LONDON: Keeping the lights on and the country warm must be the first and over-riding priority for Britain’s gas and electricity utilities, as well as its energy market regulator, and ministers at the Department of Energy and Climate Change (DECC).
If they cannot meet reasonable gas and electricity demand they must be replaced by other institutions and leaders who can. Failure is not an option.
For almost 40 years, Britain’s state-owned Central Electricity Generating Board (CEGB) ensured power was available at the flick of a switch. Nationalized companies did the same for gas.
Britain’s power and gas industries have an enviable record of reliability. The country has avoided the massive rolling power failures that blacked out huge swathes of the United States eight times since 1965, leaving millions of customers without power, some for days at a time.
Power quality characteristics like voltage and frequency have been controlled within tight limits which are the envy of the world. The overall reliability of supplies for the national electricity transmission system was 99.99954 percent in 2011/12, according to National Grid, which operates the network.
Discretionary voltage reductions, common in the United States as a last-ditch attempt to manage power demand and distribution when the system is struggling to cope, are rare in the United Kingdom, though voltage control worsened noticeably in the south of England in 2011/12.
Gas supplies have been delivered with similar professionalism. The country has safe, reliable and widespread availability of natural gas for cooking, heating and industrial users as well as power generation.
Reliability has been maintained at impressive levels following the privatization of both industries in the 1980s.
So it is depressing to hear Sam Laidlaw, chief executive of Centrica, one of the country’s largest power generators and gas producers, as well as a supplier to 12 million homes through its British Gas subsidiary, warn that it might not be able to keep the lights on.
“We think by 2017-18 we’re going to see reserve margins become uncomfortably tight, which means you’d have load shedding [rolling blackouts] at certain times of day if you have nuclear or other outages,” Laidlaw told the Financial Times.
Laidlaw told the Financial Times Centrica would only make a final decision on building new gas-fired power plants if it won a capacity auction scheduled to take place in 2015, with the first power plant not entering service for at least two more years, in 2017.
“The investment will start when the legislation is complete — so that’s between a year-and-a-half and two years from now,” Laidlaw said. “But it’s not actually going to start delivering power for two years after that.”
Laidlaw is only echoing concerns already been raised by the Office of Gas and Electricity Markets (Ofgem), the regulator.
“Four years ago, Ofgem’s Project Discovery report outlined how the combination of the global financial crisis, along with tough environmental targets, and the forced closure of ageing coal and oil power stations would provide a unique challenge for securing electricity supply from 2015 to 2020,” Ofgem Chief Executive Alistair Buchanan wrote in an article contributed to the Daily Telegraph newspaper this month.
“Our report to the government published in October last year ... confirmed this prognosis but with even more alarming warnings,” Buchanan wrote.
“National Grid has managed one-off shortages in the past in a professional way. It will face a tougher challenge over the next few years because of the possibility of a prolonged lack of spare power station capacity.”
Capacity is already so tight that this winter National Grid was forced to turn to the super-expensive oil-fired power station at Fawley, to keep the lights on for a million homes, after unplanned outages amid cold weather put the system under strain.
Buchanan warned of a “roller coaster” ride ahead for customers. “(The Duke of) Wellington described (the battle of) Waterloo as a close-run thing. Let’s hope that, in the battle to keep the lights on, these measures ensure it isn’t too close.”
Laidlaw and Buchanan are two of the senior leaders who are directly responsible for keeping Britain’s gas and electricity supply reliable and affordable. Yet both speak as if the problem really belonged to someone else.
Ofgem often implies Britain is the victim of forces beyond its control. But the real problems are self-inflicted.
The United Kingdom has been an enthusiastic supporter of ambitious targets for generating more electricity from green sources like wind, but the government has not given adequate and timely thought to how to provide the spare gas-fired capacity to
provide backstop power supplies when the wind does not blow.
As part of the European Union, Britain has signed up to the Large Combustion Plant Directive, that will force most coal-fired power plants to close by 2015, without planning properly for what will replace them.
The government banked on a new generation of nuclear power plants but so far failed to persuade the power companies, though either price incentives or regulatory requirements, to build them.
Utilities will not build new gas-fired plants unless the government guarantees them capacity payments to make up for the fact that they will only operate for a few hundred hours per year to backstop wind generation.
It would be easy to blame the government’s enthusiasm for renewable energy for lack of realism. But other power markets, including California and Germany, have successfully integrated an even higher share of renewables onto their grids without running out of spare capacity. Both are now struggling with how to cope with too much generation, not too little. No one is worried about the lights going out in San Francisco or
Stuttgart.
Britain’s problems are the result of a bumbling approach characterized by dithering and delay. The government, Ofgem and the utilities have been aware for years that Britain has a looming power gap. But the response has been far too slow and showed a lack of determination.
Laidlaw’s and Buchanan’s comments are an attempt to inject some urgency into the decision-making process by upping the pressure on ministers and parliament to get on with reforming the current energy market to provide capacity payments and other forms of price support to gas and nuclear generators to maintain grid reliability.
But threatening to turn the lights off with rolling blackouts is a very bad advertisement for the state of relations between the country’s power providers, regulators and the government. Customers have every right to expect better.
If the lights and the heating go off in the middle of winter, while nearly 20 oil and coal-fired power plants dot the landscape dark and unused, and the windmills are not turning because the weather is still, Britain will face not just an energy crisis but a political crisis that will rock both the government and the utilities to their foundations.
— John Kemp is a Reuters market analyst. The views expressed are his own.
