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Ian Peters, COO British Gas, presented on "Energy policy, competitive markets and the home of the future in a world of climate change." at Warwick Business School 19/10/2009
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C titi k t d th h fCompetitive markets and the home of the future in a world of climate changethe future in a world of climate change
Ian Peters
Chief Operating Officer, British Gas
Sept 09
p g ,
Our businessesWe secure and supply gas and electricity for millions of homes and businesses and offer a distinctive range of home energy solutions and low-carbon products and
iservices: • Largest energy supplier• 15.6m residential accounts• 1m business accounts
8 1 H S i t t• 8.1m Home Services customer accounts• 9000 engineers
• Gas production fields in Morecambe and the North Sea (Venture)Gas production fields in Morecambe and the North Sea (Venture)• 7 gas fired power stations with 8th about to go live• Expanding renewables business including offshore wind farm• 20% stake in new nuclear via British Energy• Major participant in LNG
• Rough gas storage facility - the largest storage operation in the UKProviding more than 70% of the UK’s gas storage capacity• Providing more than 70% of the UK’s gas storage capacity
• 2 more in planning
• Over 5m gas, electricity and services customers
2
g , y• 3 gas fired power stations in Texas • Extensive wind power in Texas• Significant gas fields in Canada
Our Challengesg
• Volatile energy marketsN th S G d l ti ( t i t )• North Sea Gas depleting (net importer)
• Storage limitation/interconnector dynamics• Power generation gap (Coal/Old Nuclear)• Investment need (£100-200bn over 15 years – E&Y)
• Competitive markets and consumer prices
• Gas and power hedging dynamicsGas and power hedging dynamics• Political pressure to reduce prices• Increasing regulation• Fuel poverty programmes
• Climate change and energy efficiency• Emissions directives and targets• Renewable wind projects• Microgeneration• Microgeneration
• Sourcing new energy• Gas exploration
3
• Nuclear• LNG
Competitive Markets Have Delivered for UK consumers
7 008.00
UK domestic gas prices lowest in EU-15 for last 5 years
4.005.006.007.00
Tax ComponentPrice (excl tax)
EU average
nce/
KW
H
0 001.002.003.00 Price (excl tax)
Pen
0.00
UKLuxe
mbourgIre
land
France
BelgiumSpain
Portugal
EU 15Germ
any
Austria
Netherlan
dsIta
lySwed
enDenmark
• UK price approximately 38% less than the average EU price over last 5 years.• Exhaustive Ofgem inquiry conducted in 2008 found no evidence to justify referral to
Lu Ne
• Exhaustive Ofgem inquiry conducted in 2008 found no evidence to justify referral to competition commission
• Calls for competition inquiry bring uncertainty to sector at a time when record investment is needed
• European markets beginning to liberalise but slow and still causing problems for UK
4
p g g g p
Source:DECC
Source: UK Government, DECC
UK gas supplies are decliningg pp g• UKCS decline continues - import dependency continues to
grow. Norwegian production will plateau.
Af N f UK i ill b b LNGFRENCH ANNUAL
Projected
3 , 5 0 0
4 , 0 0 0
U K a n n u a l g a s d e m a n d ( b c f )
Scenario 1• After Norway, future UK prices will be set by LNG or
Russian gas
• Europe’s most gas intensive economy has moved from being a source of cheap gas to an “end of pipe” importer
i i th hi h t i t t t t ti t
DEMAND
1 , 5 0 0
2 , 0 0 0
2 , 5 0 0
3 , 0 0 0
Scenario 2
Scenario 3
requiring the highest prices to support transportation costs across Russia and Europe
• Security of supply is critical to UK future stability0
5 0 0
1 , 0 0 0
2 0 0 0 2 0 0 4 2 0 0 8 2 0 1 2 2 0 1 6 2 0 2 0 2 0 2 4 2 0 2 8
3,000
3,500
4,000
70%
80%
90%
100%
%)
Scenario 2
1 500
2,000
2,500
uppl
y (b
cf p
er y
ear)
40%
50%
60%
70%
port
depe
nden
ce (%
500
1,000
1,500Su
10%
20%
30%
Imp
5
02001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029
0%
Imports UK Gas %age imports
UK Wholesale Gas Prices – Outlook Uncertain
UK Gas Prices, p/th
90
100
Month Ahead Actuals12 Month Average*
60
70
80
90
th
12 Month Average*Forward Curve (9 Sep 09)
20
30
40
50p/t
0
10
20
* • Outlook for winter 2009/2010 - UK will be well supplied• Collapse in international energy demand as result of the global economic downturn, most notably
demand in South East Asia and increased US production, led to increased availability of LNG for UK.
