Industry leaders have called for “urgent action” amid warnings the electricity supply in the UK is set to be tighter this winter than last year.
The National Grid electricity system operator said in a report on Thursday that the UK faces tight electricity supplies because of rising demand and capacity constraints but declared the lights should not go out.
In a separate report, the operator insisted there should be no disruption to gas flames either despite the energy crunch.
‘Government action is fuelling energy crisis’Energy and business minister Kwasi Kwarteng, speaking at the Energy UK conference, said the government is confident supplies will meet demand this winter.
But he warned that record wholesale energy prices – which have seen nine suppliers go bust in September alone – “may well see (more) companies going out of the market”.
AdvertisementThe remark was echoed by the industry regulator, Ofgem, which also signalled that the wild shift in raw energy costs Europe-wide – that has seen UK gas costs hitting record levels – risks adding to surging household energy bills ahead, with some experts forecasting the price cap could rise by more than £400 next spring alone.
National Grid released eagerly awaited forecasts covering both gas and electricity supplies – with both expressing confidence that supply would meet demand over the cold months ahead.
More on Energy Related Topics: Energysupply crisisThe release of the reports also set the stage for a showdown between energy intensive industries and the government – which has distanced itself from being responsible for the country’s supply and price problems – as they reacted by demanding intervention on energy affordability.
Government fund to help ease energy expenseThe National Grid’s annual winter outlook, which assesses its readiness to keep the lights on, forecast an electricity margin of 6.6% capacity, lower than last winter’s 8.3%.
That means it expects to have 6.6% of supply left over at peak times on average.
The figure is also tighter than the 7.3% margin that had been pencilled in when an early assessment was made in July.
That was before a fire damaged a crucial interconnector in Kent, putting part of it out of action until next March.
But the latest report admitted the Grid was likely to have to issue “margin notices” over winter for periods when demand is especially tight – calls for the market including coal-fired power providers to ramp up supply, which tend to prompt a spike in the wholesale price.
These happened last winter too but this time prices are already elevated even before the winter sets in, with gas prices surging across Europe as a result of weaker stocks and tough competition globally to replenish them.
In its separate study, National Grid Gas Transmission (NGGT) said that Britain would have a “positive supply margin” – that is to say it can access more gas than is being used during peak demand.
It predicted that imports via ship and pipeline would be sufficient to meet the country’s needs.
Gas prices continue to surgeWholesale gas costs – up by more than 600% this year – tumbled back from record highs on Wednesday when Russia indicated it would meet its contractural obligations and could even free up more stocks.
But prices are, nevertheless, tipped to remain well above normal levels for the time of year – usually around 40p-60p/therm.
Contracts for next-day delivery were at 218p-per-therm on Thursday – indicating the market remains constrained and nervous.
But Ian Radley, director of gas system operations at NGGT, said: “We have a positive gas supply margin in all of our supply and demand scenarios, and there is a positive storage position as we enter the winter.”
The rise in gas prices has already stoked disruption, with the government forced to intervene after the largest supplier of CO2 halted production on cost grounds and threatening disruption to other sectors in the supply chain including meat processors.
A body representing heavy users of energy, such as the steel and chemical sectors, gave a heavily sceptical response to the Grid’s findings.
National Grid’s Winter Outlook Report….EIUG calls for govt & Ofgem action ahead of winter. pic.twitter.com/YUoa6omk12
— Energy Intensive Users Group (@UsersEnergy) October 7, 2021“The Energy Intensive Users’ Group (EIUG) considers that today’s report does not provide any comfort or certainty for UK Energy Intensive Industries that this winter’s energy supplies will be both affordable and available – urgent action is still required from government and Ofgem.”
A spokesperson for the Department for Business, Energy and Industrial Strategy responded: “We are determined to secure a competitive future for our energy intensive industries and in recent years have provided them with extensive support, including more than £2bn to help with the costs of energy and to protect jobs.
“Our exposure to volatile global gas prices underscores the importance of our plan to end Britain’s dependency on fossil fuels and build a strong, home-grown renewables sector so we can protect consumers into the future from gas prices set by international markets.”
National Grid’s call for extra electricity capacity has meant in the past that old fossil-fuel powered stations that now tend to operate less of the time ramping up their capacity – and charging extra to make up for their lack of use during the rest of the year.
Last year, National Grid said, wholesale day-ahead power prices topped £1,000/MWh at such periods of “imbalance”.
Yet prices nearing this – at £900/MWh – have already been seen this year, in September, even without this market alert taking place.
Fintan Slye, executive director of the National Grid Electricity System Operator, said: “The Winter Outlook confirms that we expect to have sufficient capacity and the tools needed to meet demand this winter.
“Margins are well within the reliability standard and therefore we are confident that there will be enough capacity available to keep Britain’s lights on.”
Speaking at a conference organised by the trade body Energy UK on Thursday, Business Secretary Kwasi Kwarteng admitted the country is “still very dependent, perhaps too dependent, on fossil fuels and their volatile prices”.
“Relying on homegrown power generation will protect consumers from gas price fluctuations. And it will, in the long run, bring down bills, we will use the wealth of Britain’s natural resources to deliver cleaner, cheaper power,” Mr Kwarteng said.
