“The Global Electricity Revolution for Consumers”

2nd December 2014

PRASEG ANNUAL CONFERENCE

Transforming the UK Energy System: Risks and Opportunities

1. Opportunities: for cost saving in current system

2. Risks: transforming the electricity market by managing imbalance risk

3. Capacity Market: fear Vs. opportunity for real change

OPPORTUNITIES FOR

COST OPTIMISATION

We need COMPETITION & REGULATION to keep profit margins in checkP R

O F I T Network costs MINIMISED by moving FLEXIBLE load to cheaper price periods

Customers SHOULD have option to avoid costs but DON’T under current policy

These costs can all be MANAGED by combining DEMAND RESPONSE and smarter TRADING - more on this later

Suppliers are UNIQUELY PLACED to manage costs... …but most do not

RISK MANAGEMENT IN THE

ELECTRICITY SYSTEM

Renewable energy is wasted

Failure to manage imbalance means…

Higher cost of credit for independent generator developers

Reliance on consumer subsidies for renewables

Illiquidity In wholesale power market & PPA market

Burdensome collateral requirements for independent suppliers

Fossil fuel lock-in

Higher network charges

Lower power price received by independent renewable generators

Higher energy costs

CAPACITY MARKET

risk to incumbents Vs.

opportunity for change

1. DSR customer contracts are equal to generation contracts. Customers need certainty of revenue to invest in innovative technology and change operational practices.

2. Transitional auctions genuinely enable DSR customers to transition into the main CM market.

3. Barriers to market entry for DSR are removed. Bid bonds, open-ended capacity events. Like for like is not equality.

4. Cost recovery methodology incentivises reduction in peak demand. Will benefit ALL customers and the environment.

Missed opportunity and dangerous precedent unless:

Concluding Thoughts

1. Opportunities: Tempus Energy’s new supply model uses demand response to optimise energy costs

2. Risks: managing imbalance risk will be a game-changer for customers and renewables

3. Capacity Market: we must not let the close the door on opportunities for transformation and innovation

Questions?