The challenge in UK power generation Steve Riley, Executive Director, Europe London, 3 December 2010

3 December 2010 page International Power 2 What constitutes a viable electricity system in the period to 2030? What attributes are needed? What market structure can deliver the attributes needed? What are the fundamental drivers? Need for a holistic approach

3 December 2010 page International Power 3 Looking ahead to a different generation mix in 2030 Source - Gas: At The Centre of a Low Carbon Economy Future, A review for Oil & Gas UK, Poyry, September 2010 January 2030 Total generation potential of wind capacity in 2030 Flexibility required from other sources of generation Generation (GW) NuclearBiomassCCSCoalCoalCHP CCGTOther renewablesDemandPeaking plantsImports Generation (GW) Intermittent generation

3 December 2010 page International Power 4 A changing generation mix Supply/TWh Carbon intensity gmCO 2 per kWh Note:Imports, currently at around 7 TWh per annum, not included Sources:DUKES for historical data; IPR projections for 2030 Renewables Nuclear Gas Coal Carbon intensity Committee on Climate Change aspiration on carbon intensity

3 December 2010 page International Power 5 Reserve Margin Sources:IPR analysis, March 2010 Notes:Profile reflects LCPD but not IED 16GW (coal/oil and nuclear) to be retired Unreliability of aging plant Intermittent wind generation Uncertain timetable for potential new nuclear Peak Demand Week Ahead AvailabilityUnconstrained Availability GW Headline Availability % Firm new build reserve margin Target reserve margin

3 December 2010 page International Power 6 IPR position on market reform in the UK On the carbon price floor – the priority must be a mechanism that delivers CO 2 reduction at the least extra cost to the sector and the consumer On renewables deployment - overall, it is timely to replace the Renewables Obligation with a Feed-in-Tariff mechanism On low carbon obligation and capacity payments: need to consider the whole market, not just the low carbon producers capacity payments offer a credible mechanism for delivering the attributes needed for a viable electricity system On Emission Performance Standards – in light of existing and new emission reduction regulation, Emission Performance Standards are an unnecessary regulation

3 December 2010 page International Power 7 International Power investing for the future In early stage development Consented Fossil generation remains an important technology for International Power Plant improvement projects at UKs main pump-storage facility at Dinorwig: increased storage capacity and investment to improve unit efficiency Renewable projects – IPR has around 1.3 GW of wind power globally and is starting to invest in the UK: pipeline of onshore wind projects across the UK developing energy from waste and biomass projects tidal projects in Scotland in early stage development 8 MW 6 MW 12 MW 8 MW 3 MW 32 MW

3 December 2010 page International Power 8 The industry is faced with a number of major challenges in the coming decade Market reform needs to consider the whole market, in recognising that a number of attributes are needed for a viable and effective system Developments in the UK cannot be in isolation from what is happening in the rest of Europe. IPR is very well placed to contribute to the electricity mix of the future Concluding remarks