Who turned out the lights?

In the research that we undertook for the British Council for Offices in 2013, covering the electricity crunch, we highlighted three factors that could significantly increase the risk of blackouts this winter.

To recap, the UK has been closing electricity-generating capacity faster than we have been building it and, as a result, the margin between supply and demand has been falling. As this margin decreases the risk of blackout increases. Back in 2013, Ofgem estimated that in the winter of 2015/16 the UK grid would be operating with a margin of 4% with an associated one-in-12 chance of blackouts.

The latest Ofgem (2015) report highlighted that the risk of blackouts had increased to a range between one in one and one in four, a significant and continued increase in risk since the original assessment in 2012. Of course the objective of doing these assessments is to inform policy makers and enable action to be taken and, as described below, the government has responded.

The analysis presented by Ofgem considered many factors and it is important to realise that blackouts will only happen if a number of coincident events occur. Their analysis highlighted three important factors.

• Risk factor 1: A drop in generating capacity. Ofgem’s latest 2015 report identified an expected drop in net capacity of 4 GW between winter 2014/15 and 2015/16. In some scenarios the UK’s margin reduces still further to -1% (that is, demand exceeds supply). Alarm bell number one is ringing.
• Risk factor 2: Assumptions for economic growth. The Ofgem analysis assumed that growth would be 0.6%, 1.6% and 1.9% year-on-year from 2013. This is important as it is generally assumed that electricity demand rises with economic growth. In actual fact growth has been significantly faster at 1.8%, 2.7% and 2.9%. Alarm bell number two is ringing.
• Risk factor 3: Weather. If the UK and the EU experiences a prolonged cold snap, coincident with a high pressure developing over the North Sea, two things will happen. The cold weather will increase demand across continental Europe, potentially reducing the import of power across the interconnectors into the UK grid. Secondly, the high pressure will reduce wind generation.

The Met Office published (September 2015) its assessment of the impact of the current El Nino and suggested that the winter of 2015/16 could be a cold one similar to 2010. So far this has proved wide of the mark, but with winter having belatedly arrived there is still time. Alarm bell number three is ringing.

The latest Ofgem report highlighted that the risk of blackouts had increased to a range between one in one and one in four, a significant and continued increase in risk since the original assessment in 2012

It is fair to say that the government has not been sitting around doing nothing. It has procured additional balancing services to raise the margin should it be needed. It is also important to say that the National Grid is very reliable and well managed. The use of balancing services results in a significant reduction in the likelihood of blackouts but this does come at a financial cost, which inevitably is passed through to customers. For 2015/16, National Grid has procured 2.56 GW of capacity which can significantly reduce the risk of disconnections. Both Ofgem and National Grid seem confident.

However, the unexpected does happen. In February 2014, 1GW of capacity was lost due to a fire at the Ironbridge power station followed in July by a loss of 2GW from Ferrybridge and in September 2015 2.4GW at Heysham.

Fingers crossed that it’s the alarm bells that will stop ringing over the next few weeks, rather than power from the grid.

Nick Cullen is a partner in Hoare Lea