Re-Assessing the Prospects for a Diverse Generation Mix in a Market
Dominated by Gas and Rising Prices
Chairman, British Energy plc
Ladies and gentleman, I am glad to have the opportunity to talk to you today. In this presentation, I want to explore the nature of the transition in the power sector that began with the ‘dash for gas’. I want to discuss the role of gas as the sector’s dominant technology and the implications for other technologies including nuclear power. And I’ll try to identify the questions
that this transition requires us to discuss.
Shell 慡pirit of the Coming Age?Scenario
Coal derived methane400or hydrogen
Source: Energy Needs, Choices and Possibilities,
Scenarios to 2050, Shell International, 2001
This is Shell’s ‘Spirit of the Coming Age’ scenario. It portrays one way in which the world’s energy system may unfold. As you’ll see, the scenario shows a world in which the energy system is served by an increasing number of energy sources. Fossil fuels and nuclear energy will continue to make major contributions, but new energy technologies are assumed to emerge in the longer term. It’s also a world in which the most appropriate energy
source is exploited to suit local and regional needs. Electricity is the major energy carrier.
Of course, this is just one vision of the future. Nonetheless, it appears we are set for major transition in our energy system in the first half of this century and, while the role and contribution of gas seem assured, nonetheless it seems to me that we are experimenting with our energy system, and the outcome is far from certain. In the face of changes on the scale contemplated, Government has a critical role to play in this transition, although whether this is as facilitator or market regulator, or both, remains to be seen.
I will focus on the UK situation as one that I know well, and in the belief that many of the messages are equally applicable to other parts of Europe.
Next steps in the power sector transitionTWh
Coal and oil Gas NuclearHydro and new renewables
Source: Digest of United Kingdom Energy Statistics, DTI
The UK currently enjoys the benefits of electricity derived from a number of technologies with coal, gas and nuclear each a major contributor to the total. This is a relatively new phenomenon brought about by the liberalisation of the power sector, which led to the ‘dash for gas’ phenomenon and increased productivity of the nuclear sector, both at the expense of coal. This process has had a positive impact on the environment with carbon emissions down
25% on 1990 levels, helping the government towards its Kyoto commitments.
DTI projections for power sector by technology
Source: Energy Paper 68 (Central-Low scenario data extended
slightly to 2025), Department of Trade and Industry
According to the UK’s Department of Trade and Industry projections, this process is set to continue over the next decade or so, as gas and the emerging technologies displace old coal plant and then replace nuclear plant that is decommissioned.
However, there is growing concern about the impact of the liberalisation process on security of energy supply. It is difficult to establish what constitutes an acceptable security of supply, particularly as the UK has historically been relatively well served in this area, originally through its indigenous coal supply and, more recently, though a generation mix that includes gas derived from the North Sea.
The UK will become increasingly dependent on gas from further afield –
expert opinion in government suggests the UK may have to import up to 90% of its gas by 2020. This means that security of electricity supply, which
is almost 100% today, will decline to just 20% as existing coal and nuclear plant close, to be replaced by gas generation.
In today’s world, perhaps the increased inter-dependency that globalisation
brings is reason enough to down-play the risk of a serious physical disruption to supplies, but nonetheless the resulting strategic weakening in the country’s position is significant but as yet largely uncontroversial. Even so, accommodating these changes will still impose costs on the economy because supply networks will need strengthening, gas storage capacity will have to be increased significantly, and back-up sources for the new renewable technologies provided. In liberalised markets the cost of these will ultimately be borne by the consumer, and yet under pressure from our system of economic regulation, distribution networks are increasingly coming to be owned by heavily leveraged entities with little capacity for incremental investment.
Now let’s turn to emissions.
Projected carbon emissions from the UK power sector
Carbon emissions / million t C
Source: Adapted from DTI Energy Paper 68, 2000
The projected generation mix for the UK has significant consequences for the environment. As I indicated earlier, the switch from coal to gas and increased productivity in the nuclear sector has resulted in a major decline in carbon dioxide emissions from the power sector over the last decade or so.
But, as this chart shows, this trend will reverse as emissions free nuclear generation is replaced mostly by gas, and this will make our attempts to reduce carbon dioxide emissions more difficult and place increased emphasis on the need for reliable and cost-effective generation from non-nuclear renewable sources.
Gas will be the dominant fuel for the electricity sector over the next few decades and the nature and scale of its development will determine the fate of other technologies. But there are a number of issues that will influence the development of gas