Energy: peak predictions

By Richard North - September 23, 2022

In July, the National Grid Electricity System Operator (ESO) published an early view of the winter 2022/23, offering its predictions on the ability of the electricity supply industry to meet peak demand over the winter.

The ESO usually publish their “Winter Outlook Report” in Autumn each year, but this year they broke with tradition and provided an early view “to help the electricity industry prepare for the winter ahead”.

The view taken was actually quite optimistic with the ESO reporting that margins were expected to be within the “Reliability Standard” under normal market conditions, and although it was conceded that there “may be some tight periods”, the ESO expected to be able to manage the supply using its standard operational tools.

Anticipating problems, though, the ESO reassured readers that they were taking actions to build resilience to potential risks and uncertainties due to a possible shortage of gas supply in Europe. This included, controversially, extending the life of coal units and exploring market-based demand side response.

However, what set the alarm bells ringing was the confident assertion by the ESO that system margin calculations assumed that on the tightest days the price for electricity in Great Britain would be higher than in Europe, thus ensuring that interconnector flows into Great Britain would respond to these market signals, which include scarcity prices, as they had done in previous winters – delivering as much as 5.7GW when Britain needed it.

This is very much the line UK energy policy has followed for decades, relying on the ability of the market to outbid European competitors when supplies are tight, exactly the line taken with gas supplies.

However, this was something of an optimistic take, with a leading pundit observing that, with Brexit, we left the internal market for electricity, suggesting that we could no longer manage price signals in a decoupled market.

Amongst those to raise the alarm was the consultancy LCP, which disagreed with the ESO’s assessment that the maximum gap between supply and demand would expose the UK to blackouts running only to about six minutes through the winter.

Crucially, the reliance on the interconnectors is being challenged at several levels, not only the price mechanism. In particular, it was pointed out that the traditional supplier was EDF, through its network of French nuclear plants, but in the summer 32 of EDF’s 56 reactors have been closed down for maintenance. Resumption of supply for the winter was not guaranteed.

Secondly, there were questions raised about the new NSL interconnector between Norway and the UK, with a capacity of 1.4 GW. Owing to a shortage of hydroelectric power in Norway, its government was suggesting that export of power might be severely curtained over winter.

Now featured in the Telegraph, LCP has issued its own forecast, suggesting that Britain’s power supplies risk running short for 10 hours this winter, if it is unable to import power from the continent (and Norway) via the interconnectors, noting also that the gap could have increased to 29 hours if ministers had not already stepped in to keep coal-fired power plants open.

Chris Matson, partner at LCP, says: “As Europe baked during this summer’s heatwave, it was simultaneously sowing the seeds for further pain this winter”. He adds:

As a result of the extreme droughts and the lack of water that is hitting hydroelectric systems in key interconnector markets like Norway, coupled by the issues we are seeing in France with their nuclear reactors, there are significant doubts about the availability of electricity coming into GB from the continent which is critical to our security of supply.

LCP is in fact warning that electricity traders are already factoring in tight supplies this winter, with forward prices reflecting shortages of “up to 70 hours”.

Fortunately, according to Reuters, it appears that the worst fears are unlikely to materialise. France’s energy minister, Pannier-Runacher, has now confirmed that EDF will be able to restart all its nuclear reactors in time for winter.

Pannier-Runacher says that a maximum number of reactors are now closed for maintenance in order to make sure that they will be ready and available during peak demand periods this winter. “From October”, she says, “each week new reactors will restart”, adding: “We will closely follow with EDF those reactors that have been closed for corrosion problems”.

Pannier-Runacher also says that French gas storage sites are currently 92 percent filled and that while Russian gas deliveries are currently at their lowest point, they have not completely stopped. “The energy situation is serious”, she says, “but we have activated all levers to get through the winter”.

The situation with Norway, though, is not quite so happy. Its exports service most Nordic areas and, contrary to the EU energy sharing scheme, is considering reducing electricity interconnector capacity.

But even a reduced flow cannot be guaranteed. Norway’s State Secretary Andreas Bjelland Eriksen says that although the probability of rationing this winter and next spring is low, there is nevertheless a possibility.

“In practice”, he says, “the government is working on a mechanism that limits production when reservoir levels fall to very low levels. Indirectly, this will also reduce the export of hydropower in the short term. Exactly how this mechanism will be formed is yet uncertain and is still under consideration,” he adds.

And now, into the mix comes the International Energy Agency, reported in the Financial Times. Fatih Birol, the IEA’s executive director, says he fears “a wild west scenario” if European countries moved to restrict their own trade or stop collaborating with neighbours amid mounting anxieties about fuel shortages this winter.

“The implications”, he says, “will be very bad for energy, very bad for the economy, but extremely bad politically”. He adds: “If Europe fails this test in energy, it can go beyond energy implications”.

Although Birol acknowledges that the EU and members may work in solidarity, supporting each other, there is another scenario where everybody looks after themselves. With the IEA expecting the crisis in Europe to last well into 2023, “it will be another challenging period”, he said.

Although Birol does not add detail to the catalogue of woes, his emphasis on the political elements of the energy crisis is a useful corrective. The security of supply in the UK is going to depend as much on the politics of Europe as the physical aspects of supply.

Here, there is the great unknown, unknown of Putin’s nuclear threat. This could not only have a direct impact on supplies, but also create intolerable political stresses which might be difficult to resolve.

Thus, we will need to be watching the National Grid ESO very carefully. Its spokesman tells us: “In early autumn we will publish a full winter outlook that will be based on verifiable market data as well as extensive engagement with stakeholders, including system operators in other countries, to ensure our analysis is as robust as possible”.

One can only hope that this forecast is better than its previous effort, but with the problems stacking up, one wonders whether it is even possible to predict accurately what the winter has in store for us.