New tools for National Grid to balance electricity system help reduce supply risks

Publication date
30th June 2014
Information type
Policy area
  • Latest capacity assessment confirms that electricity margins for the coming winters will be similar to those presented in Ofgem’s 2013 report
  • New measures from Ofgem, National Grid and government have reduced probability of disconnections

Ofgem has today published its latest assessment of electricity capacity margins. Our results show that electricity margins are tightening over the next two winters to within broadly similar ranges to those set out in last year’s report. However the probability of disconnections has reduced due to measures taken by Ofgem, National Grid and Government.

Capacity margins are the surplus of electricity generated compared with demand in Britain. We expect a reduction in these margins over the next two winters. However there has been some improvement in expected margins for next winter (2014/15) compared with our 2013 report. Margins are still expected to drop to their lowest level in 2015/16 resulting from closure of older power stations.* After this, the margins are expected to improve as new power stations are introduced.

Since the last report, Ofgem has taken action to reduce the risk of disconnections by giving National Grid new tools it can use to help balance the electricity system and manage these lower margins. The new tools mean National Grid will tender for new contracts with power stations so that they can provide extra reserve power when needed. National Grid will also carry out additional tenders for large businesses which are willing to reduce their power consumption during peak demand times in return for a payment. The government has also set out firm plans to introduce the capacity market to reduce risks to security of supply in the medium term and beyond.
 
Having these new tools in place means that the likelihood of disconnections for consumers will be around one in 120 years for winter 2014/15. And for winter 2015/16 it will be up to around once every 73 years on average for National Grid’s most optimistic demand and supply scenario, and once every 31 years for the most pessimistic of these scenarios. ** This is a significant improvement for consumers, as without these extra measures the risk of disconnections would be between around one in eight years and one in four years under the same scenarios. The improved risks of disconnection are also better than the government’s reliability standard for secure supplies, under which a one in eight years risk of disconnection in winter 2015/16 would be the highest acceptable.  
 
Dermot Nolan, Ofgem chief executive, said: "Britain has a reliable electricity system and although the outlook for capacity margins is broadly similar compared with last year’s report, the fact National Grid can use the new tools to balance the grid has reduced the risk of disconnections.
 
“This is good news for consumers and businesses and we are confident that National Grid has the right levers in place to manage the tighter electricity margins over the coming winters. However, no system anywhere in the world can give a 100 per cent guarantee that the lights will stay on. Therefore given the tighter margins there can never be any room for complacency and National Grid and the industry must remain vigilant at all times.”
 
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Notes to editors

1. * Analysis of capacity margins

It is difficult to provide a firm view on what the capacity margin will be in the coming winters due to uncertainties on how much power station capacity will be available and what will happen to demand and interconnector flows.

Our latest analysis shows that the margins (which are expressed as percentages) could vary between around 2% and 8% in 2015/16. Last year’s assessment showed margins tightening to between around 2% and 5% depending on demand in the same period.

The ranges are broadly similar although not directly comparable as last year’s range was based on varying assumptions of demand only. As well as covering demand, the range in this year’s report also includes assumptions on how much plant could close or return from mothballing and how much electricity could be imported through interconnector links with Europe.

The margins could drop to about 2% if, for example, demand was higher than projected by National Grid. Fewer imports from mainland Europe and further plant closures or mothballs could lead to the same outcome. If electricity from the continent was flowing at the maximum available capacity, the risks to security of supply would be significantly reduced with de-rated margins around 8%. Fewer closures or lower demand in the future could have a similar impact. Margins are then projected to recover to between around 4% and 12% in 2017/18.

Margins for winter 2014/15:

In our 2013 capacity assessment the margin range for winter 2014/15 was 3% to 7%. Our latest report shows this range has increased to 5% to 10%.

2. **Taken from National Grid’s forthcoming 2014 Future Energy Scenarios which will be published on July 10.

3. New tools for National Grid to manage supply and demand

The new tools allow National Grid to carry out additional tenders for large businesses that are willing to reduce their power consumption during peak demand times in return for a payment. This is a common way of managing supply and demand on electricity grids. Historically, businesses in GB have provided balancing services to National Grid on a commercial basis. There is no obligation for businesses to tender for these services. Separately, National Grid is also tendering for new contracts with power stations so that they can provide extra reserve power when needed.

4. Ofgem is the Office of the Gas and Electricity Markets, which supports the Gas and Electricity Markets Authority, the regulator of the gas and electricity industries in Great Britain. The Authority's functions are set out mainly in the Gas Act 1986, the Electricity Act 1989, the Competition Act 1998 and the Utilities Act 2000. In this note, the functions of the Authority under all the relevant Acts are, for simplicity, described as the functions of Ofgem.

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