Electricity capacity boosted amid fears war in Ukraine will spark rolling blackouts

·4 min read
electricity pylons
electricity pylons

The resilience of Britain's energy system is being strengthened by ministers, as analysts warned that a Russian invasion of Ukraine risks a surge in gas prices that would spark rolling blackouts.

The Business Department has moved to ensure more electricity supply than previously planned is on standby next winter in a bid to fill gaps.

It comes as City analysts warned that gas prices in Britain could more than quadruple to 1,000 pence, or £10, per therm, triggering rolling blackouts, in the extreme scenario that all Russian supplies to Europe are cut off amid tensions over Ukraine.

Meanwhile, low wind speeds over the past 48 hours have forced one of Britain’s few remaining coal-fired power stations to come online for the first time since November.

A conflict in Ukraine risks compounding the gas price crisis gripping Europe, which has been struggling since September with a shortfall in supplies.

Gas supplies have a knock-on effect on the cost of electricity prices, because the fossil fuel is used to generate more than a third of power in the UK and about 20pc in Europe.

Closures and outages at ageing nuclear plants have added to the pressure, along with the shutdown of some large coal and gas-fired power plants as part of the Government's green agenda.

The shift towards wind and solar power also leaves UK supplies more vulnerable to the weather.

Each year, selected generators are paid to make sure they are on standby to meet looming electricity shortfalls at short notice, for example if supply is low just as people arrive home in the evening and put on their kettles.

The Government has now decided to set a target of procuring 5.4 gigawatts of capacity for this market in 2022-2023.

This is higher than the target of 4.7 gigawatts recommended by National Grid ESO, the body tasked with balancing electricity supply and demand.

The Business Secretary, Kwasi Kwarteng, told Fintan Slye, director of National Grid ESO, in a letter: “While I agree with the analysis you provided in fulfilment of your remit under the Capacity Market Regulations, this target reflects the broader uncertainties within the power sector.”

Drax’s two remaining coal-fired power turbines in Yorkshire are among the generators paid to be on standby to deliver electricity supplies at short notice.

The Drax power station in Yorkshire
The Drax power station in Yorkshire

Both were put into service on Monday night amid low wind speeds, according to market data specialists EnAppSys, charging £4,000 per megawatt hour.

EDF’s sole remaining coal-fired station, West Burton A in Nottinghamshire, was also generating power on Monday night.

Both EDF and Drax’s remaining coal-fired units are due to close in September as part of the efforts to cut carbon emissions.

The UK is trying to rapidly build more wind and solar power but in the meantime is heavily reliant on natural gas for power supplies.

Global gas supply shortages have pushed British wholesale prices up more than five-fold in recent months.

They are now consistently above 200p per therm, compared to long term averages of 40p to 50p.

On Monday prices in Britain jumped almost a fifth on concerns Russia may invade Ukraine, disrupting supplies from Russia to Europe.

Britain does not import much gas directly from Russia but does obtain supplies from Europe. The EU gets about 40pc of its gas from Russia, and prices in Britain track those on the Continent.

In a note on Tuesday, analysts at US investment bank Stifel warned that prices in Britain risk hitting 1,000 pence per therm if Russia’s supplies to Europe were cut off.

They argue there would not be enough gas available on the global market in liquified natural gas to make up for the shortfall.

The analysts, Chris Wheaton and David Round, said: "It's not pretty. Energy rationing would be inevitable in this scenario, which would be disastrous for the European economy.

“Could we see quadruple digit UK gas prices - over 1000p/therm in this event? Yes we could, in our view.

“Demand for power would need to be reduced. This would require industry shut-ins, power rationing through rolling blackouts, to both reduce average demand and also shift and flatten power demand peaks.”

Russia is extremely unlikely to cut off gas supplies, not least as it needs the revenue and wants to be seen as a stable supplier.

However, the analysis reflects mounting concern in the market over the risk to supplies.

Stifel also believes that Russia could make up for lost gas revenues with to a likely increase in the oil price under such circumstances.

A government spokesman said: “Energy security is an absolute priority for the Government, and we take no chances with security of supply. The Capacity Market acts as an effective insurance mechanism, providing secure and affordable electricity that families and businesses can rely on.

“In setting the auction targets we consider a range of factors including the possibility that some sources of generation may not be available at the time of the delivery year. Through the Capacity Market we have secured the electricity Britain needs to cope with peaks in demand out to 2024/25.”

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