**3. Generation development options in United Kingdom (UK) from the aspect of natural gas availability and prices**

The tendency in West Europe to use more natural gas for heating and electrical generation could be boosted by further development in the European gas market. The considerable number of new pipeline and gas storage projects as well as constructive regulatory activities indicates that gas supply could be significantly increased.

Developing a competitive and regulated gas market supported with significant infrastructure investments and fulfilled environment requirements provide the framework to encourage increase in use of gas in the UK. From the aspect of energy resources diversity it appears that there is sufficient room for growth of CCGT and CHP plants to keep the right balance of generation mix.

The effect of gas market reforms on the power sector, particularly on generation mix in combination with industrial and heating requirements in the UK is now discussed. Optimum generation mix considers choice of fuel supply on a long-term basis via the analysis of remaining reserves and predicting market trends.

#### **3.1 Energy demand and supply in Europe and United Kingdom**

Annual energy demand growth projection in Europe is expected to be between 1.0 and 1.2 per cent in the next twenty years. Local electricity production, however, has a relatively low prospect for growth. It is expected that local sources will be insufficient to meet energy demand in the medium and long term. This combination of demand growth and local supply decline creates a need for a half a million billion cubic meters of new gas supplies in Europe.

Significant new supplies to Europe and UK are required and consideration has been given to pipelines from the North (Russia and Norway), East (ex Soviet countries via South East European corridor) and South (North African countries).

It is expected that gas would come from new developments in West Siberia (Yamal from 2012) and the Russian Barents Sea, pipelines through the Black Sea, the South East European (SEE) countries and over the Mediterranean Sea from Africa to Italy.

The electricity sector is one of the largest sectors of most European countries and could claim up to a half of the total capital investment. On average, electrical generation claims one third of countries total fuel consumption. On the other hand the total power generation of the developing world (including Asia, Latin America and Middle East) is expected to be over 60 per cent of the world's total.

From the projection of fuel inputs to power generation, coal and gas today represent about 66% of fuel inputs, and by 2030 it is expected that it will reach over 70%.

#### **3.2 Gas market – Brief overview**

200 Modeling and Optimization of Renewable Energy Systems

The incorporation of natural gas network modeling is a start to comprehensively analyze the interdependency between the natural gas and electricity infrastructures. The gas network model suggested here is a very simplified model. Gas storage is not modeled; only gas usage for electric power production is considered; other non-power gas usages, such as residential and commercial, and the associated impacts are not modeled. A more detailed gas network model should be employed for a more realistic study on a practical system, for which the availability of data may be an issue. In addition, the impact of the interdependency between natural gas and electricity infrastructures mainly from the perspective of power system operation should be considered as should impact of such

**3. Generation development options in United Kingdom (UK) from the aspect** 

The tendency in West Europe to use more natural gas for heating and electrical generation could be boosted by further development in the European gas market. The considerable number of new pipeline and gas storage projects as well as constructive regulatory activities

Developing a competitive and regulated gas market supported with significant infrastructure investments and fulfilled environment requirements provide the framework to encourage increase in use of gas in the UK. From the aspect of energy resources diversity it appears that there is sufficient room for growth of CCGT and CHP plants to keep the right

The effect of gas market reforms on the power sector, particularly on generation mix in combination with industrial and heating requirements in the UK is now discussed. Optimum generation mix considers choice of fuel supply on a long-term basis via the

Annual energy demand growth projection in Europe is expected to be between 1.0 and 1.2 per cent in the next twenty years. Local electricity production, however, has a relatively low prospect for growth. It is expected that local sources will be insufficient to meet energy demand in the medium and long term. This combination of demand growth and local supply decline creates a need for a half a million billion cubic meters of new gas supplies in

Significant new supplies to Europe and UK are required and consideration has been given to pipelines from the North (Russia and Norway), East (ex Soviet countries via South East

It is expected that gas would come from new developments in West Siberia (Yamal from 2012) and the Russian Barents Sea, pipelines through the Black Sea, the South East European

The electricity sector is one of the largest sectors of most European countries and could claim up to a half of the total capital investment. On average, electrical generation claims

interdependency on gas network operation.

**of natural gas availability and prices** 

balance of generation mix.

Europe.

indicates that gas supply could be significantly increased.

analysis of remaining reserves and predicting market trends.

