National Grid, Security of Supply, and the Consumer Interest

A new study by two former, and highly regarded senior National Grid employees, has reanalysed NG’s recent Future Energy Scenarios (July 2016) to reveal the very poor prospects for security of electricity supply in the United Kingdom over the next decade. So late in the day, there can now be no cheap remedy for this problem, but a major, and truly independent climate policy revision could prevent the exorbitant costs that are otherwise inevitable.Over the last fifteen years National Grid, a shareholder owned company in spite of its name, has responded to the UK government’s energy and climate policy proposals with an all but unquestioning compliance. This has doubtless given the impression that the policies present a reasonable balance of costs and benefits for consumers. In truth, however, the interests of National Grid are in substantial conflict with those of consumers, since misconceived, dangerous and expensive policies are relentlessly positive for a company with a regulated asset base and an income stream that are both determined by the need to resolve problems on the grid. If the state's policies create extreme difficulties for the network, this is very good news for NG and its shareholders since they can justify drawing down further consumer funds to avert crisis.No wonder, then, that National Grid’s Future Energy Scenarios  require informed and very sophisticated interpretation if the underlying threats are to become plain. We can be grateful, therefore, that two former Grid employees, one a Power Network Director, a main board position, have conducted exactly such a study for the Scientific Alliance: Capell Aris, Colin Gibson, An Examination of National Grid’s Future Energy Scenarios: Do the scenarios deliver security of supply?.Their work confirms and strengthens the conclusions reached in the ENTSO-E study discussed on this blog in early August.Aris and Gibson report that:

Even with the use of all available means to reduce peak demand, including voltage and frequency reduction, the risk of power outage is significantly higher than 4% for all four scenarios.

The dependable (despatchable) power from installed conventional, nuclear and hydro generators plus continental inter-connectors would be insufficient to meet peak demand, and this gap could not reliably be bridged using wind generation. Solar generation would make no contribution at all to meeting peak demand.

To meet peak demand in the period up to 2025, an additional 5 to 12 GW of firm, despatchable generating capacity would be required: six or more gas-fired power stations. As renewable energy capacity is increased, these power stations would lie idle for large periods, but would be essential to maintain security of supply in the winter.

In other words, averting system failures will not be impossible, but it is now almost inevitable that it will be expensive. Nevertheless, as Aris and Gibson indicate in their reference to the market distorting presence of subsidised renewables, it need not be as maddeningly expensive as is currently probable.The authors also observe that the UK’s security of electricity supply be reviewed from first principles and the consumer perspective. This is doubtless correct, but a further point needs to be emphasised. While National Grid must be involved in such an analysis, since it alone has the relevant data, the company is a deeply interested party, and, as its passive behaviour over the last fifteen years shows, cannot be regarded as impartial judge of policy. In any review the consumer interest must be represented in a vigorous and independent way. In principle this function should be discharged by the regulator, Ofgem, but, as is too little understood, the Energy Act of 2010, passed when Ed Miliband was Secretary of State, disabled Ofgem by amending its principal objective. This now reads:

To protect the interests of existing and future consumers where, taken as a whole, those interests include the reduction of greenhouse gases and security of supply. (See DECC, Ofgem Review: Final Report (2011), 20.)

In effect, the revision means that Ofgem must regard any present cost as tolerable if it promises to offer benefits, however nebulously conceived, to future generations, however distant, through climate change mitigation. That is an absurd situation and Theresa May’s government would do well to liberate Ofgem from this prejudicial restriction by allowing it to focus, as it once did, on the pure and simple cost of electricity to consumers. Balancing such present interests against climate change concerns can then take place in the open, and through political debate, where it belongs.