Table of Contents
Executive Summary
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- The market
- Increased demand for electricity generation drives natural gas demand in 2016, reversing recent downward trend
- Demand for gas from the domestic sector strongly influenced by changing weather patterns
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- Figure 1: Gas consumption by key end use sectors, 2012-16
- Capital expenditure in gas transmission and distribution industry up by 5% in 2015/16
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- Figure 2: Total gas transmission and distribution capital expenditure, 2011/12-2015/16
- National Grid Gas Transmission forecasts total capex to more than double between 2013/14 and 2017/18
- Market factors
- UK increasingly dependent on natural gas imports
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- Figure 3: UK Gas Supply, 2012-16
- Iron Mains Replacement Programme (IMRP) drives replacement expenditure by gas distribution network operators
- Rising wholesale costs prompt a number of suppliers to hike prices in early 2017, following price cuts in the previous year
- New regulatory framework introduced for current control period
- Companies
- Transmission and distribution industry structure
- Gas supply industry continues to be dominated by ‘big six’ energy firms...
- ... but independent suppliers are rapidly gaining market share
- What we think
Key Insights
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- How does Ofgem’s new regulatory framework - the RIIO model - impact distribution network operators’ approach to infrastructure management and investment?
- What are the key challenges faced by the UK’s gas network operators? How are companies innovating to address these challenges?
- What are the key recommendations in the CMA’s final report following the energy market inquiry?
Introduction
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- Definitions
- Methodology
- Abbreviations
Market Positioning
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- Key points
- Overview
- Roles of distribution networks
- Ofgem regulates gas network operators via price controls
- Customers
- Suppliers
UK Economy
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- Overview
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- Figure 4: UK GDP quarterly development, 2003-16
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- Figure 5: UK GDP in economic downturns and recoveries since 1979
- Inflation
- Interest rates
- House prices
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- Figure 6: UK house price changes, 2004-16
- Consumer spending
- Manufacturing
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- Figure 7: UK manufacturing, 2014-16
- Business investment
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- Figure 8: UK GFCF 2003-16
- Imports
- Exports
Market Factors
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- Key points
- Social factors
- Economic factors
- The UK’s increased reliance on gas imports
- Potential for shale gas extraction
- Wholesale gas prices
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- Figure 9: Average wholesale gas prices, 2002-16
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- Figure 10: Average wholesale gas prices, 2002-16
- Environmental and legislative factors
- Climate Change Programme (including Climate Change Levy, Agreement and efficiency measures)
- Emissions Trading Scheme
- Carbon Plan
- Combined Heat and Power
- EU Renewables Directives
- Climate Change Act 2008
- Renewables Obligation (RO)
- Feed-In Tariffs (FITs)
- The Renewable Heat Incentive
- National Emission Ceilings Directive
- Carbon Emission Reduction Target (CERT) and Community Energy Saving Programme (CESP)
- Energy Company Obligation (ECO)
- Reforms to promote increased competition in retail energy market
- CMA energy market investigation
UK Gas Demand and Supply
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- Key points
- Overview
- UK gas demand in decline
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- Figure 11: Segmentation of industrial gas consumption, by end use industries, UK, 2011-15
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- Figure 12: Segmentation of gas consumption, by non-industrial sectors, UK, 2011-15
- Figure 13: Segmentation of gas consumption, by non-industrial sectors, 2015
- Power generation
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- Figure 14: Gas supplied for electricity generation, UK, 2012-16
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- Figure 15: Gas supplied for electricity generation, UK, 2012-16
- Interruptible
- Industrial
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- Figure 16: Gas supplied to the industrial sector, UK, 2012-16
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- Figure 17: Gas supplied to the industrial sector, UK, 2012-16
- Commercial
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- Figure 18: Gas supplied to the UK commercial sector, 2011-15
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- Figure 19: Gas supplied to the commercial sector, UK, 2011-15
- Domestic
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- Figure 20: Analysis of the development of gas supplied to the UK domestic sector, 2012-16
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- Figure 21: Gas supplied to the UK domestic sector, 2012-16
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- Figure 22: UK installed base of central heating systems, by type of fuel, 1970-14
- Regional demand
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- Figure 23: Gas sales and customers by region, Great Britain, 2015
- Northern Ireland gas market
- Gas supply
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- Figure 24: Total gas supply, UK, 2012-16
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- Figure 25: Development of the UK gas supply, 2012-16
Gas Transmission and Distribution Capital Expenditure
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- Key points
- Capital expenditure
- The market 2012-16
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- Figure 26: Total gas transmission and distribution capital expenditure, 2011/12-2015/16
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- Figure 27: Total gas transmission capital expenditure, 2011/12-15/16
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- Figure 28: Total gas distribution capital expenditure, 2011/12-2015/16
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- Figure 29: Total gas transmission and distribution capital expenditure, 2011/12-2015/16
- Replacement expenditure (Repex)
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- Figure 30: Length of iron gas mains replaced, by distribution network operator, 2011-16
- Capital expenditure by individual companies
- National Grid Gas
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- Figure 31: Gas transmission and distribution capital expenditure by National Grid Gas, 20011/12-2015/16
