OFGEM and the impending power shortage

OFGEM (the energy regulator) is getting a lot of press today as once again it has highlighted the impending power crunch as the ‘supply margin’, the excess of available electricity supply over peak demand, continues to fall as large coal fired power plants come off-line due to the EU Large Combustion Plant Directive and older nuclear plant are taken off-line. This really has been a crisis that has developed in slow motion as seasoned energy analysts were warning the government of the day about it many years ago. With decent leadership we wouldn’t have got into this situation but we here we are.

The situation is:

• the electricity supply margin will hit a low somewhere between 2015-2017 and at that point there is an increased risk of power cuts.
• no nuclear capacity will come on line until about 2023 (and that assumes everything goes well which looking at the track record of new nuclear build programmes is highly unlikely).
• nuclear will only get built with a massive subsidy (even if it is not called a subsidy).
• we will have to use more gas which in the short-term at least will be imported (expensive) Liqueified Natural Gas (LNG).
• there may or may not be extensive reserves of shale gas under the UK. The evidence is that the reserves are there, the issue now is how to exploit it (some would say whether to exploit it).
• If the economy does start to recover the pressures will be increased as energy demand increases.
• Off shore wind and other renewables are intermittent and expensive – they all need subsidies.
• Energy prices have risen much faster than inflation and an increasing number of people are now in fuel poverty – having difficulty paying their energy bills and maintaining comfort conditions which has a huge hidden cost in health and benefits.

There is no one answer to this crisis, we definitely need more gas fired power station, we need to exploit shale gas in a sensible way and we need far more energy efficiency. The government has put in place some good foundations and raised efficiency up the energy agenda but now we need large scale programmes that deliver significant quantities of power savings, something like the 155 TWh (c.40% of demand) that was identified in McKinsey’s Electricity Demand Reduction project for DECC. One vital part of this is to ensure that the demand side (efficiency) can play in the electricity capacity market in exactly the same way as supply options. There is a limited window of opportunity to make sure this option is included in the Energy Bill. If we do that properly we can create a market for large scale electricity efficiency programmes, for example, lighting upgrades for a whole city or region. As well as energy savings these kinds of programmes would produce large numbers of jobs.

There are other things we can and must do but getting demand side properly into the Energy Bill is vital.