U.K. Power Grid Creaks at Risk of Blackouts
(Bloomberg) -- The U.K. power market is showing signs of strain. For the fourth time this winter National Grid Plc warned that the buffer needed to ensure security of supply and keep the lights on was too small.
While the U.K. has made swift progress on switching from fossil fuels to renewables, this is the downside to cleaning up its energy system. And, like Wednesday, when the wind doesn’t blow, cold weather boosts demand and several nuclear plants are offline the grid operator is left scrambling to avoid blackouts.
Each time a so-called electricity market notice is published, the issue has been resolved within hours by power plants ramping up supply or by a planned reduction in demand from industry. Until this winter, there hadn’t been a market warning for four years.
The reality is that the network operator needs to get better at balancing the system when turbines aren’t spinning as policymakers plan to quadruple the nation’s offshore wind capacity within 9 years.
“As the U.K. continues to rely on intermittent renewables, you need to have more and more backup capacities in place,” said Weijie Mak, project leader Aurora Energy Research Ltd. “You get into this issue where it’s harder and harder to manage the system.”
For National Grid, the difficulty is setting up the system so that the costs and benefits align, Mak said. It doesn’t make economic sense to pay for long-term backup capacity just to cover instances of unusually low wind.
The tools National Grid have seem to be working, meaning things are unlikely to change until there’s a blackout, according to Rory McCarthy, research manager for European power at Wood Mackenzie Ltd.
“We live in a system where the regulator pushes everyone on the system to reduce costs and push things to the margin,” he said.
The U.K. has a capacity market where power plant operators are paid a subsidy for being available. The capacity market functioned as it was designed to, McCarthy said. When the margin drops, there is a notice and the market responds. There is a question of how tight that margin should be and where the limits should be set, he said.
“The shortfall doesn’t relate to being able to meet demand for electricity, and doesn’t mean supply is at risk,” a National Grid spokesman said by email.
Auction prices spiked to a record 1,000 pounds ($1,365) for Wednesday evening, the same period in which National Grid identified a 584-megawatt shortfall in the cushion of spare capacity it needs to keep the lights on. When power plants fire up at short notice in the balancing market they are paid much more than the market rate. A cost the consumer ultimately pays.
Read more about soaring prices here
Balancing costs rose to the highest for two years in November, according to a National Grid report. Costs were “significantly higher” than expected due to more actions needed than usual to balance the system.
The grid operator warned in its Winter Outlook, published in October, that margins would be lower than last year due to planned outages at power plants and the unexpected closure of two of Calon Energy Ltd.’s gas-fired stations after the company went into administration.
The risk of blackouts this winter is higher than the grid operator has made public, according to trading house Hartree Solutions. National Grid’s scenarios, which show the tightest margins since 2016, assume imports of electricity from the continent. One of the nation’s major interconnectors with the Netherlands is down for maintenance until Feb. 1.
Ireland, another source of potential imports for Britain, has also warned of low margins from Wednesday afternoon, according to a market notice.
“Despite Brexit, our interconnector links keep us linked to wider EU markets on the continent which are also under strain,” said James Brabben, wholesale manager at Cornwall Insight. “Tight margins are forecast in French and Belgian markets too.”
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