Capacity market delay could cause UK brownouts - National Grid chief

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The head of the team responsible for preparing the capacity market mechanism in the UK says a delay of more than a few months to the country’s planned auction of back-up power capacity may hold up construction of new power plants and trigger brownouts.

Mark Ripley, project director of National Grid (Electricity Market Reform) told delegates at an event hosted by market intelligence agency Marketforce that the fear of energy ‘brownouts’ was indeed justified, and that reducing demand would not suffice.
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Ripley, whose agency is charged with helping the UK department of energy and climate change to achieve a successful capacity market mechanism, said “the risk has clearly increased and we are close to being in the position of experiencing brown outs".

Britain needs to hold the auction as scheduled in December to build new plants by 2018 as part of a program that will pay utilities to provide power during peak periods, Ripley told power utility delegates at the Future of Utilities conference in London. The capacity mechanism still needs European Union approval under the bloc’s competition rules.

The theme, 'Keeping the UK’s lights on' saw consensus from UK energy players that increasing power generation was still by far the most important priority for the sector in meeting future energy demand and heading off the capacity crunch forecast for 2015/16.

The discussion centred on the progress of Electricity Market Reform in the country and asked whether reforms would be enough and in time to prevent brownouts and ensure a healthy capacity margin.

“It takes about four years to build a combined cycle gas turbine,” Ripley told delegates. “If the auction is delayed to January or February, that’s OK, but if we get to April or May, then you will lose the build season in summer and that becomes difficult for 2018-19.”

About 25 per cent of total generation fleet will shut by 2020, increasing the risk of brownouts or lights dimming, according to National Grid.

In the December auction, utilities will bid to get National Grid payments for standing ready to provide power in peak demand periods from 2018. Having the auction in advance is meant to give certainty for future investment in new plants, according to the UK’s Department of Energy and Climate Change.

As well as ensuring the capacity mechanism process will work smoothly, Ripley’s agency works through demonstrating how events “play out in the real world energy system rather than textbook power system”, through providing analysis and modelling information. The National Grid is currently carrying out a comprehensive capacity assessment for the current year, which will be ready next month.

He said he believed the country was in a better position to cope with the challenge of meeting energy demand at the end of the decade, rather than 2015/16 when the first challenge to the country’s energy capacity will take place, as more plant will by then be in place.

“With the capacity mechanism we have the right tool in development to start to manage tight margins at the end of the decade.”

“But you can’t build anything new on time for 2015/16 so if you think you will be short of capacity you have two choices. You either reduce the demand or you grab hold of some plant that otherwise wouldn’t be operating.”

“Unless you do something about your demand you have to have a very large generation fleet to cope,” he told power industry officials. “Demand management is very important but demand won’t solve all our ills. We will still need generators and quite a lot of it.”

The matter is complicated further as the capacity mechanism needs to get EU approval to ensure the payments don’t violate the bloc’s rules on state aid, according to DECC. The European Commission is investigating the payments Britain pledged to Electricite de France SA to build the U.K.’s first nuclear plant in 25 years.

The subsequent panel discussion saw contributions and debate from Ripley along with Ravi Baga, head of upstream policy and regulation at EDF Energy (Euronext: EDF), and Chris Anastasi, head of government affairs, policy and regulation, at GDF Suez UK-Europe (Euronext: GSZ).

Anastasi’s contention that there needs to be more investment on the demand side, if the UK is to meet its energy capacity challenge was not contradicted by the other panellists but there was disagreement at the extent to which demand can make the difference.

EDF chief Baga said: “The economics for the demand side aren’t great. Demand is not a panacea- the incremental costs of switching to demand have to be factored and there is not much value at stake.”

Baga went on to comment on the need for gas to be facilitated in contributing to energy security, saying: “Gas is the lowest cost fossil fuel, the carbon price should incentivise a coal to gas switch.”

“Our concern is how to get to 2018,” Baga said. “Since 2013 it has been difficult to see the sustainable spreads needed to keep plant running. The capacity mechanism should be about keeping capacity running to 2018, not just getting new plant built.”

The penalties for unreliable capacity in the back-up power mechanism will be capped at 200 per cent of a provider’s monthly income and 100 percent of their annual income, Ofgem said on March 19.

The National Grid’ EMR team is responsible for organising the auction for the capacity mechanism, to get all parties ready for that first auction. They will do this through helping familiarise industry with the process through workshops designed at facilitating engagement with system build process and the prequalification process.

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