Our Generation

MANAGING GENERATION ASSETS ACCORDING TO LONG-STANDING PRINCIPLES

Our strategic objective for our Generation business is to be the greenest, most flexible, non-nuclear generator. This objective is underpinned by six core principles that direct the operation of, and investment in, our Generation portfolio:

  • availability: to respond to customer demand and market conditions;
  • capacity: to meet the electricity needs of domestic and small business customers;
  • compliance: with all safety standards and environmental requirements;
  • diversity: to avoid over-dependency on particular fuels or technologies;
  • flexibility: to ensure that changes in demand for electricity can be addressed; and
  • sustainability: to deliver an overall 50% cut in the CO2 intensity of electricity produced.

In implementing these principles we are focused on doing the right things now, while selecting the right projects for the future. This means capital and management resources are employed in areas and at stages where we best retain competitive advantage, support business growth, maximises shareholder value and ensure continued dividend growth.

 

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Generation

Maintaining a diverse Generation portfolio

Decarbonisation policy at the UK and European level is driving the way energy is converted to electricity; however, there is no 'one size fits all' solution to the achievement of this objective. Rather we are maintaining and investing in a diverse and sustainable portfolio of thermal and renewable generation plant. 

In moving to a low carbon generation mix we will, by the end of the decade, transition our generation assets from a portfolio weighted towards gas and coal, towards a portfolio weighted towards gas and renewables. 

The practical application of these principles means that we currently own or have an ownership interest in over 13,000MW of capacity, which comprised at 31 March 2013:

  • 4,270MW of gas-and oil-fired capacity (GB);
  • 1,068MW of gas- and oil-fired capacity (Ire);
  • 4,215MW of coal-fired capacity (with biomass co-firing capability); and
  • 3,237MW of renewable capacity (including hydro, pumped storage, onshore wind, offshore wind and dedicated biomass).

With this portfolio we have the greatest fuel diversity for generating electricity among UK generators and amongst the most flexible. It also makes us the largest generator of electricity from renewable sources across the UK and Ireland.

Reducing the carbon intensity of electricity generated

A key priority for us is a significant and continuing reduction in the carbon intensity of the electricity produced by our generation fleet; in other words, reducing significantly our carbon intensity every decade between now and 2050. This goal will be achieved through a diverse range of solutions including:

  • the commissioning and development of additional renewable energy capacity;
  • lower emissions from more efficient and flexible gas-fired generation;
  • delivering innovative solid fuel solutions at coal-fired stations; and
  • reduced output from coal-fired stations as they use up their allocated running hours under the EU's Industrial Emissions Directive.

With high gas prices and low spark spreads for gas-fired generation, during 2012/13 we used the portfolio diversity provided by our coal plants to ensure lowest possible cost power generation for our customers. While this has resulted in a short term increase in emissions we remain on track to halve our carbon intensity (compared with 2006) by 2020. 

More broadly, we have formed a coalition with an expanding list of European energy companies to encourage the EU to adopt a greenhouse gas emissions reduction target of 25% (up from 20% at present) by 2020 as part of a long-term move away from fossil fuel-based electricity generation and full decarbonisation by 2050. 

Building a more geographically diverse portfolio of assets

As well as diversity of fuel type, we now have greater diversity of generation plant in the markets in which it operates following the acquisition of the assets of Endesa Ireland in October 2012. This provided us with 1,068MW of thermal plant in Ireland's Single Electricity Market (SEM) to add to the 500MW of wind capacity it already owned at that stage. 

The Single Electricity Market in Ireland faces similar market drivers to the UK but has a very different regulatory regime, including:

  • centrally dispatched generation; 
  • a capacity mechanism that remunerates generators for a proportion of their fixed costs when plant is made available; and
  • no support for offshore wind generation.

This allows us to operate generation plant in a way that is familiar, while taking a different approach to new investment.