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UK Power Generation &

The Growing Gap in Firm Capacity

Technical & Investment OpportunitiesArising

Hugh SharmanInstitution of Civil Engineers, London

12 September 2007Copyright Hugh Sharman 2007

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incotecoTwists & Turns

• 1997, Labour comes to government with election aspiration to reduce domestic GHG by 20%, by 2012

• 1998 White paper, ”Energy Sources” – Mandelson, short-lived gas power station embargo to help coal!

– Power companies pilloried for free market views– Gas embargo lifted by Byatt in 2000

• 2001 – 2002 NETA leading toward BETTA, a flagship Labour policy– Realigning regulation & market forces– Bankrupting major power generators– Making ”big” capacity investments more risky

• 2003 White paper, ”Our Energy Future” –– Renewables uppermost with little thought for capacity requirements and

attendant network investments– ”nuclear unnecessary”– ”gas supplies no problem”

• 2005 – 2006 ”Energy Review”– Nuclear suddenly seen as ”necessary” to meet GHG targets

• 2007 – ”Meeting the Energy Challenge”– New nuclear reviews and consultations

Ten years of ill-informed consultation took the place in place of serious policy formation

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incotecoA shortage of carbon may halt our economy

...and radically reduce carbon emissions• Globally, we are exploring for, mining, processing and burning

about 16,000 t carbon per minute• The energy released and products produced under-lies our

enormous prosperity• We may be seeing the beginning of ”peak oil” ...• ...which happens when total output from the World’s oil

reservoirs can no longer be increased because depletion from existing oil fields exceeds new finding and oil field development– Caused as much by political, economic and social considerations

as geological reality– Why would the few remaining net oil exporters wish to accelerate

the day when they also become net importers?• Peak oil will mark a paradigm shift for all mankind.• Badly handled it will cause economic decline, starvation and war

The IPCC’s fundamental assumption is for continued smooth economic growth, even if the resources are not there to support this

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Resource constraints were not considered in the energy consultations• The bull-run in energy prices were considered

throughout the process as ”temporary” and ”untypical”

• The energy price projections used throughout foresaw falling or stable prices to 2020 and beyond

• The wish that energy markets should be open, transparent and unconstrained was treated throughout the consultation process as if these conditions have been achieved

• The reality is otherwise

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World Energy Pie – BP Statistical Review 2006

Global Primary Energy Sources

37%

23%

28%

6% 6%OilNatural GasCoalNuclear EnergyHydro electric

We are 88% dependent on fossil fuel

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Remaining Oil Reserves BP Statistical Review 2006

OP EC75%

Former Soviet Union10%

NonOP EC15%

Russia and OPEC have every reason to regulate supply and price

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World Gas Reserves

OPEC Gas50%

Russian Federation27%

Rest of World23%

Russia and OPEC have every reason to regulate supply and price

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incotecoUK generating assets by

energy source until 2006...UK Generation 2006 DTI Statistics - Dukes 5.4

-

10.000

20.000

30.000

40.000

50.000

60.000

70.000

80.000

90.000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Mill

ion

toe

Coal Oil Gas Nuclear Hydro Other Renewables Imports

Average efficiency of condensing steam portfolio is 36%, average age about 35 years

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incotecoUK Generation by plant type

UK Power generation by type until 2006 DTI Dukes 5.7

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

MW

Conventional steam CCGT NuclearGas turbines & oil engines Conventional hydro Pumped hydroOther renewables

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It is old and becoming obsolete

UK Nuclear Capacity MW

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

The nuclear rundown is most discussed publicly

Nuclear supplied 20% of all power in 2006

Source: The Energy Challenge 2006

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Closure due to the Large Combustion Plant Directive (LCPD) will be more dramatic

Shrinking Coal & Oil Condensing Capacity MW

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Opted Out coal and oil Opted in coal

~20 GW of ancient coal capacity has or will be fitted with FGD to meet 2008 LCPD deadline

11 GW has ”opted out” and will close after 20,000 hours

By 2016 these must conform to LCPD NOx requirements

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Just a thought!!

