Blog: Smart power and security of supply in the UK for 2016

A couple of extremely interesting government-led announcements have taken place this month regarding proposed changes to the UK energy sector to ensure security of supply.

On 1 March 2016, the government launched its eagerly-anticipated consultation on reforms to the UK’s capacity market, proposing an early auction in January 2017. The capacity market offers subsidy payments to power plants that can guarantee the provision of back up capacity over the winter period. The government regards the policy as critical to its long-term security of supply and decarbonisation plans.

The gap between old plants being taken out of circulation and new capacity coming on-line is growing. This gap needs to be filled in order to maintain security of supply on a long term basis. As part of the government’s plans to reduce reliance on fossil fuels Britain has lost 2GW of generating capacity since 2014. This is mainly due to the closure of coal and oil-fired power stations. However, new capacity coming online to replace this lost capacity is not keeping pace.

This latest consultation proposes a series of measures to tackle these risks and encourage investment in new plants. Alongside the plans to hold an earlier-than-expected contract auction in January 2017 for delivery of additional capacity in 2017/18, tougher penalties on companies that sign a contract through the auctions, and then fail to deliver the promised capacity have been also been recommended.

It’s a move in the right direction, but the clock is ticking on how to solve the problem of plugging an ever widening gap. The next few rounds of capacity market auctions will demonstrate whether we can not only shore up our supplies now but also create a national energy mix that provides the low carbon, secure power that is needed in the longer term.

On Friday 4 March, the National Infrastructure Commission (NIC), chaired on an interim basis by Lord Adonis, followed the capacity market announcement by publishing their “Smart Power Report”. This is the first of a series of three reports examining the UK’s electricity and how this connects the great cities of the North and London’s transport system. The first report focused on how infrastructure and policies to promote storage, interconnection, and demand flexibility could create a more efficient and cheaper electricity system. The recommendations proposed in this report gave much food for thought.

My main concern is that the expansion of interconnectors could create an uneven playing field for UK generation. Whilst I acknowledge that clean power may be imported, there will be a predominance of fossil fuel energy. Imported fossil fuel energy may not be as encumbered with regulation and carbon taxes as UK generation and, therefore, both existing and new UK generation will suffer discrimination. There’s also no real way to mandate “clean energy only” coming through the interconnectors. I am strongly in favour of a lower-carbon, lower-cost future. However, we must be mindful that the UK has a significant existing and future network and generation infrastructure requiring support and we should continue to prioritise this.

I am incredibly excited at the suggestion in the report of local, and even household-level, demand management services. At UK Power Reserve we advocate initiatives that place power in the hands of the people. We envisage a world where every household has the ability and incentive to manage their consumption when the right price signals are sent. This is an opportunity to not only reduce our reliance on fossil fuels and to improve efficiency but also to reward households that are doing the most to curb their demand. Clearly, there is a limit to efficiency and demand reduction, but I seriously doubt that we’ve reached it.

Finally, I strongly support the call for a vast expansion of utility-grade energy storage in the UK. This must be a priority. There is potential for this expansion to occur in the absence of new subsidies, as the existing capacity market arrangement could procure numerous energy storage projects. The framework exists to make this possible. Furthermore, within its remit as the system operator, National Grid is looking into the right private sector incentives to encourage more energy storage. At 24MW of current storage on the island, we are clearly well below potential. I believe that storage is the future and there is a real chance for the UK to be at the vanguard of this new field. Fingers crossed we can take it.