Energy generation capacity even tighter

SSE have added to warnings by Ofgem and others of the risk that the lights could go out as it announced plans to take 2,000MW of generation capacity offline in the next financial year. It said the UK government is “significantly underestimating” the scale of capacity crunch facing the UK and called for capacity payments in the Energy Bill to be brought forward to 2014 to avert disaster.

As well as closing coal-fired power plant to comply with European legislation, the energy company is ceasing generation at some gas and biomass plant it says have become uneconomical to run. SSE does not expect to make investment decisions on new gas-fired plant until 2015 at the earliest, due to uncertainty around government support available.

Ian Marchant, chief executive of SSE, said: “Ofgem recently expressed real concern about the tightening of the UK’s generation capacity margin that will follow expected plant closures in the next few years, predicting a 1:12 chance of ‘the lights going out’. It is unlikely that the majority of the reductions in generation capacity and the delays to new investment we have announced today will have been included in this analysis, which highlights that the situation is likely to be even more critical than even they have predicted. It appears the Government is significantly underestimating the scale of the capacity crunch facing the UK in the next three years and there is a very real risk of the lights going out as a result. The Government can reduce this risk very easily, by taking swift action to provide much greater clarity on its electricity market reforms and bringing forward capacity payments for existing plant from 2018 to 2014.”

To add to these concerns the unusually cold weather has drained nearly all of Britain’s gas supplies, sparking fears of a spike in energy prices. Households have been forced to turn up their heating pushing the demand for gas to 20% higher than normal in March. Gas stocks were reported as just 10% full, compared to 49% this time last year.

Andrew Horstead of the energy consultancy Utilyx said: “There is immense pressure on the existing infrastructure. We are almost maxed out from imports through pipelines. The big concern is that there is very little flexibility left in the system.”

Energy prices will soar if Britain is forced to make up the shortfall by importing more liquefied natural gas from elsewhere. This crisis highlights the small amount of gas storage in the UK that makes us particularly vulnerable to spikes in demand.

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