Oil Presentation7 ProgresswiththeEnergyPolicyReview JBower 2003

8/9/2019 Oil Presentation7 ProgresswiththeEnergyPolicyReview JBower 2003

1/24

Progress with The Energy Policy Review: A Perspective

OIES Seminars

7 October 2003

John Bower


2/24

Progress on UK Energy White Paper 2John Bower

Overview

What the White Paper Said

Reality Dawns

An alternative 20:20 Vision


3/24



UKEWP refocused energy policy away from a UK driven liberalisation agenda

GOALS AND POLICIES

1. Reduce CO2 emissions by 60% by 2050

Reduce amount of energy we consume

Central to future market and policy will be emissions trading

Raise efficiency standards in home appliances and housing

Encourage low carbon fuels and renewables through grants and subsidy

2. Maintain reliability of energy supplies

Right infrastructure / regulatory systems in UK and liberalisation of Europe

Pursue regional stability and economic reform in producing areas

Promote understanding of markets and conditions for FDI in producing areas

Forward prices will signal the need for investment

Improve contingency planning in dealing with major incidents


4/24Progress on UK Energy White Paper 4John Bower


. towards an EU driven multifaceted agenda

GOALS AND POLICIES

3. Promote competitive markets in UK and beyond

Raise rate of sustainable economic growth

Support business and competitiveness through reliable / affordable energy

Encourage firms to innovate, reduce cost, deliver better goods and services

Use market based instruments to deliver policy goals

Work with business to prepare them for the low carbon economy of the future

4. Ensure that every home is adequately and affordably heated

Reduce poverty by lowering prices and raising social security payments

Improve quality of housing stock via insulation and energy efficiency grants


5/24



UKEWP relied on carbon trading and uneconomic/unproven technology

ENERGY SYSTEM IN 2020

1. More diverse than today

2. Much of our energy will be imported from or through the single market

3. Grid will balance supply of large plants including offshore wave, tidal and wind

4. Market will need to handle intermittent supply with backup capacity

5. More local generation from biomass, waste, wind, tidal, feeding local networks

6. More microgen from CHP, fuels cells, photovoltaics, and surplus sold to main grid

7. Energy efficiency will reduce overall demand even as new demand comes on

8. New homes will achieve low or zero carbon emissions

9. Many buildings will reduce demand with solarheating


6/24



. while policy on existing technology was passive or assumed it would close down

ENERGY SYSTEM IN 2020

10. A large part of energy mix will be gas

11. A smaller role for coal possibly linked to CO2 capture and storage

12. Existing nuclearplant will all be closed and new plant subject to a later decision

13. Greater role for fuel cells using hydrogen from non-carbon electricity

14. In transport more hybrid vehicles and low carbon biofuels

15. Public service vehicles and private cars will increasingly use hydrogen

16. By then nuclear fusion will be at an advanced stage of research

17. People will be more aware of climate change and reducing carbon emissions

18. Carbon content will be a differentiator as cost of carbon is reflected in prices


7/24


Reality Dawns

During summer recess it appears a major shift in position has quietly begun

A SHIFT IN EMPHASIS OR A MAJOR RETHINK?

Britain's future energy mix will be dominated by gas powergeneration with nuclear

powerlikely to make a comeback and renewables only playing a limited part

"I wouldn't put much money on there being much of a coal generation element by

2015.

"The emergence of carbon trading will slightly penalise gas, but it will punish coal,

and it could begin to favour nuclear

Renewables will be limited -- nuclear will come back"

Martin O'Neill, Chairman of the UK Parliament's Trade and Industry Select Committee. 29 September 2003


8/24


Reality Dawns

Gas has been the subject of much Parliamentary debate and questions of late

GENERATION TECHNOLOGY CAPACITY SHARE IN ENGLAND & WALES (Apr 1990 Mar 2004)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

A

pr-90

O

ct-90

A

pr-91

O

ct-91

A

pr-92

O

ct-92

A

pr-93

O

ct-93

A

pr-94

O

ct-94

A

pr-95

O

ct-95

A

pr-96

O

ct-96

A

pr-97

O

ct-97

A

pr-98

O

ct-98

A

pr-99

O

ct-99

A

pr-00

O

ct-00

A

pr-01

O

ct-01

A

pr-02

O

ct-02

A

pr-03

O

ct-03

CapacitySharebyFuelandG

enerationTechnology

OCGT

Oil

Pump Store

Small Coal

Medium Coal

CCGT

Large Coal

Magnox

AGR/PWR

Hydro


9/24


Reality Dawns

BP Amoco objections have just been brushed aside to get Ormen Lange pipeline built

ORMEN LANGE PROJECT

Kristiansund

Kollsnes

Statfjord Gullfaks

TrollOseberg

Vesterled: 10 BCM

St. Fergus

Krst

Dornum

Draupner

Ekofisk

Zeebrgge

Dunkerque

Trondheim

Frigg

Sleipner

Emden

Ormen Lange

Europipe II: 21 BCM

Europipe I: 13 BCM

Norpipe: 14 BCM

Franpipe: 15 BCM

Total capacity: 86 BCM

Zeepipe: 13 BCM

Source: Norsk Hydro


10/24


Reality Dawns

and electricity security a high priority after NYK, London, Sweden, Italy blackouts

