Analysis

National Grid reacts to plug the winter energy gap challenge

National Grid

The increasing threat to the nation’s winter electricity generation capacity from unplanned power station closures and the risk of political risk of Russian gas supplies being cut to Europe has prompted urgent action by National Grid to protect the nation from blackouts. Antony Oliver reports.

There is never a good time to close four of the UK’s nuclear power reactors to lose some 25% of the nation’s nuclear capacity and an estimated 4% of total generation output. 

So when routine inspections by energy firm EDF discovered problems in its Heysham 1 and Hartlepool power stations promoting immediate shutdown of reactors in August pending further investigation, alarm bells were sounding pretty loud across National Grid.

Hence last week’s announcement to open a tender for the so-called Supplemental Balancing Reserve (SBR) service to meet requirements for winter 2014/15 and provide additional generation reserve capacity as margins tighten.

“This is a sensible precaution to take while the picture for this winter remains uncertain.  At this stage we don’t know if these reserve services will be needed, but they could provide an additional safeguard.” Cordi O’Hara, National Grid’s director of UK market operation.

The SBR is designed to bring moth-balled generation plant – usually gas-fired -  back into service and available to be held in reserve during this winter ready to cope with any demand outside the existing capacity.

National Grid of course understands clearly that winter is just the moment when it needs extra generating capacity not less. It is, after all, charged with managing and delivering a consistent and reliable supply of electricity across the England and Wales.

So coming on top of two coal-fired station shutdowns following fires at the Ironbridge power plant in February and at the Ferrybridge station in July and the summer announcement of Barking power station’s early closure, National Grid could be forgiven if it felt slightly exposed.

But until the problems were discovered at Heysham and Harlepool it had been assumed that the SBR, one of two mechanisms available to National Grid to plug any generation capacity gaps, would not actually be necessary. 

The other key service agreed with Ofgem that National Grid has up its sleeve to cope with such potential generation shortfalls is known as the Demand Side Balancing Reserve (DSBR), which is intended to incentivise energy intensive businesses to cut their usage. National Grid already pressed ahead with pilot tenders for DSBP in July looking to invest in de-rating some 330MW of generation over this winter.

Leave aside national media headlines of energy intensive businesses being ordered to switch off and ration power, the reality is that businesses have stepped forward enthusiastically with plans to contract to cut demand on weekdays between 1600hrs to 2000hrs between November and February, freeing up this peak time capacity for other uses.

However, as EDF has said that the need for extensive safety checks at the  Heysham and Hartlepool nuclear plants means their phased return to service cannot be guaranteed any more accurately than being between the end of October and the end of December 2014, National Grid has opted to press forward with the second measure in its armoury, the SBR.

“This is a sensible precaution to take while the picture for this winter remains uncertain.  At this stage we don’t know if these reserve services will be needed, but they could provide an additional safeguard,” explained Cordi O’Hara, National Grid’s director of UK market operation. 

She added: “We have had a very positive response to the DSBR pilot and plan to offer contracts to the successful parties in September. Tendering for Supplemental Balancing Reserve will enable us to see what additional reserves can be provided by generators at a competitive cost”.

“Although the UK does not receive significant quantities of gas from Russia, both our direct and indirect connections to European markets make it likely that UK gas supplies would alter as the market responds to any reduction of Russian imports.” National Grid.

The new SBR tender period will last a month and will require providers to make generating capacity available between 0600hrs and 2000hrs between November and February, under the direct control of National Grid. 

Generators would be compensated through both availability payments and utilisation charges based on the amount of electricity generated.

However no target amount of spare generating capacity has been specified in the tender as National Grid said that it wished to assess what the market was capable of delivering and at what price. 

However, in reality it is likely that the need for spare capacity will only increase as more stations go off line and pressure on the existing fleet grows. In June Ofgem estimated that there was between 5% and 10% spare generating capacity this winter before the loss of Heysham and Hartlepool.

After consultation with Ofgem National Grid proposed in its winter outlook report in July a maximum “de-rated” volume requirement that it might have to buy using the DSBR and SBR service for 2015/6 of 1800MW, 1300MW for 2016/17  and 800MW in 2017/18.

That said, this winter the uncertainty of demand coupled with the uncertainty around supply means, National Grid added, that there may even be a scenario where this additional SBR capacity might not actually be needed. 

National Grid added that its latest SBR process was sufficiently flexible to cater for any new information from the market pointing out that “responses to this tender, and further information on plant availability from the market, will inform our approach and Winter Outlook report, to be published in October”.

 

Russian gas threat

Political tensions between Russia and Ukraine have prompted National Grid to undertake analysis of the potential impacts to the UK market for winter 2014/15 of the a reduced Russian gas supply to Europe.

It is currently seeking industry feedback on the scenarios detailed in its Winter Outlook report published in July ranging from interruption only to the market in Ukraine up to cessation of all Russian flows to Europe.

“Although the UK does not receive significant quantities of gas from Russia, both our direct and indirect connections to European markets make it likely that UK gas supplies would alter as the market responds to any reduction of Russian imports," says National Grid. 

“In the event of a disruption, the UK could see some reductions in imports from Norway (Langeled/Vesterled) and The Netherlands (BBL), with exports to Belgium (IUK) likely,” it adds. “To balance the reduction in imports and increase in demand, LNG imports would be expected to increase to cover the majority of the shortfall, although increased withdrawals from storage sites could also be possible depending on the level of UK demand.”

 

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