European corridor) and South (North African countries).

(SEE) countries and over the Mediterranean Sea from Africa to Italy.

**3.1 Energy demand and supply in Europe and United Kingdom** 

The main participants in the gas industry are suppliers, infrastructure owners, distributors and consumers. Most of the existing contracts for supply of gas to the distributors in Europe and UK are long term contracts based on steady increase in demand. The current pressure to supply local areas with gas and electricity at a new development pace requires fast response from the suppliers, which is difficult to achieve at competitive prices under the existing contract terms. Hence major changes are expected in restructuring of those contracts to reflect the dynamic changes in heat and electricity demand. The new open market would also need to adjust by providing prompt changes in price in accordance with the demand and supply.

The changes in the gas supply industry are visible in that the suppliers now tend to target more than one market. In an open market the consumers would equally have a choice of suppliers that would therefore result in a reduction and optimization of prices.

#### **3.3 Generation options in UK**

#### **3.3.1 Planning principles**

Figure 1 illustrates a relationship between the main factors in a country's economy at various levels.

Fig. 1. Macro Economy Factors

Globalization of the Natural Gas Market on

**3.3.2 CHP plants in UK** 

emission.

nitrogen oxide

Table 2. Air Pollution Emission

**3.4 UK legislation and policy** 

**3.4.1 Energy review** 

years

Natural Gas Prices in Electric Power Generation and Energy Development 203

Conversely, the main disadvantage is that the availability and prices of gas will always be associated with risks related to disintegrated markets and political stability of the countries

Most thermal plants worldwide produce electricity with very low efficiency i.e. of the order of 33%. This has prompted concerns regarding high emissions of global warming gasses due to the GHG effect with evident local, regional and likely global implications. Due to those climate change initiatives, the focus on modern electricity generation has shifted towards

Table 2 illustrates the advantages of gas over fuel oil and coal in terms of air pollution

Fuel SO2 NOx CO2 PM Coal 0.081 0.018 3.57 0.106 Oil 0.06 0.017 3.13 0.004 Gas none 0.012 2.07 none [in mill tons/m.t.o.e of fuel]. PM-Particulate matter; SO2 sulphur dioxide; CO2 carbon dioxide; NOx

According to environmental agencies new CHP plants in the UK can deliver cost-effective

From the technical point of view they provide fast response to generate into the system, which fits nicely in the new regulated and more dynamic gas market. Gas turbines are

The UK Government's report on '*The Energy Challenge'* was issued on 11 July 2006. The main objective is to meet two major long-term challenges in UK energy policy, namely (i) climate change by reducing carbon dioxide emissions and (ii) to deliver secure, clean energy at

The consultation on the new measures on gas security of supply took place from 16 October

their robustness as UK moves to higher dependence on gas imports over the next 10-15

The document considers details on the security of gas supply and examines the extent to

carbon savings between 4 and 6 million tonnes and up to 8 million tonnes by 2015.

affordable prices, as UK moves to increasing dependence on imported energy.

the effectiveness of current gas security of supply arrangements

which the current policy framework is likely to deliver security of supply.

with the gas source as well as countries associated with gas transmission.

improving energy efficiency and reduction of pollution.

Source: Wikipedia; comparison of emissions from various energy sources.

generally more reliable than pure sustainable sources.

2006 to 12 January 2007. This consultation discussed:

whether new measures are needed to strengthen them.

It is seen that a macro economy based strategy is related to national economy with strong ties with the energy sector with a strong influence and interactions at regional and global levels.

Electricity is a major sub-sector of Energy, which together with other sectors such as agriculture, transport, health and education greatly affects the national economy. Electricity is irreplaceable in many areas and plays a strong role in expansion of the sectors and therefore its development is of crucial importance for a country's economic growth.

The main generation planning principle is to provide supply to meet the predicted demand in the most economic way in accordance with the adequate security and safety standards. Integrated Resource Planning (IRP) [10] is a recognized process that identifies a mix of resources to meet the future electricity service needs of the consumers, economy and the society.

Table 1. compares the various sources of energy participating in generation in UK and Europe. There is a significant effort to increase the use of sustainable sources.


N-Nuclear; CL-Coal Lignite; P-Petrol; NG-Natural Gas; H/W-Hydro/Wind; B-Biomass Source: Wikipedia; comparison of emissions from various energy sources.