Why is it that a European directive on acid emission reduction is necessary to close down Europe’s largest, least efficient and most polluting coal fleet?

Labour came into power on a commitment to reduce greenhouse

gases!

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So UK faces ”turning the lights out” or a 30 GW new build in next ten years!

UK Generating Capacity to 2020 Scenario: Opted-in Plant Forced to Close by LCPD NOx Requirements

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

MW

New build central plants CCGTsAll other firm capacity incl CHPs Opted Out coalOpted in coal Nuclear Capacity

~ 30 GW of new capacity needs to be commissioned by 2015

Nuclear

Opted-in FGD, no SCR

Opted-out FGD

Oldest CCGT will be 30 years old in 2020

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EdF – Energy Review Consultation, January 2006

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incotecoLCPD opted-in coal-fired capacity

Installation Operator Opted-in capacity (MW)

Drax Drax Power 3960Eggborough British Energy 2000Cottam EDF Energy 2000Ferrybridge SSE 1000Fiddler’s Ferry SSE 2000Ratcliffe E.ON UK 2000Rugeley International Power 1000West Burton EDF Energy 2000Longannet Scottish Power 2304Aberthaw RWE npower 1500Kilroot (N. Ireland) AES 520Uskmouth (Wales) Uskmouth Power 393

TOTAL 20677

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LCPD opted-out coal-fired generation capacity

Installation Operator Opted-out capacity (MW)

Ferrybridge* SSE 1000Didcot A RWE npower 2000Tilbury* RWE npower 1520 Kingsnorth* E.ON 2000Ironbridge E.ON 1000Cockenzie Scottish Power 1152

TOTAL 8672

* This capacity will be wholly or partially replaced by new coal-fired generation

~ 3 GW of old oil-fired steam plants are likely to close

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For 9 years UK Government has believed the gap can be filled with renewables & gas

Chart from ”Our Energy Challenge” July 2006. Experience & events of 2006 reveal this to be unrealistic.

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Wind gives no capacity security

• For ”renewables” read ”wind”• There were 2 weeks last Christmas

when the wind did not blow over most of northern Europe– Weather systems can be enormous

• Irish experience is that during periods of annual maximum demand, the wind does not blow!

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incotecoUK gas production is falling ”faster

than expected”

UK is World’s third largest sovereign gas consumer after USA & Russian Federation

UK Natural Gas Production & Consumption to 2015

-100

-50

0

50

100

150

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

mill

ion

toe

Production Consumption Surplus/Shortfall

BP Statistical Review 2007Energy Challenge 2006

76 million toe per year shortfall by 2015

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The ”gas gap” will be filled by LNG & Norwegian piped gas

Meeting the Energy Challenge 2007

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Norwegian Gas Production

0

20

40

60

80

100

120

140

1981 1986 1991 1996 2001 2006 2011 2016 2021 2026

Bill.

scm

gas

Source: NPD ”Fakta, 2007”

Plateau in 2011 at about 108 million toe

per year

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Norwegian natural gas exports 2005

Total 82.5 bill.scmSource: Norwegian Petroleum Directorate

France19,3 %

UK18,8 %

Denmark0,4 %

Switzerland0,1 %

Belgium8,0 %

Spain2,9 %

Italy7,2 %

Czech Republic3,3 %

Austria1,0 %

Germany29,9 % The Netherlands

8,6 %

Poland0,6 %

15 Bscm

This is a widely diversified export portfolio that Norway is likely to nurture.

Note the large share enjoyed by Germany, France, Belgium and the Netherlands.

