Ever since I began my blog I have been warning about falling winter capacity margins and the risks to security of supply in the British electricity market. There are compelling reasons why this winter may see these concerns crystallise into real risks to energy supplies, particularly to industrial consumers who are increasingly worried about involuntary curtailment in order to protect supplies to the domestic market.
Winter capacity margins have been in steady decline in recent years. The reason for this is the closure of conventional generation: coal plant has been steadily retiring due to old age and in anticipation of the statutory closure deadline of October 2024. Less efficient gas plant has been closing, and there are two more modern power stations in a state of preservation following the bankruptcy of their operator. Finally, nuclear retirements and lower availability are beginning to bite as the fleet ages.
Last winter the capacity margin was just 3.9 GW. Nuclear availability was assumed to be the average of the past 3 years – possibly a bit optimistic for an end-of-life fleet, and the net interconnector imports at peak demand were assumed to be 4.2 GW.
There are four ways in which the capacity margin for this coming winter will be different from last year:
The first is that around 4 GW of coal plant is set to close by September this year:
- 2 GW West Burton A plant
- Last two coal units at Drax with a combined capacity of 1.4 GW
- One 500 MW unit at Ratcliffe
The second is that almost 2 GW of nuclear capacity is due to close this year. The Government has reportedly asked EDF to consider keeping Hinkley Point B open, but this may not be feasible since the closure was motivated by age and safety reasons.
The third is that the situation with the French nuclear fleet may mean we switch from importing electricity from France to exporting to France.
And the fourth is that the Norwegian electricity commission might restrict Norwegian electricity exports.
Currently around half of the nuclear reactors in France are offline following the identification of defects in the pipes that make up the cooling systems of the reactors. These faults have been identified as part of routine maintenance and EDF is now having to undertake widespread inspections. This is having a significant impact on power flows in Europe, with Britain now routinely exporting to France.
This first chart shows daily net interconnector flows to the GB market since 2017, excluding 2020 and 2021 which were abnormal due to covid. As you can see, GB typically imports electricity, but the past few weeks have seen a jump in exports with GB becoming a net exporter more often than not.
If we exclude imports from Norway, that trend is even more clear.
Last year, Norway opened two 1.4 GW interconnectors, one with Britain and the other with Germany. Since then, power prices in the south of Norway have risen by a factor of ten with the Government now subsidising end users to the tune of 80% of their bills. The country is now facing record low hydrological levels and so far the year is proving to be dry, so the water reserves are not being replaced as expected.
The unusually high prices and concerns over hydro levels have become politically contentious, so the government has instituted an energy commission that is due to report in December. It is clear that both Germany and Britain are treating imports in general as a substitute for domestic generation capacity (and in the case of Germany, also as a substitute for domestic transmission capacity) to the detriment of their neighbours. In part this is due to mis-conceptions about the Norwegian power system – even senior executives at National Grid are on the record as saying that Norway can import cheap wind energy to pump water and restore hydro levels, but this is not possible in practice.
Norway has 33 GW of installed hydro capacity but only 1.4 GW of that has pumping capabilities, and some of those sites are limited to seasonal pumping since the pumps have complex coupling requirements. It is actually not possible for Norway to restore its hydro levels by pumping – the best it can do is use imports to displace discharges from its reservoirs. But if cheap imports are available at night when domestic demand is low, that will be of limited benefit.
So I believe that it is entirely possible that Norway will impose restrictions on electricity exports. This would be my advice to the Norwegian government since there is no justification for Norwegian citizens to face record high electricity prices due to the policy choices of other countries. Of course, some may argue that Norway has signed agreements that would prevent this, but against a backdrop of Europe’s growing reliance on Norwegian gas, I believe Norway has more than enough market power to impose any restrictions it chooses on electricity exports.
The final sign of trouble for this winter is that the T-1 capacity auction had a shortfall of 365 MW ie less electricity was procured than the Government had targeted. Since the target was set at the level of capacity that pre-qualified for the auction it may be the case that the Government would have set it higher if it could. On top of this, a quarter of the capacity was awarded to assets that had not yet been built, introducing significant delivery risk.
Putting all of this together it is entirely possible that capacity margins this winter will be around zero leaving the system extremely vulnerable to unplanned outages. I’m hearing that large industrial users are very worried they will be required to reduce consumption in order to protect supplies to the domestic market, and my analysis indicates that these concerns are entirely reasonable. A sensible strategy at this point would be for these consumers to secure back-up diesel generation and fuel supplies, and explore ways of shifting production to times of lower demand such as at night and during weekends, although not all businesses would have that degree of flexibility.
