Profiling the risks to supply

The risks associated with new generation and electricity-intensive demand technologies must be identified, assessed, prioritised and mitigated to best manage security of supply, says Dr Manuel Castro.

The energy white paper set out a framework for energy policy underpinned by three objectives: security of supply, affordability and sustainability. Security of electricity supply has been defined by as “the ability of an electricity system to supply final customers with electricity”.

Capacity margin has commonly been used as an indicator of security of supply by the electricity industry and estimates the excess of available supply capacity over peak demand.

This assessment, based on the Winter Outlook Report (WOR) 2015/16, has estimated the capacity margin for every settlement period subject to uncertainty as a result of variable generation, random outages of power stations and the effects of weather on demand.

Negative capacity margins can be interpreted as loss of load conditions representing events of demand exceeding available supply. The likelihood of these events in winter 15/16 was evaluated to be low – the loss of load probability (LOLP) for the GB system was estimated at 0.014 per cent.

The LOLP index can be expressed in time instead of percentage, known as the loss of load expectation (LOLE). The LOLE index indicates the expected number of hours for which a supply shortfall may occur, estimated to be around 1.23 hours per year. This compares with the 1.1 hours per year figure described in the WOR 2015/16. The relatively small value of the LOLE estimate suggests the GB system is supply secure.

The transition to a low-carbon economy is transforming the way stakeholders think about, produce and use electricity. In particular, the introduction of new generation (such as wind and solar) and electricity-intensive demand (such as from heat pumps) technologies, with fundamentally different characteristics from the incumbent technologies, are likely to drive a dissimilar impact on the risk profile to security of supply. The associated risks need to be identified, assessed, prioritised and mitigated to enable effective risk management.

The LOLE index offers a simple indication of the expected likelihood of encountering shortfalls and should not be considered as an absolute measure of risk to security of supply because it does not provide any information about severity, frequency or duration. Such information becomes important for a true characterisation of risk as the levels of disruption grow in the electricity system.

The expected power not supplied (EPNS) and expected energy not supplied (EENS) indices are the expected power and energy that will not be supplied on occasions when demand exceeds available supply. These indices are used less than LOLE but are more appealing because they encompass the magnitude of the shortfalls, as well as their likelihood.

The loss of load frequency (LOLF) and the loss of load duration (LOLD) indices identify the expected frequency of encountering supply shortfalls and their expected duration. The indices have not been used in practice because of the need for additional data and increased complexity of the analysis.

These values of the risk indices to security of supply may not be exactly equal to the expected values and therefore the risk indices can only deliver a degree of comfort to stakeholders, which may not be warranted. For instance, the estimated value of LOLE may be less than a statutory reliability standard, but this does not necessarily mean the system performs satisfactorily.

The likelihood of no supply shortfalls over the winter period is considerably high. The chance of recording a number of supply shortfall events around the mean of the LOLF estimate of 0.82 occurrences per year is assessed to be about 28 per cent. The likelihood of the GB electricity system encountering three or more supply shortfall events during the winter season is said to be 4 per cent.

The distribution of the risk indices may also prove useful in assessing the costs and benefits of security of supply to stakeholders. The information regarding magnitude, likelihood, frequency and duration of supply shortfalls can be combined with the value that stakeholders are willing to place on security of supply, or alternatively the cost to stakeholders of supply interruptions.

Analysis of the trade-off between the costs of providing extra supply capacity against the associated benefit of reduced supply interruptions would provide the economically efficient level of supply capacity that would also ensure adequate security of supply. This would form the basis for the level of supply capacity required to be procured through the capacity market.