Utilities Corporate Agenda: Security of Supply

Table of Contents

• CATALYST
• SUMMARY
• METHODOLOGY
• ANALYSIS
  • Security of supply is focused on the source of primary fuels for power generation
    • Security of supply for primary fuel inputs to the power sector differs greatly between the US and EU
    • Coal dominates current power generation in the US, while in Europe coal and nuclear are the primary fuels
  • In the long-term nuclear power will join coal as America' s answer to security of supply
    • US natural gas use is not import dependent
    • Of the US gas that is imported almost all comes from Canada, a long-standing economic partner
    • EPAct subsidies and supports are focused on coal and nuclear power
    • EPAct tax incentives are focused on coal and nuclear power
    • EPAct support for natural gas and renewables is negligible in comparison to support for nuclear and power
  • Europe' s key security of supply issue is reliance on foreign gas, and coal expansion is a major response to this concern
    • Gas importation is the pre-eminent security of supply issue for Europe
    • Most European countries have a very high dependency on gas imports
    • 37% of European gas is imported from Russia
    • European gas demand is set to increase 28% by 2020
    • Europe cannot respond effectively to security of supply issues at a supranational level
    • Market forces, rather than government support, are driving new plant capacity in coal and natural gas
    • High coal margins persist, even in the face of a carbon emissions trading scheme
    • Nuclear capacity is on the cusp of a resurgence in Europe, but major new capacity build is still years away
    • New capacity expansion in Europe is focused on natural gas and coal
    • Gas and coal dominate planned capacity for Europe' s top five utilities
  • Security of supply concerns present a range of new opportunities for utilities in the US and Europe
    • There are four drivers of utility response to security of supply concerns
    • The four drivers will be illustrated with examples from Europe and the US
    • Risk avoidance centers on hedging end-customer obligations with long-term purchase agreements or upstream assets
    • Traditional utility structures are adequate to the task of risk management
    • Atel, Verbund, EDF and E.ON have emerged as leaders in exploiting volatility with new trading operations
    • New utility structures are evolving to take advantage of active trading opportunities
    • US energy companies have responded strongly to government coal and nuclear power incentives
    • EPACT 2005 will be successful in creating a resurgence of US nuclear power in the long-term
    • Security of supply is the strongest argument of European utilities for continued consolidation and vertical integration
• APPENDIX
  • Definitions
  • List of Figures
    • Figure 1: US Generation Capacity by fuel type (TWh)
    • Figure 2: European Generation Capacity by fuel type (TWh)
    • Figure 3: US generation capacity and fuel import dependency
    • Figure 4: Natural gas imports to the US (bcm)
    • Figure 5: European gas imports as a proportion of demand in 2005
    • Figure 6: Origin of European gas supply
    • Figure 7: Forecast gas demand for five major European markets
    • Figure 8: Fuel switching margins: UK coal versus gas-fired plant
    • Figure 9: European planned and proposed capacity by fuel type, 2007 - 2016
    • Figure 10: Top five European utilities by revenue: planned and proposed power capacity by fuel type, 2007 - 2016
    • Figure 11: There are four drivers of utility response to security of supply concerns
    • Figure 12: The four drivers will be illustrated with examples from Europe and the US
    • Figure 13: Traditional utility structures are adequate to the task of risk management
    • Figure 14: New utility structures are evolving to take advantage of active trading opportunities
    • Figure 15: Planned and proposed US capacity additions by fuel type