Government has apparently reached out to the operators of the remaining coal power stations to remain open this winter, as well as Hinkley Point B. It could also reach out to the owners to the two mothballed Calon CCGTs to being those assets back into the market. Re-opening the T-1 capacity auction might be a mechanism for incentivising these assets and others to provide additional capacity to the market.
It will be interesting to see how National Grid ESO assesses the capacity margins for next winter. It must be hoping for an early resolution of the French nuclear problems, because being a net electricity exporter in winter will have serious consequences for capacity margins. Longer-term, it is essential that policymakers remember that all facets of the energy trilemma: security of supply and affordability as well as de-carbonisation, are appropriately balanced. The new focus on nuclear power is positive if the right choices are made (ie not relying on the troubled EPR technology) but it seems increasingly inevitable that we will need to shore up our fossil-fuel generation base, firstly by keeping the coal plants operational longer, and ideally at least until Hinkley Point C opens, and secondly by ensuring adequate gas generation capacity. We are rapidly running out of options, and if action is not taken soon, there may be no choice other than to commit to more CCGTs in order to guarantee security of electricity supplies over the medium term.
Hi Kathryn, inetersting piece as always – do you have any insight as to what is going on with the former Calon plants? It seems odd that almost 2GW of (relatively new) CCGT capacity is stitting on the sidelines and no one seems willing to pick them up and run them even with prices so high. I’ve heard speculation that they may have not been maintained properly since Calon went under, any thoughts? It would seem like a quick win for the UK govt to encourage someone to acquire these and get them back for Winter 22. Surely with the potential tight margins coming up whoever did so should be able to make money out of them.
There was some stuff in the press a while back about discussions between the owners of these assets and the Government not going particularly well. I think the question is how to get them into the market if the owners are nervous of taking the commercial risk – personally I think the economics are very attractive for these assets now.
I think the Government should re-open the T-1 capacity auction, allowing all of these assets (ie including the coal plant and HPB) to get paid at the auction clearing price of £75 /kW /yr for this winter. That would provide a measure of de-risking for all of the assets in question if they are confident of being able to operate. Even if the CM rules don’t currently allow that, the Government can easily pass the necessary legislation, and I don’t see why it should be in any way controversial (in any case the Government has a big enough majority to get anything it wants through Parliament if it tries hard enough).
Kathryn, whilst not disagreeing with your proposal, I fear the potential problem is that it may already be too late.
IMO there seems to be a disconnect in the Government about how quickly power stations can be built or taken out of mothball. Already there is a problem with the Capacity Market timescales, in that a T-1 auction in Feb/Mar gives very little time to get a new or mothballed generator operational.
Even for the coal assets due for closure, there are multiple difficulties in getting them available for the coming winter, including but not limited to; getting sufficient coal in place in time to cover the winter (stocks having been run down in anticipation of closure) and performing the statutory inspections and maintenance required to cover running beyond the expected closure date (maintenance having been limited to the minimum required in line with closure this year).
Can Germany acquire the gas that Norway currently exports to the UK should Russian supply cease? Are the contracts public knowledge?
I think the answer is no on both counts…pipeline constraints are a factor and I do not believe that the contracts are public.
The two charts look very similar! I wonder can Norway divert gas from UK to Germany should Russian supply cease?
The Norwegian interconnectors only opened last year and I excluded 2020/21 from the charts because of covid, so the impact of Norway is only seen in the red line. They look similar but note the range on the y-axis…
The other interconnectors that are in export mode all the time now are the two gas pipes to Belgium and Holland. They aren’t massive capacity but the gas has to pass through the NTS to get there and that could be an issue in winter as well when demand is at its maximum. Given how many LNG tankers have arrived into Milford Haven and Grain terminals over last few months I’m surmising its EU importers using our high capacity in regasification capability to substitute for Russian gas. Forward gas, whilst significantly higher than 12mths ago, has fallen back considerably from the Ukraine invasion spike that CCGT operators ought to be able to lock in good margin so surprising likes of Calon can’t make the numbers work.
I believe there is a fifth factor which will have an additional impact, which is that 3 German and 2 Belgian nuclear stations are also scheduled to close in the next 8 or so months.
In at least one report, I recall the EMR Delivery Body stating a view that the nuclear closures in Germany will have no affect on the UK, as there are currently no direct interconnectors between the UK and Germany. This somewhat naive (IMO) view ignores the fact that Germany will still need the power and has interconnection with most of Europe. Hence the UK will be competing to get any spare power that France, Norway, Netherlands, etc could provide. Even when the French nuclear fleet is restored to full capacity, I suspect any spare is likely to head to Germany to make up the 8 – 9 GW nuclear capacity that has closed / is closing 2022 / 2023.
