OFGEM To Warn Of Blackouts

By Paul Homewood

 

http://www.telegraph.co.uk/finance/newsbysector/energy/10136903/Energy-regulator-to-warn-over-blackouts.html

 

According to the Telegraph:-

 

The regulator is expected to publish electricity supply and demand forecasts within weeks, showing that spare capacity has fallen as more gas-fired plants have been mothballed. It is likely to reiterate warnings that even if blackouts are avoided, power prices will rise steeply.

Britain’s spare power margin will be so narrow by the winters of 2014-15 and 2015-16 that unexpected events such as more plant closures, nuclear reactor outages or unusually cold weather could drive household electricity bills up by as much as 20pc, Peter Atherton, an analyst at Liberum Capital, has warned.

Last year, Ofgem’s assessment showed that margins would fall from 14pc to 4pc by mid-decade and the risk of power cuts would increase from near-zero in 2012 to one-in-12 by 2015 and one-in-two if demand was very high.

   

OFGEM have every right to be concerned. Let’s look at some of the basic numbers. The latest electricity capacity figures, issued by DECC and based on 2011, are below. I have also listed the capacity due to be taken off line by 2020, due to EU emissions regulations for coal/oil power, and obsolescence of nuclear.

 

 

	2011	Due for closure by 2020	Net
Coal	23	8	15
Oil	4	4	0
Gas	37		37
Nuclear	11	7	4
Hydro	4		4
Others	4		4
Total excl wind/solar	83	19	64

UK Generating Capacity – GW

   

I have ignored wind/solar as their nameplate capacity is utterly relevant. It simply is not guaranteed to be there when it is needed.

Average electric output runs at about 41 GW, but at peak times during winter months it regularly gets close to 60 GW. So, barring a large influx of new capacity, the spare capacity margin could be down to 4GW, or 6%.

Worse still, these capacity figures are the theoretical maximum. Taking into account downtime, the practical figure could be less. Of course, most planned maintenance can be done in lower demand, summer months. But in the real world, things don’t always go to plan.

As for timing, with the exception of 1 GW of capacity at the Dungeness B nuclear plant, itself due to close in 2018, all of the closed capacity will be gone by 2016. So, basically, we have just three years to address the problem.

The government’s hope is that enough new gas capacity is brought on stream to fill the gap. However, energy companies are not prepared to build new plant, only to see it lie around underutilised during the time when the wind is blowing.

Hence, the Capacity Market Mechanism, which is included in the Energy Bill currently going through Parliament. In simple terms, this will enable the government to pay power companies to keep their gas plants on standby, and ready to switch on when needed. The cost of this is then passed onto all electricity suppliers, and then onto consumers.

Everything has a price, and I have no doubt deals will be struck, but it certainly won’t be cheap, so watch out for much higher bills. Even then, it seems increasingly unlikely that sufficient capacity can be built in such short timescales.

 

Footnote

Incidentally I asked DECC whether the estimated cost of the Capacity Market Mechanism was ever included in the Impact Assessment of the original Climate Change Act in 2008. (Remember, the government’s own estimate of the cost of this Act was £18.3 bn a year.)

I was informed that no, this extra cost was not allowed for.

The mind boggles.