Table 1. Electricity Generation in UK and Europe

Nuclear technology in the UK is likely to rise to 33% in the next 10-15 years in accordance to governmental predictions. Consideration has also been given to use of coal and lignite with new technologies that would purify the fuel and increase the plant efficiency. Exchange of experience with countries using those technologies in Europe, such as Poland and Russia, may lead to reopening of some coal mines and result in maintaining coal's share of current electricity production in UK.

The UK is committed to reducing the emissions of greenhouse gasses (GHG) as per the Kyoto protocol. The mechanisms to import clean energy from the countries with high margins (mainly developing countries in Eastern Europe) are also on the agenda.

Future electricity generation technologies will aim at achieving clean emissions in order to reduce impact on the environment, achieve high efficiency and short lead times to minimize uncertainties and risks. CCGT as well as CHP fully comply with this requirement. CHP technology is more common in Sweden, The Netherlands, Germany and Austria due to the high demand in heat for longer winter periods.

The main advantages of the gas turbine generation are:


Conversely, the main disadvantage is that the availability and prices of gas will always be associated with risks related to disintegrated markets and political stability of the countries with the gas source as well as countries associated with gas transmission.

## **3.3.2 CHP plants in UK**

202 Modeling and Optimization of Renewable Energy Systems

It is seen that a macro economy based strategy is related to national economy with strong ties with the energy sector with a strong influence and interactions at regional and global

Electricity is a major sub-sector of Energy, which together with other sectors such as agriculture, transport, health and education greatly affects the national economy. Electricity is irreplaceable in many areas and plays a strong role in expansion of the sectors and

The main generation planning principle is to provide supply to meet the predicted demand in the most economic way in accordance with the adequate security and safety standards. Integrated Resource Planning (IRP) [10] is a recognized process that identifies a mix of resources to meet the future electricity service needs of the consumers, economy and the

Table 1. compares the various sources of energy participating in generation in UK and

 N CL P NG H/W B Other Total % % % % % % % '000 GWh UK 22 34 2 37 2 1 - 386 EU 33 25 6 17 15 2 2 2671

Nuclear technology in the UK is likely to rise to 33% in the next 10-15 years in accordance to governmental predictions. Consideration has also been given to use of coal and lignite with new technologies that would purify the fuel and increase the plant efficiency. Exchange of experience with countries using those technologies in Europe, such as Poland and Russia, may lead to reopening of some coal mines and result in maintaining coal's share of current

The UK is committed to reducing the emissions of greenhouse gasses (GHG) as per the Kyoto protocol. The mechanisms to import clean energy from the countries with high

Future electricity generation technologies will aim at achieving clean emissions in order to reduce impact on the environment, achieve high efficiency and short lead times to minimize uncertainties and risks. CCGT as well as CHP fully comply with this requirement. CHP technology is more common in Sweden, The Netherlands, Germany and Austria due to the

margins (mainly developing countries in Eastern Europe) are also on the agenda.



therefore its development is of crucial importance for a country's economic growth.

Europe. There is a significant effort to increase the use of sustainable sources.

N-Nuclear; CL-Coal Lignite; P-Petrol; NG-Natural Gas; H/W-Hydro/Wind; B-Biomass

Source: Wikipedia; comparison of emissions from various energy sources.

Table 1. Electricity Generation in UK and Europe

high demand in heat for longer winter periods.

The main advantages of the gas turbine generation are:


considered as the most efficient type of generation.

electricity production in UK.

levels.

society.

Most thermal plants worldwide produce electricity with very low efficiency i.e. of the order of 33%. This has prompted concerns regarding high emissions of global warming gasses due to the GHG effect with evident local, regional and likely global implications. Due to those climate change initiatives, the focus on modern electricity generation has shifted towards improving energy efficiency and reduction of pollution.

Table 2 illustrates the advantages of gas over fuel oil and coal in terms of air pollution emission.


[in mill tons/m.t.o.e of fuel]. PM-Particulate matter; SO2 sulphur dioxide; CO2 carbon dioxide; NOx nitrogen oxide

Source: Wikipedia; comparison of emissions from various energy sources.