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Existing and projected pipelines allow almost any gas source to be connected to any destination

Source: Norwegian Petroleum Directorate

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incotecoWorld Gas Reserves end 2005

Trillion cu m BP Statistical Reserves 2006

0.00

10.00

20.00

30.00

40.00

50.00

60.00

Russian Federation

Qatar

United A

rab Em

irates

US

A

Venezuela

Kazakhstan

Indonesia

Malaysia

China

Uzbekistan

Kuw

ait

Netherlands

Other A

frica

India

Pakistan

Rom

ania

United K

ingdom

Myanm

ar

Other E

urope & E

urasia

Papua N

ew G

uinea

Other A

sia Pacific

Brunei

Brazil

Vietnam

Italy

Colom

bia

Bahrain

Other M

iddle East

DenmarkNorway

UK

Norway is a minnow compared with Russia, of

course

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Europe expects a large increase in gas supply from Russia

...and this might happen• …or might not • See the next slide• If not, expect Norwegian piped gas to

be at a premium• …and do not expect the Norwegians to

accelerate depletion rates beyond what is already planned

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Russian Gas Supply Forecast is bleak

IEA – Russian Gas Supply Outlook, summer, 2006

IEA study shows Russia cannot fulfill its contracts with EU - AND supply its domestic demand

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incotecoProduction increased but Russian

exports fell in 2006Russian Natural Gas

Production & Consumption

0

100

200

300

400

500

600

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

mill

ion

toe

Production Consumption Exports

Production

Domestic consumption

Exports are not risingBP Statistical Review 2007

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Global Gas supplies will remain tight• US & Canadian supplies are plateauing while demand grows

– Fulfilled by LNG• Indonesia cannot fulfill its contracts with Asian customers

– Which Qatar is fulfilling• Iran and Saudia Arabia, although large producers with growing

output, are using all their own production domestically• Algeria, Australia, Malaysia, Trinidad have no spare capacity• Nigeria is a war zone• Growing LNG capacity in Qatar is only realistic ”new” source but

demand is stretching its ability to deliver spot gas during cold weather– There are no plans to increase LNG exports beyond 77 million t/y

from Qatar after the completion of LNG trains at R’as Laffan• Other gas sources are really small

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incotecoGas and Oil Price 1996 - 2006

BP Statistical Review 2007

0.00

2.00

4.00

6.00

8.00

10.00

12.00

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

US$

per

mm

Btu

Japan CIF EU CIF UK Heren NBPUS Henry Hub Canada Alberta Crude Oil, OECD CIF

BP Statistical

Review 2007

The long term trend see gas and oil prices converge

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Europe must compete for the attention of gas suppliers

and UK must compete with other large and small consumers in

the EUOnly Ireland is further away from Easten Siberia!

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incotecoConclusions

1. A capacity crunch is imminent in the UK, • due to the rapid closure of capacity operating today• During the first really cold winter• It is doubtful that European partners will waive the LPCD rules as it did

with the present generation of old and inefficient coal plants2. There is growing awareness that the gap cannot be filled quickly by

a nuclear rebuild and should not be filled by much more new gas capacity

3. Renewable power, mostly wind power, cannot supply the missing firm capacity

• Without masses of storage• MWh and MW are wrongly conflated, even in the 2007 White Paper!

4. GHG issues leave ”clean coal” as the only remaining large scale option that could be completed in the next 8 years

• But the UK Government is floundering in a spaghetti of ill-conceived incentives and regulations

5. Carbon capture and use for EOR will extend North Sea hydrocarbon reserves in excess of UK Kyoto commitments

• But we may get around to this just in time to see much of the oil infrastructure de-commissioned

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That Flagship Policy is not working“The second factor was the design of the British electricity markets, and specifically NETA (and its gas counterpart). As a spot-based system, without a capacity element, as demand and supply converged, sharp volatility was to be expected. Indeed, this volatility was deemed to be a virtue: high price spikes would, it was argued, attract new investment”

Dieter Helm writing for the Social Market Foundation, 2006

Really serious, high value plant for the 21st

Century cannot wash its face under BETTA rules

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It looks like the UK will have to muddle on and on...

