The capacity crunch: is demand-side response the answer?

With the winter electricity capacity margin the tightest it’s been in more than a decade following a string of power plant closures, the question of who will keep the lights on is becoming increasingly complex. Could a shift towards demand-side management be the answer to the UK’s rapidly escalating capacity problem?

In its most recent winter consultation report, National Grid predicted a de-rated capacity margin of 5.1 per cent for winter 2015/16, the lowest the UK has seen since 4 per cent in winter 2005/6. The announcement caused a national media outcry, with claims that the grid won’t be able to cope and, come winter, we will all be in the dark.

“The capacity crunch has hit the UK even harder this year and with such a tight margin, power outages could be a very real possibility,” warns David Lewis, energy efficiency expert at Schneider Electric.

However, Phil Grant, partner at Baringa Energy tells Utility Week that, even if Grid is forced to deploy additional measures to ensure security of supply, the risk of a full-blown blackout “remains low”.

“Under normal weather conditions the supply margin will be extremely tight this winter and likely next winter too with only one large thermal plant currently under construction,” he says. “We can ill-afford to see a recurrence of the large plant outages experienced in recent years. If there are more extreme weather conditions with very low temperatures and/or low wind conditions, then the supply margin will fall further and Grid may well have to implement measures to ensure security of supply, and there are a range of measures that Grid has procured to protect against blackouts.”

Grid says: “It is clear that electricity margins for that coldest, darkest half hour of winter are currently tighter than they have been, due to power stations closures. As system operator, we feel we’ve taken a sensible precaution again this winter to buy some extra services. Together with the tools we already use to balance the network these additional services will significantly increase the energy reserve available this winter.”

With security of supply hanging in the balance, Grid has so far bought nearly 2.6GW additional balancing services, including 2.4GW of supplemental balancing reserve from generators and an additional 200MW of demand-side balancing reserve from major energy users willing to reduce their energy consumption at peak demand times.

David Elmes, head of the global energy research network, Warwick Business School, suggests that now the UK has more renewable energy technologies, ranging from large offshore wind farms to a roof-mounted solar panel, there are “more opportunities for energy to be supplied and used more locally”. “Small scale generation might reach 40 per cent of UK power supplies,” he says.

But Wayne Mitchell, director of markets and innovation at Npower Business Solutions argues that demand-side measures have a much larger role to play in ensuring security of energy supply. “With the UK now facing an even tighter energy crunch, it is right that National Grid use every tool at their disposal to ensure the lights stay on,” he says. “Large energy users have a major role to play in this through demand-side response, and particularly measures that incentivise them to switch off at peak times, for the right price.”

Last year, the government was criticised by the energy and climate change select committee for favouring the development of new generation over the use of demand-side response options in its upcoming capacity market. “It would be far more cost-effective to facilitate the use of [demand-side response], where rapidly evolving technology is opening up new opportunities,” former energy and climate change committee chair Tim Yeo said in a letter to then energy minister Matthew Hancock, adding that analyst estimates show potential savings of £359 million could be missed. Could a fear of blackouts spur the government on to augment its support for demand-side?

Grid has said it hopes to obtain 30-50 per cent of balancing services from demand-side response by 2020, making it “the single biggest source of balancing” by the end of next decade, both for company and for the market as a whole. The company has long procured limited demand-side services and encouraged demand-side management, but National Grid’s head of commercial operations, ­Duncan Burt, says the increased deployment of intermittent renewable energy, advances in demand-side technology and a greater need for business to reduce energy costs means that an active demand-side market is “critical”.

While it is “absolutely right” for National Grid to take “sensible precautions to ensure secure supply”, there must also be a focus on “accelerating growth of demand-side measures which are not only better value for consumers, but also cleaner, faster and more secure”, says Open Energi commercial manager Chris Kimmett. “National Grid has already underlined its commitment to demand-side with the recent Power Responsive launch and its target to meet 30-50 per cent of balancing with demand response by 2020, but to date hasn’t had the necessary certainty about the definitive amount of capacity that will be available.”

Lewis points out that, with indigenous oil and gas supply from the North Sea in dwindling, “infrastructure is creaking” and has begun to look “out of step with the growing mood for cleaning up energy supply”. “The need for investment is clear but with a punitive budget recently announced, how likely is the grid to get the hundreds of millions in investment it needs?”

Renewables are just “one answer” to the UK’s capacity problem, he says, but the transition from ‘brown to green’ energy “overlooks energy efficiency”. “Two-thirds of energy is lost in generation and transmission of electricity. Reducing demand has a far greater impact than new sources of capacity.”

“We’re running out of time and money if we’re seeking to meet our winter needs with new sources – focus has to go on taming demand, with intelligent technology and market signals,” he insists. “Contracting dormant plants for back-up is catching the tiger by the tail. Our response to the capacity crunch needs to be smarter and more efficient to bring demand back under control.”