Table 2. Air Pollution Emission

According to environmental agencies new CHP plants in the UK can deliver cost-effective carbon savings between 4 and 6 million tonnes and up to 8 million tonnes by 2015.

From the technical point of view they provide fast response to generate into the system, which fits nicely in the new regulated and more dynamic gas market. Gas turbines are generally more reliable than pure sustainable sources.

#### **3.4 UK legislation and policy**

#### **3.4.1 Energy review**

The UK Government's report on '*The Energy Challenge'* was issued on 11 July 2006. The main objective is to meet two major long-term challenges in UK energy policy, namely (i) climate change by reducing carbon dioxide emissions and (ii) to deliver secure, clean energy at affordable prices, as UK moves to increasing dependence on imported energy.

The consultation on the new measures on gas security of supply took place from 16 October 2006 to 12 January 2007. This consultation discussed:


The document considers details on the security of gas supply and examines the extent to which the current policy framework is likely to deliver security of supply.

Globalization of the Natural Gas Market on

**3.5 Generation development options in UK** 

providing heat to industrial processes.

predictable power generation.

they need to buy or sell physical gas.

**4. US and Canadian liquefied natural gas** 

foreseeable situation by consideration of the following.

deficit that other low CO2 technologies cannot provide.

investments that depend on long tern return periods.

CCGT.

Natural Gas Prices in Electric Power Generation and Energy Development 205

CHP plants are currently in the focus of energy experts as the alternative to failure of meeting the targets related to sustainable energy. Total CHP generated energy in UK in 2005 was 27TWh of electricity and 51TWh of heat. The UK government predicted that just over 10% could be generated out of total predicted energy of 350TWh with the trend to grow up to 17% as an ultimate potential. Other countries in Europe such as Germany,

The advantages of gas turbines over other sources are numerous from fast response to system requirements to acceptable ecological characteristics with low NOx and no SOx emissions. In terms of efficiency, CCGTs are considered the best of all thermal power plants with efficiencies up to 60%. Further improvements, which is the trend in the UK, is to combine the gas turbine with use of sustainable sources of energy that would reduce the emission of GHG and improve efficiency up to 80% by connection to district heating and

Liberalization of the European Gas Market opens the opportunity for gas to participate in UK's generation mix in developing more CHP in addition to already implemented

Dependence on gas imports to replace UK reserves is most likely to be both pricey and vulnerable to the loss of supply due to political instability. It is prudent to plan for such a

Build modern Nuclear to replace existing operational old stations that could provide

Allow power generation from abated emission, modern coal power stations, as well as

Continue promoting 'renewable' fuels and wind, wave and solar, whilst keeping in

 Minimize output from existing gas fired power stations to retard the rate of consumption of Britain's own reserves – this may mean returning to a higher

Adequately fund development of tidal and under sea current technologies, for

 Government policy with regard to the structure of the energy markets should aim to remove the short-term price horizons in those markets that are a major bar to capital

US and Canadian gas consumers are averse to long-term physical contracts—the traditional mechanism for securing liquefied natural gas (LNG) in the world market. The US and Canadian natural gas market is wedded to spot transactions. This is partly a reaction to costly experiences unwinding long-term, reserve-based, bundled supply and transportation contracts that were well above spot prices a few decades ago, and partly a reflection of just how comfortable market participants have become in relying on the spot market whenever

providing incentive to utilize more coalmine methane in gas engines.

perspective the relatively low percentage of their overall contribution.

percentage of power generation from coal, having "clean coal" technology.

report that they expect CHP plants to meet 25% of the overall demand.

It also assesses the new challenges faced as the flexible sources of gas in the UK decline and discusses views on the costs, benefits and risks of some possible adjustments to the current commercial and regulatory framework to strengthen the ability to rise to that challenge.

A number of other consultations have been launched to help address security of energy supply and climate change challenges. A selection of a few is listed below.


On 15 December 2006, the Department of Trade and Industry (DTI), now Department for Business, Enterprise and Regulatory Reform (BERR), issued new Guidance to power station developers to maximize the use of CHP where feasible. In issuing this Guidance the Government is signaling its strong commitment to CHP, whilst recognizing that it is up to the market to bring forward the most competitive proposals to help ensure security of supply. The outcome of this was fed into the Energy White Paper in 2007.

