National Grid warns of potential blackouts this winter as the capacity margin hits a record low of 1.2%. Capacity margin is the average amount of extra electricity available compared to peak winter demand.
Households will be expected to fund subsidies to new gas power stations to increase capacity and avoid darkness. Measures have already been prepared to help bolster supplies by paying factories to switch off between 4pm and 8pm on weekdays to reduce demand, and paying old power plants to stay open. This should push the capacity margin up to 5.1% – still the lowest rate since winter 2007.
Without these emergency measures, at least one blackout is likely at some point this winter. It seems the situation is only set to get worse as coal-fired plants are being forced to close in line with environmental legislation on carbon emissions. New clean plants are not being developed quickly enough to replace the supplies.
While subsidies are in place through the capacity market scheme, to help the creation of new gas-fired power plants, they don’t cover the funding required to build them. The subsidies are instead being paid to existing coal and nuclear plants through the scheme, which is not a long-term solution to the clean energy problem.
20 new gas-fired power plants will be needed to help keep the lights on by 2025 according to analysis yet subsidies would need to be paid “at much higher levels”, totalling £10 billion, in order to secure new gas plants.
Peter Atherton, analyst at Jefferies explains:
“At the moment we are not building new gas [plants] and unless we do there is a risk both to security of supply and the decarbonisation,” he said. “The big question for policymakers is do we think the capacity market will work? Or do we panic?”
While analysts show concern, National Grid is steadfast in their opinion that they can successfully deal with any issues without much disruption to the public.
“We’ve managed similar margins previously without any disruption to supplies but we’re not complacent. Even if the unexpected happens, we believe we have the right mix of tools and services to manage the network this winter.”
Ofgem backed them up saying:
“National Grid has purchased additional services that it can use to help balance the system this winter giving it a 5.1 per cent margin which it considers manageable. We’re confident that National Grid has the levers to manage the electricity system even in the most testing conditions.”
To put people’s minds at rest, Ofgem have produced a video to show how National Grid manages to match power supply with customer demand.
While we trust that the situation is under control, we expect the demand crisis to have a direct effect on energy prices going forward. Now is a good time to lock in your business gas or electricity contract and protect your company against future energy price hikes.
For more information on the capacity market or for an instant business energy quote, give Business Juice a call on 0800 051 5770, email us at quote@businessjuice.co.uk or use our contact form.