UPDATE 8-Oil inches up in quiet holiday trade, focus on crude glut
* Oil inventories have dipped, but remain near records (Updates prices)
By John Kemp
LONDON, June 28 For a few hours in the dark, cold winter evenings between October 2015 and March 2016, Britain's National Grid may come uncomfortably close to being forced to disconnect some electricity customers as demand exceeds supply.
Before resorting to disconnections, the grid operator and the power utilities will do everything possible to keep the lights on - reducing customer voltages, ordering generators to run flat out and introducing emergency restrictions on electricity exports to France and Ireland.
Nonetheless, there is a one-in-12-year risk that power utilities will begin controlled disconnections at some point in the winter of 2015/16, according to a new report from the government's Office of Gas and Electricity Markets (Ofgem).
The threat could be even higher if there is a period of unusually cold weather or if power demand does not continue to fall as National Grid expects. In the worst scenario, the risk of controlled disconnections could be as high as one-in-two. That would represent a sharp increase from last winter, when the risk of disconnections was just one-in-47.
In a touch of irony, the faster the economy recovers, the greater the risk of power shortages in 2015.
Spare capacity is shrinking to dangerously low levels, Ofgem explained in its "Electricity Capacity Assessment Report 2013" published on Thursday.
Tables 10 and 11 in the report show just how close Britain could come to controlled disconnection in the next few years ()
Under the grid code, if electricity starts to run short, power distributors first appeal to large industrial and commercial customers to reduce demand voluntarily, then extend the appeal to residential customers, urging them to avoid using appliances at peak times.
If voluntary conservation is not enough, distributors start forcible disconnections, beginning with the largest industrial users and cutting power supplies to households only as a last resort.
For residential customers, blackouts remain highly unlikely. But there is a real risk that industrial and commercial users will be asked to undertake voluntary conservation or be forcibly disconnected on some of the coldest days in the winter of 2015/16.
Beyond 2015/16, capacity margins should improve again and the risk of disconnection fall as more wind farms are connected to the grid and at least some new gas-fired and biomass-powered generating units are added.
UNREALISTIC ENERGY TARGETS
If the lights are extinguished in 2015/16, the blame will fall squarely on the European Union, which has forced more than 8 gigawatts of coal-fired generation capacity (more than 10 percent of Britain's total generating potential) to close since 2008, and with poor implementation by the British government, which has failed to plan for adequate and timely replacements.
Green campaigners often emphasise the importance of "technological forcing" - using ambitious regulations to force industry to ditch old and polluting systems and deploy cleaner new technology. But the threat to Britain's power supplies shows what happens when the single-minded pursuit of clean energy comes at the expense of other important objectives such as controlling costs and ensuring reliability.
If parts of the country are plunged into chilly darkness in the winter of 2015/16 while the landscape is dotted with large coal-fired power plants sitting idle because they cannot operate because of emissions regulations, it will trigger a ferocious backlash.
Ministers and power companies urgently need to find some way to allow some coal-fired plants to remain on stand-by at least that winter.
In the longer term, the government must show that its plans for capacity provide a realistic mix of fossil fuel generation, renewables and demand response to ensure that service quality is maintained at an acceptable cost, even as greenhouse emissions are lowered.
POORLY DESIGNED POLICIES
Ministers and power market regulators often seem surprised by the looming electricity crunch. But it stems directly from policies crafted by the government in London and the European Commission in Brussels and could have been entirely avoidable.
The EU's Large Combustion Plant Directive (LCPD) will force 12 GW of coal and oil-fired generating capacity to close by the end of 2015, according to Ofgem. Some older, combined cycle gas turbine (CCGT) plants are also likely to close around the middle of the decade as they reach the end of their technical lifetimes.
In their place, Britain has installed a huge number of wind turbines. Wind capacity has been growing for more than a decade and is set to double again from 10 GW in 2013/14 to 20 GW by 2018/19.
The problem is that wind is much less reliable because it is not necessarily available when needed most. Coal, gas and oil-fired generating units are assumed to be able to produce 85 to 90 percent of their rated capacity on demand (allowing for maintenance and unplanned outages). The grid can rely on wind farms to produce only about 17 to 24 percent.
New wind capacity is therefore a poor replacement for the coal and gas-fired plants that are retiring.
Declining demand, meanwhile, has helped offset the loss of coal generating capacity. Electricity consumption has been falling since 2008, partly as a result of the recession and partly because of the implementation of energy efficiency measures, such as a ban on the sale of incandescent light bulbs.
Regulators and the grid are relying on demand response later in the decade to help offset the increased variability of the power supply caused by the rising share of renewables on the grid.
Demand response is expected to increase once smart meters have been rolled out and customers have been moved onto time-of-use tariffs, which charge them more for using electricity at peak times such as winter evenings.
In the meantime, though, neither Ofgem nor the grid operator is certain how demand will change over the next three to four winters.
"A DAMNED CLOSE-RUN THING"
Demand is likely to start rising as the economy continues to recover from the recession. Ofgem and the grid operator say, however, that energy efficiency measures could trim peak power consumption during an average cold spell by around 0.7 percent by 2015/2016. Demand response could shave another 0.6 percent from the peak.
Power consumption during 2015/16 cold spell peak could be anywhere from 1.5 percent higher to 0.4 lower than in 2012/2013, according to Ofgem.
Ofgem is unsure how much spare generating capacity might be available to meet that peak demand, but it could be as little as 2 percent in 2015/16, compared with 6 percent now.
Under normal grid operating conditions, generation could fall short of demand for three hours in 2015/2016, compared with just one hour last winter, a metric that grid operators call "loss of load expectation".
But because of the tremendous uncertainty about demand, energy efficiency and demand response, the loss of load expectation could range anywhere from two hours to nine hours in 2015/16.
The nightmare scenario is that an area of high pressure lingers over the UK for several days, bringing cold weather and clear skies, which would maximise heating demand but idle the fleet of wind turbines.
At around 1730 GMT, as some customers arrive home and turn on the heating and start preparing the evening meal while industrial and commercial buildings are still in use, capacity could be stretched to breaking point.
The loss of load expectation does not automatically mean customers will be disconnected. The grid can cope with a generation shortfall of up to 500 MW by turning down the voltage. Another 250 MW can be bridged by ordering all generators to run absolutely flat out, exceeding their normal maximum output.
In a last desperate bid to keep the lights on, the grid can halt all power exports to Ireland and France and request emergency imports via the interconnectors, making up perhaps another 2,000 MW.
But if power demand exceeds generation by more than around 2,750 MW, the grid would have no option but to ask power distributors to start the controlled disconnection process. It could get very close for a few hours in 2015/16.
* Oil inventories have dipped, but remain near records (Updates prices)
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