The energy regulator Ofgem has issued a strong warning that the margin between energy generation and consumption is closing and that the UK risks blackouts in just two years.
Its report calls for timely implementation of the Department of Energy and Climate Change’s (DECC) capacity market. It states, “The risk to electricity supplies is projected to increase from the current near zero levels, although Ofgem does not consider disruption to supplies is imminent or likely, providing the industry manages the problem effectively.”
The concern is due to uncertainty over the timing and scale of plant closures and the demand for electricity from economic activity and energy efficiency.
The report goes on, “Electricity margins could tighten in 2015/16 to between around 2-5% depending on demand. This means that the probability of a supply disruption increases from one in 47 years now to around one in 12 years for 2015/16 or lower. If the projected decline in demand does not materialise margins could fall to 2%.”
The report suggests that the National Grid could be given powers to negotiate with major users about coming offline “during times of stress“.
Andrew Wright, Ofgem’s chief executive, said, “Ofgem’s latest report on electricity security of supply highlights the need for reform to encourage investment in generation. This is why Ofgem welcomes DECC’s commitment to introduce a capacity market that will provide a longer term solution to this problem at a time when Britain’s energy industry is facing an unprecedented challenge to secure supplies.
“Ofgem’s analysis indicates a faster than anticipated tightening of electricity margins toward the middle of this decade. Ofgem, together with DECC and National Grid, think it is prudent to consider giving National Grid additional tools now to procure electricity supplies to protect consumers as the margin between available supply and demand tightens in the mid-decade.”
Gaynor Hartnell, outgoing CEO of the Renewable Energy Association (REA) said, “Capping the amount of biomass projects and sending project developers packing, when they have already spent millions in developing clean, cost-effective baseload renewable power generation, is profoundly unhelpful.
“Government has stretching renewable energy targets to meet. There is an impending capacity crunch and debt financing in renewables is a global market. These lenders look at the UK regime and question its reliability. This is not the right message when tens of billions of pounds of investment in renewables is required.”
Ofgem’s calls come on the same day as a British Geological Survey report, which said the quantity of shale gas in the UK could be far greater than initial estimates suggested. George Osborne’s spending review included stimulus for shale gas investigations.