth GDP growth (indexed to 2011) Modest GDP growth in the medium term Historical average from Sustained economic growth across Europe High GDP growth

8 Fuel prices Wholesale prices flat to 2015 Low carbon price 2030 prices similar to today Hydrocarbon fuel prices increase steadily from Carbon price increases Wholesale gas price (p/therm) 20 All fuel prices rise strongly Gas & oil prices linked Carbon price at EMR floor

9 Transport Modest EV growth More hybrids in early years, more pure EVs in later years Strong EV growth More hybrids in early years, more pure EVs in later years Electric vehicles (million) 1 Robust EV growth More hybrids in early years, more pure EVs in later years

10 Heat Modest heat pump growth Limited insulation uptake Residential heat pumps (million) Strong heat pump growth Strong insulation uptake Robust heat pump growth High insulation uptake

11 Electricity demand Annual demand broadly flat Peak demand flat / falling Annual electricity demand (TWh) Economic growth, heat & transport electrification Peak demand grows steadily Reflects greater economic growth and electrification of heat & transport

12 Electricity generation Extension of existing plant; new gas generation Slower low CO 2 deployment Balanced approach Contributions from different technologies Faster low CO 2 deployment Strong micro generation deployment : Power generation (TWh) & carbon intensity (gc02/kwh) Nuclear CCS Coal CCS Gas Wind Marine / Solar PV Hydro / Pumped Storage Biomass Imports Gas / CHP Coal Oil / Other Carbon Intensity g CO2/kWh

13 Gas demand Higher domestic & power generation demand Peak demand broadly flat 1,200 1,000 Annual gas demand (TWh) Steady decline in domestic & power generation demand Peak demand ~25% lower Strong decline in domestic & power generation demand Peak demand ~40% lower

14 Gas supply Higher UKCS & Norwegian supply; higher global LNG New seasonal storage Balanced approach Flexible storage driven by market requirements Lower UKCS & Norwegian supply; tight global LNG Storage under construction : Gas supply (bcm/year) & Import dependency (%) % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% UKCS Norw ay Continent LNG Onshore Import Dependency Demand 14

15 The future: efficiency, decarbonisation and electrification Electricity Heat Transport Smart Meters & Appliance efficiency Insulate and reduce Efficiency and innovation Heat pump Decarbonised electricity Gas backup & embedded generation new homes & retrofit Biomethane De-carbonise heat CNG and decarbonise transport 15

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