Oil & Gas UK breakfast briefing
Gareth DaviesRichard Sarsfield-Hall
22 September 2010
Gas: At the centre of a low carbon future
Moving to a low carbon future will need a fundamental change in the way we produce and use energy
Sources: DECC, CCC
0
100
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1990 2008 2020 2050
MtC
O2
Other Industry Electricity Transport Residential Projections
Government faces a difficult balancing act between conflicting priorities
�Any low carbon future will require
– high and sustained rates of
deployment
– successful and timely innovation
– dramatic changes in customer
behaviour
�Different paths affect the risk of meeting other policy targets
– security of supply
– affordability (fuel poverty and
competitiveness)
Security
AffordabilityClimate Change
How is government anticipating we achieve this?
�Some variation in long-term energy pathways proposed by DECC
– sensitivities on technologies
– focus on energy intensity
versus carbon intensity
�On reflection many similarities
– importance of electrification
of heat and transport
– rapid grid decarbonisation
– no role for gas in the mix
� Little flexibility or optionality across pathways
Total energy consumption
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2010 2015 2020 2025 2030 2035 2040 2045 2050
TW
h
AlphaBetaGammaDeltaEpsilonZetaReference
Source: DECC 2050 Pathways
Total gas consumption
200400
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1,000
1,200
1,400
1,600
1,800
2,000
2010 2015 2020 2025 2030 2035 2040 2045 2050
TW
h AlphaBetaGammaDeltaEpsilonZetareference
Electrification is a high risk way to achieve policy targets
�Deployment issues
– very large upfront funding
– supply chain
• heat pumps
• offshore wind
– facilitating infrastructure
• grid expansion
� Innovation challenge
– rapid commercialisation and deployment of CCS (5-6GW by 2025)
– smart grids/metering to provide flexibility
– electric vehicles
�Consumer behaviour
– accepting new technologies
– altering behaviour patterns to provide flexibility
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ratio
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W)
Intermittent generation
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01-Jan 04-Jan 07-Jan 10-Jan 13-Jan 16-Jan 19-Jan 22-Jan 25-Jan 28-Jan 31-Jan
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W)
Nuclear Biomass CCSCoal Coal CHPCCGT Other renewables Demand Peaking plants Imports
Pöyry model of UK power system in 2030 with large wind output
Gas need to fill the gap
Dash to electrification has implications for security ….
�Security
– intermittency
– uncertainty over policy
… and dash to electrification has implications for affordability
�Affordability
– fuel poverty targets rely on success of
energy efficiency measures
– industrial competitiveness
Source: DECC
Estimated impact on energy bills-
2010 2015 2020
Percentage increase in unit price of domestic gas
4% 10% 18%
Percentage increase in unit price of domestic electricity
14% 26% 33%
Impact of policies on the domestic energy bill
4% 0% 1%
Impact of policies on the non-domestic energy bill
14% 11% 26%
Gas has been a major contributor to a greener, more secure and competitive UK in recent decades …
Sources: IEA for gas consumption, DECC for CO2 emissions
… in parallel with both economic and electricity demand growth
Gas consumption CO2 emissions
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ex (
1990=
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Agriculture Industry
Upstream and non-sector Electricity
Transport Residential
Services GDP index (RHS)
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1990 1995 2000 2005 2009
Gas c
on
su
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y s
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cm
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ctr
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Agriculture Industry
Upstream and non-sector Electricity
Residential Services
Other Total electricity (RHS)
There is clear evidence that gas can kick-start the transformation...
� Significant carbon savings in the short term
� Facilitating renewable deployment while maintaining security and balancing the intermittent nature of wind
� Existing infrastructure and supply chains, especially for heat, mitigate deployment risk and postpone funding requirements
Pöyry model of Evolution of the power sector gas
demand in GB markets
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as d
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2009-10
2029-30
...and provide room for manoeuvre in the longer-term
�Breathing space to prove new technologies
– coal CCS deployed from 2020 in all DECC scenarios
– gas CCS likely to be cheaper than coal
– biomethane
� Time to establish new supply chains
– gas-based heating options do not ‘lock-in’ trajectories in the long-term
• 15 year turnover on boiler stocks
• heat distribution networks can incorporate lower-carbon sources in the future
– deployment of renewables supported over a more manageable timeframe
� Future industrial growth will require gas feedstock in any case
– DECC 2050 ‘Alpha’ pathway shows industrial gas demand at 40TWh in
2050 (27% of 2010)
– can industry make such an adaption without risking competiveness?
Why is the playing field biased against gas?
� All DECC projections show declining gas forecasts
– no gas CCS options
– inability to consider ‘collective’ solutions in modelling framework
– annual basis only
� Drive for renewable energy deployment is being made at the expense of overall carbon savings
– RHI focused on standalone technologies
� Full value of gas’ flexibility and reliability is not realised
� Misplaced ‘perception’ of rising gas security risk
Pöyry model of carbon savings compared to a composite benchmark dwelling
-1,000 0 1,000 2,000 3,000 4,000 5,000 6,000
Individual Biomass Boilers
Ground Source Heat Pumps
Air Source Heat Pumps
Solar Thermal
Small Biomass Air turbine CHP
Small Engine Natural Gas CHP
Community Boiler Natural Gas
Community Boiler Biomass
Anaerobic digestion CHP
Large Engine Natural Gas CHP
Medium Biomass Steam turbine CHP
Small CCGT Natural Gas CHP
Medium CCGT Natural Gas CHP
EFW Incineration CHP
Large Biomass Steam Turbine CHP
Waste heat
kg pa
DHN - Large Scale
DHN - Medium Scale
DHN - Small Scale
Stand alone renewable technologies
This review’s conclusions
� Too many targets and uncertainty over prioritisation
– government needs a more considered approach to meeting its long-term
goal of 80% lower emissions by 2050
�Greater risk of lights going out through insufficient power generation than of gas interruptions through a shortage of gas
�DECC pathways will cost all consumers more unless dramatic energy efficiency improvements happen
�Highly ambitious deployment targets and massive reliance on new technology happening
�Don’t reinvent the wheel
– gas infrastructure already there and is best option for providing flexibility
Recommendations for Government
�Keep options open
– a more realistic alternative plan would introduce the option for more gas in
the transition and in the end-game
– give gas an equal chance of being part of the energy mix in all longer term
energy projections e.g. gas CCS.
– allow more contingency in future pathways so that the market can deliver
the emissions targets securely and without costing the earth
�Review the 2020 renewables energy target as it appears to be a distraction from longer term carbon targets
�Ensure that electricity market reform signals true value of gas as back up to intermittent renewables
Pöyry Energy ConsultingKing Charles HousePark End StreetOxford, UKOX1 1JD
+44 (0)1865 722660www.poyry.comwww.ilexenergy.com
Richard [email protected] 812266
Gareth [email protected] 812204
Pöyry Energy (Oxford) Ltd. Registered in England No. 2573801. King Charles House, Park End Street, Oxford OX1 1JD.