Up until recently, we have fairly consistently imported from Belgium via the Nemo link, reflecting an excess of capacity in Belgium. Although Belgium has decided to delay closure of two reactors (Doel 4 and Tihange 3), the imminent closures (Doel 3 and Tihange 2) have not been postponed. Despite the well publicised closure of the Belgian reactors, the EMR Delivery Body has not adjusted the de-rating factors for the Nemo link to reflect the closures. This could be due to naivety one the part of the EMR Delivery Body, but the suspicious side of me wonders whether they could be influenced by the fact that one part of NG (which operates the Nemo link) would benefit from high CM payments set by another part of NG (the EMR Delivery Body)?
Excellent points – the closure of perfectly good nuclear plant in Germany and Belgium will create problems both locally and more widely, particularly given the unintended loss of French capacity. They are foolish decisions that should be reversed.
Last year NG ESO issued an early view of winter capacity margins in July – I would expect similar this year given the increasing problems. I honestly don’t know that there is any conspiracy over interconnector use, I think wishful thinking is a more significant driver…
I wrote this as a comment to your excellent Blog on your “More Trouble in the California Energy Market” but you have now caught up with me with the general lack of Electricity Production in Europe!
Thank you for highlighting what can go wrong when there is a reliance with the intermittent & unreliable Solar & Wind production on a large commercial scale for Countries. I am afraid I can see a similar situation developing in the UK & Europe this coming year. France and it’s Nuclear power have been the centre of the production of energy in Europe which has kept the lights on for over 40 years – but not now.
France with a winter demand of nearly 80GWs used to have a Nuclear base supply of typically 49GWs as seen on 2021-01-25, a cold day, but they also kept the lights on in Italy, Switzerland & Spain.
They used to supply 2GWs to the UK for most of the year until we stoked up our Coal stations in Winter when we helped them.
Today, 2022-05-15 France can only muster up 25GWs of Nuclear – and I don’t think that is ever going to greatly increase.
As I previously pointed out the Wind sometimes does not really blow for up to 10days, producing only 1 or 2GWs while it can produce 11 or 12GWs. Solar at 4.30BST today is producing 4GWs but not tonight or in January coming.
Where is the power coming from to keep the lights on in Europe this winter?
The answer should also consider the Ukrainian situation.
Apologies for not replying promptly – for some reasons my comment notifications are not working properly…possibly they are going into my spam.
France has a very high penetration of electric heating, so its electricity system reacts faster and more strongly to colder temperatures in winter. I’ve previously done analysis which shows that we export about 12% of the time when GB demand is at its highest which undermines arguments that interconnectors support security of supply in stress events. That depends on whether the stress event coincides with cold weather.
The weather patterns that create still weather in winter also create cold weather, so not only is there no contribution from wind and minimal contribution from solar, demand is higher, creating the potential for a perfect storm. This will be a major cause for concern in Europe this winter, not least, as Peter points out in a previous comment, due to nuclear closures in Belgium and Germany.
I think we are heading into a period of turmoil where the separation of energy policy from energy flows is increasingly untenable – why should the citizens of one country pay for the policy choices of another country? The French may have chosen to under-invest in maintenance, but they have not actively chosen to close perfectly functional capacity for ideological reasons. Yet the ideological choices of Germany and Belgium as well as the decision by GB, Germany and others to underinvest in new capacity will all make French access to imports and French electricity prices higher than they should have been. And that is before the unfortunate citizens of Norway are considered, whose only mistake was to open interconnectors in the first place.
A question to consider – if the cost of power from nuclear power stations had to factor in the disposal of the waste that the taxpayers pays for them (at least £131bn for legacy nuclear not new ones as per link below), what would be the true £/Mwh cost of this energy? Considering this is a cost legacy that will last for hundreds of years at least, why is this cost never factored in when discussing the economics of nuclear power. This is a huge ‘back end’ subsidy that it seems politicians hope will be too long term for the public to understand or care about when faced with short term energy security issues. Thoughts?
The issue of de-commissioning is asymmetric across the energy industry…there are firm rules for oil and gas rigs but wind turbines end up in landfill. I agree that Sellafield is a problem that needs to be solved at some point – probably not now unless there is a physical reason for urgency – and the amounts of waste created by reactors while they are in use is not that large compared with the other toxic waste created across the economy every year (in volumetric terms).