While power producers like EDF cashed in on record electricity prices during last week’s heat wave in the UK, capacity constraints provided an early test for National Grid which seeks to keep the lights on with ever tighter capacity margins. Winter 2016/17 might prove challenging in the face of mass retirements of coal-fired plants earlier this year.
“We can expect power system tightness, and short-term price spikes, to be a far more common occurrence in the UK electricity market over the coming months and years,” Jamie Stewart of Icis commented.
Baseload electricity prices surged to £59.00/MWh in the middle of week, while peakload prices topped £64.50/MWh – exceeding prices seen in dark mid-winter months. A three-and-a-half year high for UK power prices at this time of year, when demand is typically soft, is a clearly “remarkable occurrence” – and cause of some concern.
Price spikes were exacerbated as much of the UK’s flexible gas power plants were still in their annual maintenance last week – unable to provide balancing power at short notice.
Juggling the grid with little leeway
A quadruple whammy of unforeseen events – heat wave, low wind, fossil plant maintenance and coal power retirements – has left the system very vulnerable. In a situation “where we’re constraining demand and there's nothing else to give, the system starts to trip automatically.
“Historically we’ve had the margin to cope but we don’t at the moment. It will come back, but it’s just not there now,” Simon Hobday commented. Working as a partner in the energy practice of Osborne Clarke LLP, he pointed at predictions from the regulator Ofgem that the UK's reserve capacity margin is set to fall to less than 1.5% from 2016 onward.
Precarious’ is how industry experts characterise the state of security in Europe’s energy system. Most analysts simply want to be certain as to whether at any particular time electricity production meets demand. Then, there is the wider fuel source issue, including the technical and financial implications.
Putting the blame on EU directives is part of the ‘spiel’, notably against the Industrial Emissions Directive and the Large Combustion Plant Directive which are feared to take 15-20% of UK capacity out of the UK energy market between 2016 and 2020.
