Electricity generation margin to fall to 4% this winter

National Grid confident that additional reserves help to will keep the lights on

Security for natural gas in the UK is strong this winter, with supplies, storage and network capacity well in excess of maximum expected demand. However, electricity generation margins have decreased compared to recent years, with the average cold spell margin expected to be just 4%. So says national grid in its 2014/15 Winter Outlook.

The small electricity margin, down from 15% three years ago, is due to planned generator closures, breakdowns and new plant not coming online to replace them, adds the operator of both gas and electricity grids in Great Britain.

However: ‘the outlook remains manageable and well within the reliability standard set by government,’ said Cordi O’Hara, Director of Market Operation at National Grid. ‘As System Operator, we have taken the sensible precaution to secure additional tools to bolster our response to tighter margins.’

The company says it is finalising contracts with three power stations to provide additional reserve under Supplemental Balancing Reserve (SBR); Littlebrook, Rye House CCGT and Peterhead CCGT. Together with the Demand Side Balancing Reserve (DSBR) that National Grid has already contracted, these will provide an additional 1 GW of de-rated capacity to that assumed available in its base case, increasing the de-rated margin from 4% to 6%.

But, to some observers, the low margin is a sign of deeper malaise. ‘This warning from National Grid reveals that the days of a static, well-defined energy system operating for decades has likely come to an end,’ said Assistant Professor Fred Dahlmann, part of Warwick Business School's Global Energy Research Group.

‘Expectations of the characteristics defining our energy system have steadily grown: we want energy that is affordable, supplied around the clock without interruptions, and as little polluting as possible. But there are different views on what types of energy we need to achieve this ... and there is no agreement on whether we want government or companies to fulfil these ambitions. The outcome is continued concerns over short and long-term energy supplies, leading to price volatility and questions over achieving decarbonisation targets. The number and variety of variables needed to satisfy our energy system has simply become too complex to be solved by a single planner,’ concluded Dahlmann.

Energy trade union GMB took another view. ‘This very tight margin shows that government energy policy is in disarray. If there is a cold snap this winter the only way to keep the lights on is to shut down large swathes of British industry,’ said Gary Smith, GMB National Secretary for Energy.

‘There needs to be a radical look at energy sector to take account of evidence that trying market-style solutions, that invariably involve massive subsidies, have failed. There has to be planning to bring on stream enough capacity in the electricity sector. It is a natural monopoly so market-style solutions will fail, or deliver power that is too expensive,’ added Smith.