National Grid forecasts increased capacity margin this winter

National Grid has forecast a de-rated capacity margin for the coming winter of 6.6 per cent – or 3.4GW – in its latest annual Winter Outlook report.

The figure is up slightly on the 5.1 per cent margin which the company predicted for last winter. The loss of load expectation is 0.5 hours per year.

National Grid has increased its projected margin since it made a preliminary forecast of 5.5 per cent – or 2.9GW – in July. “This has had a positive impact on the outlook for winter, increasing the margin between potential supply and demand,” said director of system operator operations Phil Sheppard. The rise is the result of 430MW of capacity from Eggborough power station re-entering the market and a 250MW reduction in expected exports to Ireland due to an outage on the East West Interconnector.

The 6.6 per cent margin includes 3.5GW of reserve capacity (not de-rated) procured through the Supplemental Balancing Reserve (SBR). It falls to 1.1 per cent when the SBR is taken out of the equation. “The last few winters have been mild, but we are not complacent,” said Sheppard. “We have taken additional actions to improve the outlook for this winter and the de-rated margin includes the supplemental balancing reserve services that we have procured. We anticipate that we will use these services this winter to help us balance the system.”

The margin also includes interconnector capacity, which is expected to provide net imports of 2GW (2.5GW of imports from continental Europe and 0.5GW of exports to Ireland).

National Grid predicted that (including the SBR but not interconnectors) a total of 73.7 GW of capacity will be available over the winter, falling to 55GW once de-rated. It predicted an average cold spell peak demand of 52.7GW, to which it added 0.9GW to cover potential losses from embedded generation which is “not directly visible” on the system.

“Based on this analysis, we expect the electricity margin to be tight but manageable,” the report said. “We expect there to be sufficient generation and interconnector imports available to meet normalised demand throughout the winter.” The capacity margin is forecast to reach its lowest level during the week commencing 9 January due to the “expected level of demand and planned generator outage”.

Commenting on the report, Energy and Climate Intelligence Unit analyst Jonathan Marshall said: “The increased cushion between supply and demand in this year’s Winter Outlook shows that power cuts are exceedingly unlikely. A boost on last year – when there were no issues in the system – shows that the UK continues to have a reliable electricity system as we go through this period of transition.

“The 6.6 per cent margin is comfortably within National Grid’s statutory requirements from the government, up by nearly 30 per cent on last year’s margin. It shows how the segue from old, fossil fuel powered power stations to a system based on renewables and increased flexibility is taking place without the need for large capacity surpluses, which represent wasted investment.”

UK Power Reserves chief executive Tim Emrich said: “National Grid has had to prop up the UK electricity system again this winter by purchasing 3.5GW of expensive big six contingency balancing reserve services to ensure that there are no supply shortfalls. This type of generation is typically older, dirtier coal capacity which has no place in a modern energy generation mix.”

“Next year I’m pleased to report that the picture should be somewhat different, marking a major system shift away from large-scale big six-dominated centralized generation. UK Power Reserve intends to have the majority of its 0.5GW of new, independent clean-burning gas-fired generation online by then, providing better value for consumers and a more efficient route to securing electricity supply.”

Analysts at investment firm Jefferies said: “We believe that there are three factors that will drive the UK power price over the coming months and years; the gas price, the impact of renewables, and the evolution of the reserve margin. We expect the first two factors to negatively impact power prices.

“In addition we expect concerns around tight reserve margins to ease going forward due to lower demand, growth in decentralised and interconnector capacity and the introduction of capacity markets. Altogether, these factors are likely to result in significant downside to UK power prices.”