• There are a number of potential threats to this:• Re-ignition of Russia-Ukraine crisis• International energy event (similar to Japanese nuclear outages in 2007 or effects on energy
markets following hurricane Katrina)
6
• Higher forward prices reflect the uncertainty over level of future supplies – Prices 9/9/09 winter 2009 @34 p/therm, winter 2010 @51 p/therm from 20 p/therm now
New power sources to fill generation gapCumulative Plant Closures, New Build and Demand
60,000
New power sources to fill generation gap
40,000
New Build
0
20,000
MW
-20,000
02009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
M
-40,000Station Closures
-60,000New Nuclear Nuclear Closure Wind @35% TidalWave Biomass CHP New CCGTOld CCGT CCS Old Coal OilDemand Total Margin (wind@35%)
7Large amounts of intermittent wind and large amounts of base-
load nuclear create new dynamic beyond 2020
Government has agreed an EU target of 15% of all energy to be from renewable sources by 2020from renewable sources by 2020
• Electricity sector will deliver vast bulk of this• possibly 30-35% or 30- 40 GW of all electricity from renewable sources by
2020 4% 4GW ith f th 8GW i t ti l d2020 vs 4% or 4GW now with a further 8GW in construction or planned
• Centrica will play its part• We have got 360MW operational• Consent for another 250MW (Lincs)• Applied for consent for 1 GW (Docking Shoal/Race Bank)
T t lli 1 5GW• Totalling over 1.5GW
• Economics of renewables difficult• Centrica welcomed Government decision to award 2 ROCs for offshore
wind• Renewables will evolve to include Biomass etc
8
What makes up every £100 of the average UK gas bill?p y g g
This analysis isThis analysis is based on average figures over the last 7 years.
9
Retailers faced with growing network and environmental costs, which will increase billswill increase bills
Estimated potential increases in customer Network and environmental costs
200
CCS/ FIT
EUETS
electricity charges (2004/05 to 2014/15)
£11?
• Network and environmental costs associated with supplying electricity increasing about 9% year on year
200
r
EU ETS
RO
EEC/CERT/CESP/HES
Transmission
Distribution
£18? • Cost of supporting low carbon and network investment is growing in
b l t t d % f th bill150
usto
mer
per
yea
£18 £23?
£8? absolute terms and as % of the bill
• This will help accelerate the 100
£ pe
r cu
£2
£14
£7
£16?
£2?
ptransformation to decarbonised energy supply
50 £1
£16?
C d l
• But it also increases stakeholder and customer pressure on suppliers as a whole
10 02004/5 2009/10 2014/15
Compound annual growth rate = 9%
Vision of a retail energy services market is becoming clearergy g
Low Carbon Transition Plan commitment to cut emissions in homes by 29% on 2008 levels by 2020
Renewable Heat Incentive to be
introduced from April
Community Energy Saving Programme of £350m launched
Feed-In Tariffs from April 2010 for small
scale generation p2011
Carbon Emission
this autumn scale generation
Carbon Emission Reduction Target resulting in £1.9bn energy savings
to April 2011
Smart meters in every home by end of 2020
1111
p
Competition has key role to play in delivering decarbonisation as efficiently as possibleefficiently as possible
Clear opportunity for suppliers to enable decarbonisation
• Low cost carbon abatement
Potential of competition needs to be recognised
• Ofgem probe focused on opportunities in households critical to meet targets
g pfairness and on relative outcomes for different customers
• Suppliers will compete to provide energy services to customers, as part of richer set of customer
• Role of retail competition in harnessing and deliveringpart of richer set of customer
offerings
• Ofgem and government need to
harnessing and delivering innovation is critical
• Competition is a resource that• Ofgem and government need to align government schemes and market rules to help the market deliver at least cost
• Competition is a resource that can help determine most effective ways of delivering energy efficiency
1212
deliver at least cost energy efficiency
Competition more relevant as demand for transformation becomes more pressingpressing
• Many US energy markets based on “thinner” version of• Many US energy markets based on thinner version of retail competition
– Retailers provide customer access to wholesale hedging and pricing optionspricing options
– Retailer has no direct relationship with the customer and operationally depends on the systems of the regulated default utility
