Keeping the lights on in the short term — tighter margins and new balancing tools
On the same day as the Department of Energy and Climate Change published its update of the Capacity Market, which is intended to facilitate security of electricity supply from 2018 onwards, Ofgem published its annual Electricity Capacity Assessment Report showing reduced margins in the middle of the decade and an appreciably increased risk of electricity customer disconnections. Ofgem and National Grid also issued consultations on new balancing tools to enable National Grid to manage any supply shortfalls in the period before delivery under the Capacity Market starts to take effect.
Ofgem’s annual report to the Secretary of State assessing the outlook for electricity security of supply makes interesting reading, as the analysis suggests that the risks to electricity security of supply over the next six winters have increased since the last report in October 2012. This is due in particular to deterioration in the supply-side outlook, with the electricity industry having announced the withdrawal of more than 2GW of installed generation capacity in the near future. Further withdrawals are still likely.
Uncertainty around policy and future prices continues to limit investment in conventional generation and no new plant is expected before 2016. There is also uncertainty over projected reductions in demand. Ofgem continues to expect that margins (i.e. the difference between supply and demand) will decrease to potentially historically low levels in the middle of the decade and that the risk of electricity customer disconnections will appreciably increase, albeit from near-zero levels…
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