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Current and future developments

External market developments

Market structure and ownership

There have been no significant changes in the structure of the UK energy infrastructure market since 2005, when we sold four of our regional gas distribution networks to other operators. The most significant change in ownership is the takeover of Scottish Power (owner of one of the Scottish transmission networks that we operate) by Iberdrola, a Spanish utility, which completed on 23 April 2007.

In the northeastern US, there have been no significant structural changes, while the most significant ownership changes have been our acquisition of the gas distribution network in Rhode Island and our proposed acquisition of KeySpan.

Energy market developments

Both the UK and US are in a period of changing energy supply patterns, as more reliance is placed on imported gas and on new sources of electricity generation, including renewables. In the UK, the decline in UK continental shelf gas reserves means we continue to see a trend toward greater use of imported gas for both consumption and use in power generation. In the US, there is an increase in the reliance on imported gas and significant interest in the development of renewable power generation.

These changes are expected to impact on our electricity and gas transmission networks, our gas distribution networks and, to a lesser extent, our electricity distribution networks. In particular, significant investment is planned in our UK electricity and gas transmission networks and gas distribution networks to link new power plants and gas import facilities with domestic, business and industrial consumers. In the US, renewable power developments will require increasing investment in our US electricity transmission and distribution networks.

As a consequence of the decline in gas production from the UK continental shelf, our latest forecast is that the UK will import around 50% of its gas requirements by the end of the decade.

Line graph charting gas supply projections from 2004/05 to 2010/11

Activity to increase the UK's import capability has involved the development of new import infrastructure by National Grid and other market participants. During the year, a number of significant infrastructure projects were commissioned, including the Langeled pipeline from Norway connecting at Easington, providing annual capacity of 25 billion cubic metres (bcm) of gas, enhancements to the Belgian interconnector increasing annual import capacity from approximately 17.5 to 25 bcm and the BBL pipeline at 15 bcm capacity linking the UK market at Bacton with the Netherlands. In addition, Excelerate Energy commissioned its 4 bcm peak capability import liquefied natural gas (LNG) facility at Teesside, using onboard ship re-gasification technology, and we are currently building a large pipeline through South Wales to connect new LNG import facilities at Milford Haven. We continue to invest in expanding our own LNG import facility on the Isle of Grain.

Following development of the UK gas daily summary report during winter 2005/06, it became clear how important the delivery of key information was to the operation of the market. For winter 2006/07, we worked with Ofgem and the industry to enhance the quality of information that is available to the market to further promote industry participant response to the gas supply/demand position. Of particular note is the introduction of the quality of information incentives which have been placed on National Grid to improve the timeliness and accuracy of the information being made available to the market, and the introduction of longer term demand forecasts.

In the US, a key industry development of the last 12 months has been a growing opinion among regulators and policymakers at the state and federal level that the industry must be more responsive to greenhouse gas concerns. The District of Columbia and 23 of the 50 states have established renewable portfolio standards for electricity supply procurement, some of which range as high as 30%. As a result there has been greater interest in renewable energy development which has seen an increase in the amount of wind resources connecting to the electricity transmission system. As wind power and other forms of renewable supply are often found in remote areas, greater reliance on such resources will act to increase the distance between generation and major metropolitan load areas, providing further support to an already growing national consensus that additional investment in the US transmission system is needed to meet the energy challenges of tomorrow.

Despite criticism for being too costly, currently established US regional transmission organisations are likely to remain in operation for the foreseeable future due to support of regulators and stakeholders in the regions where they have been established, including the northeastern US. However, it is unlikely that regional transmission organisations will proliferate given strong resistance to them in many places in the western and the southern US. Some vertically integrated utilities in these regions have instead contracted with independent coordinators of transmission to address concerns of regulators seeking greater degrees of transmission independence, while avoiding the changes in jurisdiction from the state to federal level associated with regional transmission membership. In areas without regional transmission organisations, utilities continue to plan their infrastructure needs principally on an individual basis within each state, presenting challenges to inter-state projects in such areas.

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