#### **3.4.2 Energy white paper**

The White Paper, published on 23 May 2007, sets out the Government's international and domestic energy strategy to respond to these changing circumstances, address the long term energy challenges we face and deliver our four energy policy goals:


It shows how the measures set out in the Energy Review Report in 2006 have been implemented, as well as those announced since, including in the Pre-Budget Report in 2006 and the Budget in 2007.

Some of the measures in this White Paper require further public consultation. Alongside the White Paper consultations on nuclear power, the Renewables Obligation and guidance on the 1965 Gas Act have been launched.

CHP plants are currently in the focus of energy experts as the alternative to failure of meeting the targets related to sustainable energy. Total CHP generated energy in UK in 2005 was 27TWh of electricity and 51TWh of heat. The UK government predicted that just over 10% could be generated out of total predicted energy of 350TWh with the trend to grow up to 17% as an ultimate potential. Other countries in Europe such as Germany, report that they expect CHP plants to meet 25% of the overall demand.

## **3.5 Generation development options in UK**

204 Modeling and Optimization of Renewable Energy Systems

It also assesses the new challenges faced as the flexible sources of gas in the UK decline and discusses views on the costs, benefits and risks of some possible adjustments to the current commercial and regulatory framework to strengthen the ability to rise to that challenge.

A number of other consultations have been launched to help address security of energy

Proposals on banding, and amending the Renewables Obligation, December 2006 (part

Measures to reduce carbon emissions in large non-energy intensive business and public

 A consultation on Offshore Natural Gas Storage and Liquefied Natural Gas Import Facilities. This consultation considers the need for, and provides views on, changes to existing legislation with regard to the storage of natural gas in non-hydrocarbon features (e.g. salt caverns), the storage of natural gas in hydrocarbon features (e.g. partially depleted oil and gas fields) and the unloading of Liquefied Natural Gas (LNG) offshore. Offshore Natural Gas Storage and Liquefied Natural Gas Import Facilities: consultation,

On 15 December 2006, the Department of Trade and Industry (DTI), now Department for Business, Enterprise and Regulatory Reform (BERR), issued new Guidance to power station developers to maximize the use of CHP where feasible. In issuing this Guidance the Government is signaling its strong commitment to CHP, whilst recognizing that it is up to the market to bring forward the most competitive proposals to help ensure security of

The White Paper, published on 23 May 2007, sets out the Government's international and domestic energy strategy to respond to these changing circumstances, address the long term

to put UK on a path to cutting CO2 emissions by some 60% by about 2050, with real

It shows how the measures set out in the Energy Review Report in 2006 have been implemented, as well as those announced since, including in the Pre-Budget Report in 2006

Some of the measures in this White Paper require further public consultation. Alongside the White Paper consultations on nuclear power, the Renewables Obligation and guidance on

supply and climate change challenges. A selection of a few is listed below.

Energy Efficiency Commitment April 2008-March 2011, October 2006

supply. The outcome of this was fed into the Energy White Paper in 2007.

energy challenges we face and deliver our four energy policy goals:

to ensure that every home is adequately and affordably heated.

 to maintain the reliability of energy supplies to promote competitive markets in UK and beyond

 Resilience of Overhead Power Line Networks, March 2007 Distributed energy, A call for evidence, January 2007

New nuclear policy framework, October 2006

2) and January 2007 (part 1)

February 2007.

**3.4.2 Energy white paper** 

progress by 2020

and the Budget in 2007.

the 1965 Gas Act have been launched.

sector organizations, January 2007 Energy billing and metering, February 2007 The advantages of gas turbines over other sources are numerous from fast response to system requirements to acceptable ecological characteristics with low NOx and no SOx emissions. In terms of efficiency, CCGTs are considered the best of all thermal power plants with efficiencies up to 60%. Further improvements, which is the trend in the UK, is to combine the gas turbine with use of sustainable sources of energy that would reduce the emission of GHG and improve efficiency up to 80% by connection to district heating and providing heat to industrial processes.

Liberalization of the European Gas Market opens the opportunity for gas to participate in UK's generation mix in developing more CHP in addition to already implemented CCGT.

Dependence on gas imports to replace UK reserves is most likely to be both pricey and vulnerable to the loss of supply due to political instability. It is prudent to plan for such a foreseeable situation by consideration of the following.

