Having avoided any for more than four years, National Grid issued and subsequently withdrew two notices this week warning of an expected shortfall in electricity supply as it sought to entice generators into the market with the promise of higher prices.
The first was sent just after 8pm on Tuesday, with the electricity system operator (ESO) predicting a 740MW shortfall for between 4.30pm and 6.30pm on Wednesday. The following morning at around 10am, National Grid issued an update stating that the shortfall had dropped to 477MW and shortly after 1pm withdrew the alert.
However, at 8pm on the same day, a second notice was issued for the same time period on Thursday evening, this time predicting a 466MW shortfall, which was revised down to 316MW by the next morning. By 2pm on Thursday this second notice had also been cancelled.
The last time such an alert was sent out was in May 2016 when it was known as a Notice of Inadequate System Margin. National Grid has since changed the name to Electricity Margin Notice to avoid them being interpreted as blackout warnings.
Throughout the latest episode, the ESO was keen to emphasise that the expected shortfalls did not take account of its reserves, meaning that, even if they persisted, there would still be enough power to keep the lights on. Its assurances did not stop some commentators from suggesting otherwise.
Speaking to Utility Week, ICIS managing editor for energy Jamie Stewart says the reality is the market was caught somewhat off-guard following strong winds over the weekend and into Monday. “The actual impact of those very high winds earlier on in the week was that we saw something which we very rarely see in the UK power market – negative pricing.”
However, they didn’t last: “You’re in that position then all of a sudden you had this drop off in wind, and wind power output was less than forecast.
“And then temperatures dropped. We had a mini anti-cyclone over the UK so that’s when you get stone cold temperatures and no wind at all, which is when we always see these big price spikes.
“And the fact that wind power had been asked to switch off just a day before or so would have meant there wasn’t as much generation which was ready and running as you would normally expect.”
The situation was compounded by uncertainty over the levels of demand as the UK began its second national lockdown.
“We had the first lockdown of course but you can’t really take lessons from that because we’re coming into winter now,” explains Stewart. “People at home are going to be switching on their heating. Back in March and April there wouldn’t have been much heating demand despite people working from home.”
Stewart says the earlier negative prices combined with this uncertainty over demand meant generators were probably hesitant to start ramping up to fill the emerging gap: “I think there was probably a bit of a wait-and-see approach as lockdown hit”.
“You could see the demand coming off course but it was the supply side which took the market a bit by surprise and hence those shortfalls,” he adds. “We had to turn to coal which is also quite unusual for the UK. Coal plants had to switch on at quite short notice.”
“That just goes to show how short the UK was at the time that these old decrepit coal plants were being switched on to meet demand.”
National Grid announced yesterday that the forecast margins for the coming days are looking much healthier, but Paul Verrill, director of EnAppSys warns: “This doesn’t seem to be a one-off.”
“These shortage events look increasingly common in the market and should be expected to continue throughout the winter,” he remarks.
Verrill points to the Severn and Sutton Bridge combined-cycle gas turbine plants which were placed into a “dormant state” in August after their operator, Calon Energy, went into administration.
He notes that the Severn plant is relatively new, having been commissioned just a decade ago in 2010, indicating “the market is struggling to retain power stations that would normally be expected to be earning sufficient margins to operate sustainably in the market.
“The loss of Calon in such a manner – during a period when the market is seeing these tight margins – raises the question of whether the capacity mechanism has sufficiently ensured that plants will be able to make up the ‘missing money’ that results from plants having to meet the proportion of demand that is not met by renewables and other subsidised generation, whilst stepping aside during periods when renewable output levels are strong.”
He continues: “The market left to its own devices might see periods of very high prices and potential loss of supplies as plants close where economic returns cease to be viable and as these losses of supply would help drive prices up to the point of economic viability, but for consumers of electricity this would not be ideal.”
Verrill says one issue with the Capacity Market is that the main auctions are buying four year in advance: “This requires the market to forecast what the ‘missing money’ will be four years ahead and then compete with other participants for a limited procured level of capacity.”
He says: “So far there have been no consequences of these events, but if this mechanism cannot replace large assets that drop out of the market on an unplanned basis and if there is very little comfort in the available margins then there may be scenarios where the current format of the Capacity Market may deliver great value for money but not sufficiently robust generation margins to cover all eventualities.”
Stewart, by contrast, does not see the latest warning as a sign of a deeper problem: “I don’t think it’s an issue of a structural lack of capacity. There are always going to be times when the system is tight and it generally happens during those pre-winter months when plants are offline for maintenance even though demand tends to be lower.
“There’s no danger of the lights going out. The market worked the way it’s supposed to work to plug that gap and it will do the next time and no doubt the time after that.”
As with the last one he witnessed, Stewart believes the shortfall was the result of a “freak coincidence of occurrences”, adding: “If those coal plants had been closed, you can guarantee the market would have found it elsewhere, albeit at a higher price if you brought all of those bits of short-term generation into the mix.
“I think the underlying point is that the market behaved the way that it should and it did what it needed to do to balance supply and demand.”
Nevertheless, he concedes: “I think there is some work to do technically around the integration of huge wind power generation onto the UK system. We certainly need to look further into the question of storage of power and how that can be commercialised over the long term.”
Just as with the actual blackout in August last year, the events of this week have once again highlighted the growing importance of flexibility to the smooth operation of the energy system and the valuable contribution that consumers could make on the demand side.
Ovo Energy said the “supply crunch” elicited the “biggest ever mobilisation of UK customers” to support the power grid as part of its fledgling vehicle-to-grid (V2G) programme. If fitted with the technology, the supplier said even the UK’s current electric vehicle fleet of just 164,000 could have provided up to 200MW of flexibility – more than a quarter of the largest deficit forecast for Wednesday.