Energy Market Trends

CBI Energy Conference 2010 London

Phil HareManaging Director

15th September 2010

CBI 15th September 20102

Source: Heren

Once upon a time…gas prices were “volatile”

0

10

20

30

40

50

60

70

80

90

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

GB

NB

P (

200

8 p

/th

erm

)

High continental prices pull up UK prices

Mild winter and oversupply causes low summer prices

Sharply rising gas prices driven by oil prices

Oil prices drive up the price of gas

Extremely mild winter causes oversupply and price crash

Rough storage failure and cold weather causing extremely high prices

CBI 15th September 20103

….....and coal prices were “stable”

Source: Reuters, McCloskey, ARA CIF basis 6000kcal/kg

0

20

40

60

80

100

120

140

160

180

200

220

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

NW

E c

oal

mar

ker

pri

ce (

2008

$/t

on

ne)

CBI 15th September 20104

…. and what of the future for commodity prices?

• What is a good long run price for oil?

• There is a lot of gas… in a global market

• Is there an acceptable (high) price for carbon? What if the electricity market decouples?

• Renewables and nuclear plant have low short run costs…

Increasingly not just a question of “must go up” – but “if” and “when”

CBI 15th September 20105

Even more change “planned”

0

100

200

300

400

500

600

700

1990 2008 2020 2050

MtC

O2

Projections

Services

Residential

Transport

Hydrogen

Electricity

Upstream andnon-sector

Industry

Agriculture

Sources: DECC, Committee on Climate Change

CBI 15th September 20106

Generation plant dispatch in a low carbon future

0

10

20

30

40

50

60

70

01-Jan 04-Jan 07-Jan 10-Jan 13-Jan 16-Jan 19-Jan 22-Jan 25-Jan 28-Jan 31-Jan

Gen

erat

ion

(GW

)

Nuclear Biomass Coal CHP CCGT Other renewables Demand Peaking plants Imports

0

10

20

30

40

50

60

70

01-Jan 04-Jan 07-Jan 10-Jan 13-Jan 16-Jan 19-Jan 22-Jan 25-Jan 28-Jan 31-Jan

Gen

erat

ion

(GW

)

Nuclear Biomass CCSCoal Coal CHPCCGT Other renewables Demand Peaking plants Imports

2010

2030

CBI 15th September 20107

Gas is in the party

GB – daily demand with weather of 2003

0

50

100

150

200

250

300

350

400

450

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

0

50

100

150

200

250

300

350

400

450

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Non power generationPower generation

Dem

and

(m

cm/d

ay) 2009

2029

CBI 15th September 20108

Market price volatility and stretch will greatly increase

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Weather year:

-50

-10

30

70

110

150

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

£/M

Wh

(rea

l 200

8 m

oney

)

0

500

1,000

1,500

2,000

2,500

3,000

0.0% 0.5% 1.0%

£/M

Wh

(rea

l 200

8 m

oney

)

Prices spike at £7700/MWh

2010

CBI 15th September 20109

Demand Side Management Value likely to grow?

• Inevitable response from demand response….

• ….but need to develop quantitative analysis of potential

• Analysis needs to include volumes, behaviours, timeframes and technologies

• This will not be ‘load management’ as we know it..

CBI 15th September 201010

Some early answers on demand…

Example for 2030 with electrification of heat and transport (Jan 2000 weather)

0

20

40

60

80

24-Jan 25-Jan 26-Jan 27-Jan 28-Jan 29-Jan 30-Jan

Win

d ou

tput

(G

W)

Quantity loadmanagement

Centralised active load management

0

20

40

60

80

24-Jan 25-Jan 26-Jan 27-Jan 28-Jan 29-Jan 30-Jan 31-Jan

De

ma

nd

, GW

Flexible EV

Flexibleappliances

Flexible heat

Inflexible

CBI 15th September 201011

In conclusion…

• Wider views of the future than ever before

• Too simple to say that energy prices will go up

• UK even less of an island

• Moving to a low carbon future likely to be even more

Pöyry Energy ConsultingKing Charles HousePark End StreetOxford, UKOX1 1JD

+44 (0)1865 722660www.poyry.comwww.ilexenergy.com

Phil HareManaging Director

phil.hare@poyry.com

+44 (0) 7770 828644

Pöyry Energy (Oxford) Ltd. Registered in England No. 2573801. King Charles House, Park End Street, Oxford OX1 1JD.