...through the supply crises and price spikes that will be inevitable from the path followed during the last twenty years

• There will be inevitable and possibly protracted physical shortages of fuel and inevitable energy rationing

• An energy policy, taking into account resource constraints, will evolve, driven by technocrats who understand that the future is discontinuous with even the recent past – Not by accountants, economists and politicians– The economic damage caused by the muddle will be immense

• Exceptional opportunities will arise for those who can understand the seriousness of this situation early enough

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OpportunitiesWithout sounding too jingoistic, we are• The heirs of a great engineering tradition• The inheritors of great engineering master

works• A nation with a history of inventors,

buccaneers and devil-may-care risk takers• Now we write reports and do consultations!• …and irritate our friends and rivals with post-

colonial, moralistic fervour

What on earth has gone wrong that we cannot put right?

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Anything that can spin will be on......and will command a premium price• …especially if it can deliver MW according to

requirements• Can a large fleet of super-efficient, clean

coal, (CCS) plants be engineered, planned, financed, procured, constructed and commissioned with pipelines to UK’s dwindling oil and gas fields by 2016?– We will have to rebuild our domestic power

engineering construction capacity• Small scale generators will profit

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It will be a great time for inter- building HVDC marine connectors

• Scotland - England• Upgrade France – UK (existing)• Increase Netherland – UK (under

construction)• UK – Scandinavia• UK – Germany

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Energy storage will come into its own• Willy nilly a huge wind carpet is building up,

on and offshore, able to supply MWh– But not MW as and when needed

• Storage can transform this:– It is doubtful that we can engineer more pumped

hydro in Wales and Scotland– …existing pumped hydro will command a premium– …and offshore tidal/wind lagoons can perform as

stores and harbours for offshore wind and tidal energy

– Compressed air energy storage may provide some opportunity

• At a rather low (50 – 60%) round-trip energy efficiency• …and requires ideal geology

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VRB Flow Battery TechnologyVRB Flow Battery TechnologyA liquid electrolyte that is separate from the electrode.

• An electrochemical energy storage system operating at ambient temperatures

• Reversible fuel cell – reduction and oxidation of single unique element: Vanadium

• No cross contamination• Electrolyte never wears out – high residual value• Very low maintenance• Deep cycles (20 to 80%) >10 years life• Low self discharge – indefinite energy storage• Energy can be recovered instantaneously• Battery can recharge as fast as it discharges (1:1)• Power and Energy separately scaleable

Charge

Discharge

V 4+ ⇒

V 5+ + e - V 3+ + e- ⇒

V 2+Negative ElectrolytePositive Electrolyte

V 5+ + e - ⇒

V 4+ V 2+ ⇒

V 3+ + e-

Only the pumps ”spin”

We are proposing a new type of combined heat and power station in Denmark

Electricityto customers

Heat from storage to heat pump

Heatpump

HeatAccumulator

Heat out

other sources of heat

C.W. return

Energy Storage & Power Quality Solutions

There will be significant cost reductions as manufacturing volumes increases

Projected VRB-ESS Cost at Various Manufacturing Volumes (as % of 2006 Cost)

0%10%20%30%40%50%60%70%80%90%

100%

Current (2006) 10 MW 100 MW

Cumulative Manufactured Volume

Tota

l Sys

tem

Cos

t

PCS and Controls Balance of Plant Cell Stacks Electrolyte

100%89%

69%

Energy Storage & Power Quality Solutions

10 GW?

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Wrap-up• Resource competition and energy scarcity will drive

Global energy use in the next decade– It will not be pretty

• Global warming concerns will give way to the need to keep the lights on

• …and in any case all the predictions for run-away emissions will be proven wrong

• The conditions will exist for creative destruction and massive reconstruction– But not if we do not take energy more seriously than

successive UK Governments• It is time for engineers to re-discover their importance

and responsibilities!

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Thank you! Hugh Sharman

Incoteco (Denmark) Aps Box 39 9370 Hals Denmark

www.incoteco.com