BRITISH ENERGY HEADLINES

28 Aug 02 British Energy drained by low prices-minister

01 Sep 02 British Energy ponders US sale

06 Sep 02 Nuclear firm British Energy begs for bailout

07 Sep 02 British Energy shares suspended as company warns of insolvency

08 Sep 02 Ministers offers 410 million loan to British Energy

09 Sep 02 British Energy falls almost 80 pct after LSE lifts trading curbs

26 Sep 02 Ministers extend loan to British Energy and increase it to 500m

18 Sep 03 Government sets deadline on British Energy restructuring

22 Sep 03 Nuclear plants may get new lease of life

02 Oct 03 British Energy rescue complete subject to approval by parties and the EU

03 Oct 03 Ministers switch on to winter power fears


11/24


Reality Dawns

To get back on 2050 target track CO2 emissions must fall 35% from 1990 level by 2020

A POLICY VACUUM

?0

20

40

60

80

100

120

140

160

180

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

AnnualCO2Em

issions(MtC)

Power Stations Domestic Services Industrial Transport Other 2050 Target


12/24


Reality Dawns

Right now DEFRA is designing the UK mechanism for EUETS and LCPD

EU EMISSIONS TRADING SCHEME AND LARGE COMBUSTION PLANT DIRECTIVES

Precursor

2003 2004

National Plan

Formulation

Phase I

2005 2007

CO2 only

Allocation only

Phase II

2008 2012

CO2 + other gases

Allocation + Auctions

EU

Emissions

Trading

Scheme

Phase I

2004 2007

SOx, NOx, dust

ELV or NP

Derogation Phase

2008 2015

SOx, NOx, dust

ELV or 20k hr derogation

Precursor

2002 - 2003

National Plan

Formulation

EU

LargeCombustion

Plant Directive

Source: EIA


13/24


Reality Dawns

with 75% of CO2 reductions coming from closure of coal fired power stations

EUROPEAN ELECTRICITY GENERATION OUTPUT 2000

Source: EIA

0

100

200

300

400

500

600

700

800

900

Russia

Germany

UK

Italy

Poland

Spain

Turkey

Ukraine

Netherlands

CzechRepublic

France

Greece

Kazakhstan

Uzbekistan

Belgium

Romania

Portugal

Denmark

Belarus

Finland

Ireland

Hungary

Yugoslavia

Bulgaria

Azerbaijan

Austria

Turkmenistan

Slovakia

Estonia

M

acedonia,TFYR

BosniaandHG

Sweden

Croatia

Slovenia

Moldova

Armenia

Lithuania

Malta

Georgia

Latvia

Kyrgyzstan

Switzerland

Other

Norway

Tajikistan

Albania

Iceland

AnnualGene

rationOutput(TWh)

Thermal Nuclear Hydro Geothermal and Other


14/24


Reality Dawns

but Domestic and Transport emissions are caused by voters so reductions difficult

SECTOR CARBON DIOXIDE REDUCTIONS ACHIEVED BY 2002

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

Power Stations Domestic Services Industrial Transport Other

C0

2EmissionsRedu

ctionAchieved

2020 Interim Target-35% -35%


15/24


Reality Dawns

Electricity and Industrial sector will trade CO2, increase efficiency, or shut plant down

TONNAGE OF CARBON DIOXIDE REDUCTIONS REQUIRED 2002 - 2020

7.9

9.9

3.1

9.9

13.0

-0.3

-2

0

2

4

6

8

10

12

14

Power Stations Domestic Services Industrial Transport Other

CO2

EmissionsReductionRequired(MtC

)


16/24


Reality Dawns

but DTI effectively admits no real progress in Services, Domestic, Transport sector

PROGRESS ON DELIVERING THE WHITE PAPER

SERVICES/ DOMESTIC (Energy efficiency and CHP)

Defra has announced a budget of 268 m for spending on energy efficiency andfuel poverty programmes in 2003/04 10 for each home or business address!

Working party to establish how to create an effective market in energy services has

been set up to provide initial advice by 30 Sep and final advice by 31 Dec 2003;

a Better Buildings Summit to improve energy efficiency will be held on 21 Oct 2003;

Ministers started talking to the industry on heating aspects of building regulations.

TRANSPORT

an ultra low carbon car competition was launched on 29 April 2003.