- Northern Gas Networks
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- Figure 32: Gas Distribution Capital Expenditure by Northern Gas Networks, 2011/12-2015/16
- Scottish Gas Networks
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- Figure 33: Gas Distribution Capital Expenditure by Scottish Gas Networks, 2011/12-2015/16
- Southern Gas Networks
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- Figure 34: Gas distribution capital expenditure by Southern Gas Networks, 2011/12-2015/16
- Wales and West Utilities
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- Figure 35: Gas Distribution Capital Expenditure by Wales and West Utilities, 2011/12-2015/16
Forecast Capital Expenditure
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- Key points
- Overview
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- Figure 36: Ofgem’s required expansion of the number of properties to alleviate fuel poverty, 2013-21
- Innovation at centre of new price control model for gas distribution and transmission network
- Transmission network
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- Figure 37: Capital expenditure plans by National Grid Gas under RIIO-T1, by category, 2014-21
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- Figure 38: Annual capital expenditure plans by National Grid Gas under RIIO-T1, by category, 2014-2021
- Distribution network
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- Figure 39: Controllable cost allowances for gas distribution companies under (RIIO-GD1), 2014-21
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- Figure 40: Annual capex plans under RIIO-GD1, by GDN, 2014-21
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- Figure 41: Annual repex plans under RIIO-GD1, by GDN, 2014-21
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- Figure 42: Forecast total capex and repex during RIIO-GD1, 2013/14-2020/21
- Individual companies
- Northern Gas Networks
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- Figure 43: Northern Gas Networks capex & repex, 2014-16 (actual) and 2017-21 (planned)
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- Figure 44: Northern Gas Networks capex & repex workload, 2014-16 (actual) and 2017-21 (planned)
- Scotland Gas Networks
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- Figure 45: Scotland Gas Networks capex & repex, 2014-16 (actual) and 2017-21 (planned)
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- Figure 46: Scotland Gas Networks capex & repex workload, 2014-16 (actual) and 2017-21 (planned)
- Southern Gas Networks
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- Figure 47: Southern Gas Networks capex & repex, 2014-16 (actual) and 2017-21 (planned)
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- Figure 48: Southern Gas Networks capex & repex workload, 2014-16 (actual) and 2017-21 (planned)
- Wales and West Utilities (WWU)
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- Figure 49: WWU capex & repex, 2014-16 (actual) and 2017-21 (planned)
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- Figure 50: WWU capex & repex workload, 2014-16 (actual) and 2017-21 (planned)
- NGG East of England
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- Figure 51: NGG East of England capex & repex, 2014-16 (actual) and 2017-21 (planned)
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- Figure 52: NGG East of England capex & repex workload, 2014-16 (actual) and 2017-21 (planned)
- NGG London
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- Figure 53: NGG London capex & repex, 2014-16 (actual) and 2017-21 (planned)
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- Figure 54: NGG London capex & repex workload, 2014-16 (actual) and 2017-21 (planned)
- NGG North West
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- Figure 55: NGG North West capex & repex, 2014-16 (actual) and 2017-21 (planned)
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- Figure 56: NGG North West capex & repex workload, 2014-16 (actual) and 2017-21 (planned)
- NGG West Midlands
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- Figure 57: NGG West Midlands capex & repex, 2014-16 (actual) and 2017-21 (planned)
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- Figure 58: NGG West Midlands capex & repex workload, 2014-16 (actual) and 2017-21 (planned)
Structure of the Gas Distribution Industry
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- Key points
- Development and structure of the gas industry
- Industry structure
- Industry development
- National Grid Gas sells majority stake in its four UK distribution networks
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- Figure 59: Structure of the Distribution Network Operators, as of February 2017
- Competition in network connections
National Grid Gas
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- National Grid sells its UK gas distribution businesses
- National Grid Gas’ Innovation Strategy
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- Figure 60: Financial analysis of National Grid Gas, 2012-16
Northern Gas Networks
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- NGN’ Spending Plans
- Innovation
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- Figure 61: Financial analysis of Northern Gas Networks, 2011-16
Scotland Gas Networks
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- Innovation
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- Figure 62: Financial analysis of Scotland Gas Networks, 2012-16
Southern Gas Networks
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- Figure 63: Financial analysis of Southern Gas Networks, 2012-16
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Wales and West Utilities
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- Figure 64: Financial analysis of Wales & West Utilities, 2012-16
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Gas Supply Industry
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- Key points
- Recent retail market and industry developments
- Ofgem implemented market reforms in 2014 to promote increased competition and supplier switching
- Further market reforms on the way following CMA Energy Market Investigation
- Cheaper tariffs available due to falling wholesale costs, cuts to green levies and increased competition
- ...but a number of suppliers hike prices in early 2017, citing rising wholesale costs and the cost of delivering government policies
- Suppliers face criticism from government amid latest price hikes
- Breakdown of average gas and electricity bill
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- Figure 65: Breakdown of average large supplier dual fuel household bill, 2015
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- Figure 66: Breakdown of average domestic electricity bill, 2015
- Figure 67: Breakdown of average domestic gas bill, 2015
- Cheap fixed tariffs have become focal point of competition...
