Opinion

Winter preparation - National Grid prepares for winter demand

Cordi O'Hara, National Grid

The lights will stay on through the darkest season of the year, says Cordi O’Hara, director of market operations for National Grid.

As the nights draw in and the temperature begins to drop, we enter the time of year when households and businesses make their final preparations for winter. At National Grid we’re no different. 

Following consultation with industry, experts and policymakers in the world of gas and power, as well as our own analysis, we published our 2014/15 Winter Outlook on 28 October. The Outlook looks at a range of scenarios for the gas and electricity supply picture for the winter and is designed to help the energy industry plan ahead. Our stakeholders value its usefulness, and use it to inform tough business decisions.  

It is part of our role as the system operator for electricity – and the transmission owner and operator for gas – to provide this kind of insight and intelligence. We don’t build or operate power stations, ship gas, or set policy, but our information and data helps those who do.

“Only under cold winter conditions and full disruption of Russian gas to Europe would further market actions be required”

So, what are the key headlines from our Outlook? On gas, the country is in a strong position this winter, with gas supplies, storage and network capacity well in excess of maximum expected demand. This year we felt it prudent to look at the potential impact of an escalation of hostilities between Russia and Ukraine.

The Outlook shows that only under cold winter conditions and full disruption of Russian gas to Europe would further market actions be required; for example; reduced exports to the continent, demand-side reduction or maximised liquefied natural gas (LNG) imports. 

It is the electricity picture which has, predictably, brought about the lion’s share of the headlines this year. Margins are tighter than in recent winters, due to closures, fires, boiler cracks at a nuclear station, and the delayed return of some plant from outage. This means that the margin during an average cold spell sits at 4.1%. That doesn’t mean we’ll always have only a four per cent cushion between available supply and demand. This figure is a snapshot of how things could look during an evening peak in demand, over the kind of cold spell we could realistically expect to see. 

At National Grid we have dealt with tighter margins than this before, but for this winter we have developed two further additions to our toolkit, with the blessing of Ofgem, and government ministers. 

In September we acted to tender for additional generation under the Supplemental Balancing Reserve (SBR). This service is targeted at power stations that are able to offer additional capacity over and above that available in the electricity or balancing markets – this means plant that would otherwise be closed or mothballed, or at risk from closure.

Plant taking part will be required to be available on weekdays between six in the morning and eight o’clock at night, from the beginning of November to the end of February. We have finalised contracts with RWE, Scottish Power and SSE over Littlebrook, Rye House and Peterhead power stations respectively.

"The Government’s electricity market reform programme is designed to stimulate major investment in new power stations in the second half of this decade."

It’s also crucial to find innovative ways to smooth out peaks in demand, and that’s where our Demand Side Balancing Reserve (DSBR) comes in. DSBR is a voluntary scheme where large energy users can be rewarded for reducing the pressure they put on the system at peak times.

Big companies have already signed up this winter, like Tata Steel. And there are hundreds of other smaller companies who are taking part through aggregators like Flexitricity. It’s the first year we have run this scheme, so we’re delighted that we’ve got 431 sites on board this winter. We’ve already started tendering for next year, when we’re hoping for an even bigger response. Demand side response is a great opportunity for companies of all sizes, so I’d encourage energy managers to get in touch with us to see how they can get involved.

This winter the two new tools I have outlined will add a further 1.1GW of additional capacity to the system. These tools push the electricity margin figure for winter 2014/15 up from 4.1% to 6.1%.  

These are last resort measures, and we may not even need to use them, but they are a sensible insurance policy to have in place. These tools are not expected to be around forever. The Government’s electricity market reform programme is designed to stimulate major investment in new power stations in the second half of this decade. This includes a capacity mechanism, which will run from 2018/19.

This will give generators and their investors the certainty they need to put in place reliable capacity, backed by a predictable revenue stream and committing them to ensure generation is available when electricity supply is squeezed. 

Over any winter we know that there are always things we can’t predict, so we cannot be complacent. Things can happen beyond our control that could affect the electricity network, but by taking the additional measures we have, I believe that we are in a strong position to manage the unexpected.

Cordi O’Hara, director of market operations for National Grid.