Ofgem’s proposed “supplemental balancing reserve” is intended to ease a short term capacity squeeze mid-decade, before government’s longer-term capacity market kicks in. It would work by giving National Grid powers to pay generators to extend the life of old power stations or bring back mothballed plant.
John Watts, managing director of thermal generation at Centrica, warned the intervention risks dampening wholesale prices and making a “tough market” worse for existing gas plants that don’t get the support. “It makes more sense to accelerate the implementation of the enduring regime than develop a new transitional regime,” he said.
Government intends to hold the first capacity market auctions in 2014, to bring on new gas-fired power stations by 2018.
Speaking at the regulator’s Winter Outlook Consultation Seminar in London, Watts claimed it should be possible to get 1-2GW more capacity through small-scale upgrades by 2016.
He said: “We don’t need a supplemental balancing reserve. We think that would send the wrong signal… There is no reason why the implementation of the capacity mechanism cannot be brought forward in terms of payments.”
Steve Riley, CEO of independent generation company GDF Suez Energy UK-Europe, told Utility Week in August the supplemental balancing reserve would confuse market signals. “We would like to see a long term solution rather than a series of short term interventions,” he said.
National Grid’s forecasts for the coming winter show electricity capacity margins shrinking to between 5 and 8 per cent, depending on the weather. That is considered a sufficient surplus above peak demand to make blackouts very unlikely.
However, Ofgem has advised that figure could fall as low as 2 per cent in 2015/16, if demand gets high.