Source: www.dti.gov.uk/energy/sepn/index.shtml#del_wp


17/24


Reality Dawns

Renewables lobby admit value of carbon not be enough to cover cost of renewables build

0

10

20

30

40

50

60

70

80

Old Nuclear Old CCGT Old Coal New CCGT New Onshore

Wind

New Nuclear New Coal New Offshore

Wind

Marginal

Cost(/MWh)

Fuel O&M LCPD EUETS Capital

EXPECTED MARGINAL COST OF GENERATION IN 2005 - 2010

Source: Authors own estimates. See also www.oxfordenergy.org Oxford Energy Comment UK Offshore Wind Generation Capacity: A Return to Picking Winners

Firm Focus

DTI Focus

HMT Focus


18/24


An Alternative 20:20 Agenda

Energy security will increase if DTI stops picking winners and lets price direct investment

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 Actual UKEWP 2020 20:20 Agenda

GrossGenerationOutputMix

Renew (Other)

P. Store

Hydro

Other

Renew (Therm)

Nuclear

Gas

Oil

Coal

GENERATION OUTPUT MIX

Source: Authors own estimates applied to Digest of UK Energy Statistics Table 5.6 Electricity Fuel Use, Generation and Supply www.dti.gov.uk/energy/inform/energy_stats/electricity/

369.8TWh

505.3TWh

505.3TWh


19/24



Electricity CO2 reduction greater with 20% nuclear or growth slows to 0.75% p.a.

2002 ACTUAL VERSUS 2020 FORECAST CO2 EMISSIONS FROM ELECTRICITY

Source: Authors own estimates applied to Digest of UK Energy Statistics Table 5.6 Electricity Fuel Use, Generation and Supply www.dti.gov.uk/energy/inform/energy_stats/electricity/

0

5

10

15

20

25

30

35

40

45

2002 Actual UKEWP 2020 20:20 Agenda

AnnualCO2Emissions(MtC)

Other

Gas

Oil

Coal

2020 Interim Target

35.2MtC

35.2MtC


20/24



Transport CO2 emissions will only fall if car marginal commuting cost exceeds train cost

MARGINAL DAILY COMMUTING COSTS OXFORD - LONDON

Train Car Car

Railway Charge 17.50 0.00 0.00Motorway Toll 0.00 0.00 20.00

Congestion Charge 17.00 5.00 10.00

Fuel 0.00 1.30 1.30

Fuel Tax 0.00 4.25 0.00Office Parking 0.00 0.00 10.00

SR Marginal Cost 34.50 10.55 41.30

Season Ticket -18.70 0.00 0.00

Insurance 0.00 1.15 1.15Road Tax 0.00 0.30 0.30

Maintainence 0.00 1.50 1.50

Depreciation 0.00 3.00 3.00

Capital Cost 0.00 0.40 0.40

LR Marginal Cost 15.80 16.90 47.65

Oxford - London

Return JourneyPeak Return +

Zone 1 PassCommuter 2020Commuter 2003


21/24



Domestic / Service CO2 emissions will only fall if property is made more energy efficient

DOMESTIC + SERVICE SECTOR EMISSIONS TREND AND TARGET

0

5

10

15

20

25

30

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

AnnualCO2E

missions(MtC)

Domestic - Trend Service -Trend Domestic - Target Service -Target

+ 0.75% p. a.

- 3.0% p. a.

- 1.5% p.

- 2.0% p. a.


22/24



Poverty will increase if EUETS/LCPD effect not offset with changes to tax/benefit system

FUEL POVERTY

1. There is no such thing as fuel poverty only poverty itself!

2. Eliminate VAT, RO costs, fuel duty before introducing emissions taxes

3. Mandate minimum emission standards for social and low cost housing

4. Stamp duty rebate on all private house sales where emissions standards met

5. Increase fuel component of benefits and pensions

6. Prevent market abuse in retail energy sector using new competition powers

7. Do NOT load the cost on the energy industry or impose a retail price cap


23/24


Conclusion

These issues go far beyond the UK and similar debates will be had elsewhere

OECD IMPLICATIONS

1. Hard decisions on how to trade-off between security, competition and environment

2. Security is now the dominant theme with environment and competition subsidiary

3. Existing technologies will deliver medium term goals not emerging technologies

4. Market designs may be modified or reinvented to create a price signal for security

5. Politicians are being pressed for subsidies to counter perceived market failures

6. Swing back to central planning by proxy through formerly independent regulators


24/24


Speaker

John Bower is a Senior Research Fellow at theOxford Institute for Energy Studies which is an

independent research charity affiliated to Oxford

University and dedicated to advanced research in the

social science aspects of energy. John joined OIES in

November 2001 and his research interest is in the

emergence and evolution of integrated cross-border

electricity and gas markets. Specifically; the

development of efficient pricing and investment

mechanisms for energy, transmission capacity, and

emissions.

Before joining the OIES, John completed his PhD atLondon Business School and his previous career was

in the commodity industry. His experience ranges

from energy trading, at Marc Rich & Co, to risk

management consultancy, with Coopers & Lybrand,

advising commodity traders, producers andprocessors in base metal, precious metal, softs and

energy markets. Immediately prior to his PhD he was

Global Controller Metals/Commodities at Deutsche

Morgan Grenfell.

Oxford Institute for Energy Studies

57 Woodstock Road

Oxford OX2 6FA

United Kingdom

Telephone: +44 (0)1865 311 377

Facsimile: +44 (0)1865 310 527

Email: [email protected]

URL: http://www.oxfordenergy.org

Documents

Oil Presentation7 ProgresswiththeEnergyPolicyReview JBower 2003