6 August 2015

ARE WE HEADED FOR 1970S-STYLE WINTER LIT BY CANDLES AND WITH NO

INTERNET?!

In March this year, Centrica announced that the UK’s main gas storage facility at Rough is undergoing a 6-month capacity reduction of about ¼.

Back in 2013, due to an unexpected cold snap combined with a failure of a gas feed from the continent, UK gas supplies got as low as 1 day’s usage.

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Rough gas short-fall

6 August 2015

Recent indicators and statistics on UK storage capacity show that our position now (red line in the chart below) is worse than at this time in 2013 (orange line) when ministers were forced to make public statements reassuring business, the public and markets that we weren’t about to ration energy or to “switch off the lights”.

A double whammy – not enough storage and not enough power generation

Combined with this lack of energy storage capacity during the summer months is the fact that the UK does not currently have the same level of power generating capacity as in the recent past.

The Central Electricity Generating Board used to say that a resilient network operated on a 25% capacity surplus. The most recent analysis from the National Grid suggests this ‘safety buffer’ margin between peak winter electricity demand and the output from Britain’s ageing power stations is likely to fall to just 1.2 per cent this winter (it was 4% last year).

Lord Redesdale, head of the Energy Manager’s Association has said that he’d “put money on brownouts or blackouts by the end of the year”. He also believes that these tight capacity margins will lead to price rises of 25% within 12 months because of our current shortfall in power generation capability.

This is certainly an extreme view, and perhaps one with an ulterior motive, as the peer concludes “It will be a great time to be an energy manager… Because suddenly companies are going to see energy as a massive risk.” The problem is caused by a combination of success and failure.

Out of date coal and gas-fired power stations are being taken out of service according to schedule, whilst their replacements –options that help us to meet the stringent commitments on reducing pollution we’ve signed up to at various international treaties on climate change – are subject to delays:

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Lord Redesdale, head of the Energy

Manager’s Association has said that he’d “put money

on brownouts or blackouts by the end

of the year.

6 August 2015

• Hinkley C is delayed due to political – and now legal – challenges • Wind farms have fallen out of favour with the early removal of government

subsidies • The DECC is already £1.5bn overspent on it renewable energy investment budget

that was supposed to last through to 2020.

Peter Atherton, analyst at Jefferies, said: “The underlying position of the network is becoming more and more fragile, which is requiring more emergency measures. Only three or four things could go wrong and we would have a serious problem.”

The National Grid, however, are confident in their contingency plans – having spent £36m in ensuring there

are mothballed power plants ready to be switched on at short notice, for example.

So if we do experience an extreme cold snap and/or there are technical issues with one of our power plants or with supply pipelines from the continent, hopefully we will be able to generate the energy required, rather than being overly-reliant on the reduced storage at Rough.

But there is an element of keeping our fingers crossed that we can generate enough surplus energy quickly enough once Rough comes back up to full capacity and before energy demand rises excessively.

Market analysts at ThomsonReuters believe there are two mitigating factors to consider:

First, the reported duration of the capacity reduction at Rough is six months.. [bringing] us to the end of September. Therefore what happens in October with Rough will be critical for the rest of the winter. … we expect to see a healthy supply

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Hinckley C

6 August 2015

situation in October in the UK, which would be an opportunity for Rough to top up its stock ahead of the winter.

Second, within a broader European perspective, the loss of storage capacity at Rough for this winter is not dramatic. Storages on the Continent are many times those in UK and can provide back-up through the IUK pipeline when the UK market tightens. Our view?

Key decision makers in government and the power industry will be well aware of the current risks, and I am sure are having a few busy days this summer ensuring that the worst case scenarios don’t become reality.

Of course, with wholesale energy at prices not seen for almost a decade, it is entirely possible that energy demand will be higher than in the recent past.

After a couple of mild winters, if we get a particularly nasty cold weather system from the Arctic taking root for a couple of weeks before Christmas, it might be prudent to ensure you’ve got a few candles and matches in the drawer, some spare blankets to hand and a decent board game or two in the house or office!

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6 August 2015

Want to read more about this?

The Register: The UK Energy Crisis in 3 simple awareness-raising pictures

The Daily Telegraph: UK faces worst power crunch in a decade this winter

BBC: Ofgem warns danger of power shortages has increased

The Spectator: Blackout Britain — why our energy crisis is only just beginning

The Daily Telegraph: Hinkley Point new nuclear power plant: the story so far

Forbes: Britain’s Energy Crisis Goes From Bad To Worse; ‘People Are Going to Have to Choose Between Keeping Warm and Eating’

Computing Magazine: Will the UK’s looming energy shortages send cloud computing overseas?

The Daily Telegraph: National Grid: Emergency measures to prevent winter blackouts

Daily Mail: Twilight Britain: A looming energy crisis this winter could force power giants to dim the lights in so-called ‘brown outs’ – with devastating results

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