- A considerable proportion of households remain on more expensive standard variable tariff, but switching rates are on the up
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- Figure 68: Number of supplier switches in the domestic gas and electricity markets and share of small suppliers, Great Britain, Q1 2011 - Q4 2016
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- Figure 69: Number of supplier switches in the domestic gas and electricity markets, Great Britain, 2013 – 16
- Independent suppliers are rapidly gaining market share
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- Figure 70: Domestic gas supply market shares in Great Britain, by company 2012-16
- Lower prices and differentiation strategies drive growth of independent suppliers
- Future rise in wholesale prices could put smaller suppliers at risk
- Poor customer service and complaints handling is an industry-wide issue
- Smart Meter Roll-out programme
- Switching rates in the SME sector also set to increase
Centrica/British Gas Trading
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- Recent acquisitions and disposals
- Company strategy
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- Figure 71: Financial analysis of Centrica, 2011-15
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- Figure 72: Centrica revenue segmental analysis, 2016
- British Gas freezes standard energy tariffs until August 2017
- Focus on innovative Connected Homes Products
- Company review and outlook
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- Figure 73: Financial analysis of British Gas Trading, 2011-15
EDF Energy
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- Smart metering programme
- Recent price cuts and hikes
- Intense competition sees EDF Energy lose more customers in 2016
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- Figure 74: Financial analysis of EDF Energy, 2011-15
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- Figure 75: EDF Energy revenue segmental analysis, 2015
RWE Npower
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- Price cuts announced in early 2016...
- ...But Npower introduces strong price rises in March 2017
- Company strategy and outlook
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- Figure 76: Financial analysis of Npower, 2011-15
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- Figure 77: RWE - UK revenue segmental analysis, 201 5
E.ON Energy
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- E.ON cuts gas price in early 2016....
- .. But announces a price hike in March 2017, the first in more than three years
- Company strategy
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- Figure 78: Financial analysis of E.ON Energy Solutions, 2011-15
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- Figure 79: E.ON revenue segmental analysis, 2015
ScottishPower Energy Retail
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- Gas prices cut in early 2016, but dual tariff raised in early 2017
- Company strategy & outlook
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- Figure 80: Financial analysis of ScottishPower Energy Retail, 2011-15
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- Figure 81: ScottishPower revenue segmental analysis, 2015
SSE
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- Recent reductions in gas prices for SSE customers
- But SSE hikes electricity prices from April 2017
- Company strategy and outlook
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- Figure 82: Financial analysis of SSE, 2012-16
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- Figure 83: SSE revenue segmental analysis, 2016
Ecotricity Group
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- Ecotricity raises energy prices towards the end of 2016
- Company strategy
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- Figure 84: Financial analysis of Ecotricity Group, 2012-16
First Utility
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- Company strategy and outlook
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- Figure 85: Financial analysis of First Utility, 2011-15
Good Energy Group
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- Company strategy
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- Figure 86: Financial analysis of Good Energy Group, 2011-15
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- Figure 87: Turnover analysis of Good Energy Group, by segment, 2012-15
Future Gas Demand
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- Key points
- The market
- Consumer Power scenario:
- No Progression scenario:
- Gone Green scenario:
- Slow Progression scenario:
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- Figure 88: Forecast UK gas demand, 2016-40
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- Figure 89: Forecast UK gas demand, 2016-40
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- Figure 90: Forecast gas demand, by sector, 2016-40
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- Figure 91: Forecast UK gas demand by sector under “slow progression” scenario, 2016-35
- Figure 92: Forecast UK gas demand by sector under “gone green” scenario, 2016-35
- Figure 93: Forecast UK gas demand by sector under “no progression” scenario, 2016-35
- Figure 94: Forecast UK gas demand by sector under “consumer power” scenario, 2016-35
- Domestic demand
- Home insulation
- Smart meters programme
- Increased uptake of smart thermostats
- Heat pumps
- Industrial/commercial demand
- Power generation demand
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- Figure 95: Forecast power generation installed capacity under “slow progression” scenario, by source, 2016-40
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- Figure 96: Forecast power generation installed capacity under “gone green” scenario, by source, 2016-40
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- Figure 97: Forecast power generation installed capacity under “no progression” scenario, by source, 2016-40
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- Figure 98: Forecast power generation installed capacity under “consumer power” scenario, by source, 2016-40
- Imports
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- Figure 99: Existing UK gas import infrastructure, as of November 2016
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- Figure 100: Proposed UK import projects, as of November 2016
- Exports
Further Sources & Contacts
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- Trade associations & regulatory bodies
- Energy Networks Association
- Office of Gas and Electricity Markets (Ofgem)
- Office of Gas and Electricity Markets - Scotland (Ofgem Scotland)
- Office of Gas and Electricity Markets - Wales (Ofgem Wales)
- Society of British Gas Industries
- Trade exhibitions
- edie2016
- Offshore Europe 2017
- Trade magazines
- Modern Utility Management
- Utility Week
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