Analysts warn of electricity shortages over winter

Electricity supply in Great Britain will be insufficient to meet demand over 10 hours this winter, even with National Grid tapping into its contingency coal reserve to prop up the system, analysts have warned.

If it is unable to find ways to increase generation and reduce demand, LCP said the electricity system operator (ESO) will be forced to disconnect customers, such as energy intensive industries, to keep the lights on.

The consultancy’s forecast is based on the “very possible” scenario of Britain receiving no imports through its interconnectors with Europe due to nuclear shortages in France and low hydropower output in Norway.

In the absence of the contingency coal reserve assembled by National Grid in recent months, LCP said its forecast for the Loss of Load Expectation (LOLE) over the winter would be 29 hours. It said power markets appear to be bracing for even bigger issues, with traded prices for electricity delivered over winter reflecting a LOLE of up to 70 hours.

The figures are in stark contrast with the ESO’s own LOLE forecast from its early view of its annual Winter Outlook of 0.1 hours, which is well within Britain’s reliability standard of 3 hours.

LCP said updating the scenario used in the ESO’s calculation with the latest information gives a LOLE of 0.3 hours. However, the ESO’s forecast assumed 5.7GW of interconnector imports would be available to meet demand during tight periods.

The consultancy said the ESO must act and explore possible options for both increasing generation and reducing demand by incentivising customers to shift when they use electricity.

Chris Matson, partner at LCP, said: “The irony is that as Europe baked during this summer’s heatwave, it was simultaneously sowing the seeds for further pain this winter. As a result of the extreme droughts and the lack of water that is hitting hydroelectric systems in key interconnector markets like Norway, coupled by the issues we are seeing in France with their nuclear reactors, there are significant doubts about the availability of electricity coming into Great Britain from the continent which is critical to our security of supply.

“While our analysis has looked at where Great Britain’s electricity will be generated, the current market pricing for the winter months ahead is factoring in a much bleaker outlook and the possibility of gas supply issues across Europe. The market is clearly not ignoring this risk and factoring it into their current pricing for the winter, with the scarcity value of electricity driving prices to exceptional highs, far beyond the level explained by gas prices alone.

“To keep the lights on this winter it is likely that the energy system will need to fire up its ageing coal power stations despite our recent commitments to climate action. Whilst coal has made a much lower contribution to UK electricity supply over recent winters due to the success of deploying offshore wind and other renewable technologies, I expect that this winter we will see coal play a crucial part in providing energy security.”

Responding to the analysis, a spokesperson for National Grid ESO said: “We have published an early view of winter outlook to help the industry prepare for this winter. In early autumn we will publish a full winter outlook that will be based on verifiable market data as well as extensive engagement with stakeholders, including system operators in other countries, to ensure our analysis is as robust as possible.”

On Thursday (22 September), the ESO confirmed it had reached a deal with Uniper to keep a more than 500MW coal unit at the Ratcliffe-on-Soar power station in Nottinghamshire available until March 2023 as part of its winter contingency reserve.

The unit, which is one of four at the plant, was otherwise earmarked for closure by the end of this month. The remaining three units were already expected to remain open, with two of them holding Capacity Market contracts for this winter and the next.

Uniper said it is now reviewing the operation of the unit that was due to close and is planning to keep it online until the government’s required coal phaseout by the end of September 2024.

The ESO had already agreed deals to delay the closure of four coal units this autumn and keep them available as part of its contingency reserve – two 400MW units at EDF’s West Burton A plant in Nottinghamshire and two 570MW units at the Drax power station in North Yorkshire.

Commenting on the latest agreement, an ESO spokesperson said: “As per BEIS’ request, the ESO has entered into bilateral agreements with EDF, Drax and Uniper to provide additional coal powered generation this winter if required. This generation will not be available to the open market and will be dispatched at the request of the ESO.”

Last month, the ESO that it expects the coal contracts to cost up to £420 million, depending on the volume of coal procured to fuel the units.

To prevent electricity shortfalls this winter, the ESO is also planning to introduce a new demand flexibility service that will pay consumers to reduce their usage during tight periods.