UK Government looks at upcoming winter power shortages

National Grid has called on companies to consider curbing their electricity use between 4pm and 8pm on winter workdays next year, in a stark sign of the urgency of Britain’s looming energy supply shortage.

The radical proposal came as the government presented a flurry of measures to meet the shortfall, including clarity on renewables subsidies, support for new gas power plants and incentives to drive shale gas exploration.

Ministers also brought forward a £10bn guarantee for Hinkley Point C, the nuclear power station that EDF Energy is planning to build in Somerset; it is the largest offered under the Treasury’s £40bn infrastructure guarantee scheme.

They also unveiled a new assessment of Britain’s shale gas resource which significantly increases the chances of replicating the US shale boom. The British Geological Survey said the Bowland Shale, which stretches across 11 counties in northern and central England, contains 1,300tn cubic feet of natural gas – more than previously thought, although little of it may prove recoverable.

The report suggests Britain has enough unconventional gas to underpin a sizeable domestic shale industry, at a time of declining production from its maturing North Sea gasfields and a growing dependence on gas imports from places like Norway and Qatar. But shale explorers will have to overcome fierce resistance from environmentalists who worry about the impact of hydraulic fracturing – or “fracking”.

The proposals came as the industry regulator Ofgem warned of an increased risk of power shortages by the middle of the decade , increasing fears the UK could face its first sustained wave of blackouts since the 1970s.

Some 20 per cent of Britain’s power capacity is set to come offline by 2020, as tough new EU environmental laws force the closure of ageing plants, and old nuclear reactors come to the end of their lives.

Ministers hope the new energy bill, which represents the most sweeping reform of the electricity market since privatisation, will unlock the investments needed in new generating capacity. But there are concerns the reforms will not come into effect soon enough to solve the shortfall.

Ofgem said that by 2015/16, electricity margins – the safety cushion of spare generating capacity – are to tighten faster than previously expected, to as low as 2 per cent.

It said it did not consider supply disruptions “imminent or likely”, but said the probability of such disruptions would increase from one in 47 years now to around one in 12 years for 2015/16.

National Grid outlined new possible “balancing services”. Under one of these, it would give financial incentives to companies to reduce demand between 4pm and 8pm on non-holiday weekdays from November to February for a continuous period of at least two hours, the company said.

It proposed holding tenders to reduce demand in the winter of 2014/15, and also suggested fees for consumers participating in the scheme, from £500 per Megawatt hour to £15,000/MWh.

Isobel Rowley, a spokeswoman for National Grid, said the 4pm-8pm period “coincides with peak demand, when people go home and there’s a spike”. She said total winter power demand in the UK is typically about 58 gigawatts and “being able to flex that demand downwards would be very helpful, especially as margins become tighter”.

The manufacturers’ organisation, EEF, said the suggestion that energy intensive industries switch off their power between 4pm and 8pm in the winter months in return for financial sweeteners was not feasible for many companies.

“[This] cannot in any way be seen as a substitute for adequate generating capacity. It would be a dangerous signal to send to overseas investors that the UK is going to rely on companies turning their electricity supply off to ensure demand is met elsewhere,” said Roger Salomone, head of EEF’s business environment policy.

Ofgem, National Grid and the Department of Energy and Climate Change are scrambling to find ways to help balance the electricity transmission system and provide new safeguards against the increased risk to supply.

FT