idprovider • Potential offered by “thicker” GB model should be more
valued given today’s challengesg y g– Government is investing customer money to accelerate
decarbonisation– Duty on all stakeholders to make sure customers get value forDuty on all stakeholders to make sure customers get value for
money for their investment– Success of competition should be measured in how successfully it
facilitates this transformation
1313
facilitates this transformation
Suppliers are best-placed to discover the energy services customers want and valuewant and value
Suppliers have Supplier demand willSuppliers have customer
relationships, and can build trust to
Supplier demand will drive what
manufacturers of new technologies bring tocan build trust to
deliver new solutionstechnologies bring to
market
Central role for suppliers in delivering
energy efficiency solutions
Suppliers will market solutions customers want through new
1414
a t t oug eproduct structures, time
of use pricing etc
Energy efficiency services are emerging as basis for differentiation between suppliersbetween suppliers
• British Gas increasingly competing on provision of energy efficiency services – and other suppliers are responding
Supported the delivery of BG Energy Savers report-over 2 5m people to dateTechnology innovation
over 100m energy efficiency products into UK homes
over 2.5m people to date have used the report (up to
30% reduction)
partnerships with leading brands
Social housing projects, giving energy saving advice, products
and funding
Retail partnerships – e.g. with B&Q to subsidise loft insulation
prices of £1 per roll
Insulate 500,00 homes pa (18% reduction) and install 100,000 A
rated boilers (21%)
Council Tax rebate scheme-working with 68 councils to
provide rebates of up to £125
15
rated boilers (21%) for loft and cavity insulation
Smart technology we will be installing up to 2020 will enable an integrated proposition but the supplier led model is uncertain/at riskintegrated proposition – but the supplier led model is uncertain/at risk
Roll out of smart a key enabler
Microgen
• Roll-out of smart a key enabler of future energy efficiency innovationE bl f “ti f ” i i
Smart M t
Heating & advanced
Wireless data transfer
• Enabler of “time of use” pricing –expected to be a major driver of customer behaviour change
MeterKey Customer Benefits (£)
controls
Data Hub
VDU
Broa
Save energy
Produce energy
Provide demand response
Smart Appliances
dband
Access broader tariff range (including time of use)
Get more accurate bills
16
Data Processing
British Gas Portfolio of Energy Efficiency Products and Services gy y
Year 1- 64 homes in 8 streets in UKcompeted to
CESP CERT
Since the launch
competed to save the most energy: 25%energy usage reduced,89 tonnes of CO2 saved
- Solid wall - Heating
- PartnershipsOver 100m Energy Efficiency products subsidised in 5 years
Local Authority Partnershipsin May 2008 9,488 schools have signed up
Energy Experts
50k home visits planned for 2009
Council Tax
Over 250 partnerships with Local Authorities and Housing Associations
ENERGY EFFICIENCY REGULATED OBLIGATION
B2BEnergy efficiency consultancybusiness acquired
Retail schemesNew Innovation
LOW CARBON TECHNOLOGIESEnergy Savers Report
Completed 2.5m ESR’s
q
LCBP2 Framework
- First year of CERT, B&Q havdelivered over 12 million m2
DIY loft insulation (460k homes)Framework
Supplier
£7m installed in 2008
provide solutions for PV, Solar thermal installations. £8.5m turnover in 2009
id b k
British GasSolar Thermal
ASHP
Insulation 1.5m homes insulated in last 5 years
homes)
17bought 20% equity stake
British Gasprovides bespoke solutions to reduce energy consumption and CO2 emissions Fuel cell technology
development agreement
Full energy audits an important part of our energy efficiency offeringoffering
18
Summaryy
• UK generation mix will fundamentally change• The carbon agenda is driving significant shifts in all
aspects of the energy value chain• Competitive markets offer the best prospects for• Competitive markets offer the best prospects for
innovation • Centrica/British Gas are leading the market in security g y
of supply and energy efficiency• Smart meters should provide a transformational
opportunity to revolutionise the industry, customer experience and consumption management
19
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