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EurOil COMMENTARY EurOil
UK prepares for winter blackouts as energy crisis worsens
As a leadership contest wages on, Whitehall is preparing for a steep increase in UK energy bills and potential winter blackouts.
UK
WHAT:
The UK has drawn up contingency plans that involve potential blackouts in January.
WHY:
The UK has its own gas production but is short on storage.
WHAT NEXT:
The regulator is due to announce the next hike at the end of this month.
THE UK is bracing for the risk of controlled power blackouts this winter, in the event that shortages in gas supply coincide with cold snaps, with government planners highlighting in par- ticular the threat of outages in January.
Under the government’s latest “reasonable worst-case scenario,” reported by multiple media sources on August 9, the UK could struggle with a shortfall in power generation equal to around a sixth of peak demand, even if emergency coal- fired power plants are turned back on. There could be up to four days of blackouts in January, if below-average temperatures are combined with cuts in electricity imports from Norway and France.
In a usual year, natural gas accounts for around 35-40% of UK power supply, and in spite of soaring gas prices, as of August 10 it is supplying about 46% of the nation’s electricity, owing to relatively weak performance from solar and wind sources. On one hand, the UK is less exposed to the gas supply crunch as it benefits from its own domestic production, which covers about a third of its needs. On the other hand, the UK has very little gas storage capacity consider- ing the size of its gas market, following the gov- ernment’s decision to close down the country’s largest storage site in 2017, to cut on expenses. While the UK takes very little gas from Russia, it would nevertheless suffer from the knock-on effect of a cut-off in supplies to continental Europe.
Emergency plans
The government’s Department for Business, Energy and Industry strategy has sought to downplay the risk of power outages this winter, telling Bloomberg in a statement on August 9 that the worst-case scenario is “not something we expect to happen.”
“Households, businesses and industry can be confident they will get the electricity and gas they need,” the department said.
However, according to the leaked details, the first stage of the emergency plan would involve the network operator directing flows of gas on
the system, overriding commercial agreements. The second would entail halting supply to gas- fired power stations, triggering planned power cuts affecting both industry and households. The UK might then have to resort to using its strate- gic reserves of coal.
Russia’s deep cuts in gas supply to Europe have coincided with perennial outages this year at France’s fleet of nuclear power stations. Less than half of the country’s reactors are currently online, amid delays with maintenance and repairs, and this has led to the UK exporting power to its neighbour, contrary to the usual trend. Worst still, the heat wave this summer has not only driven up power demand but has also led to lower water levels at Europe’s hydroelectric power stations.
Enter politics
The escalating energy crisis is also exacerbating the cost of living crisis in the UK, and news of the emergency plan came days after consultancy Cornwall Insight estimated that the energy price cap for households would reach £4,266 ($5,150) annually in the first three months of next year, up from only £2,000 at present. This has put pres- sure on the government to introduce additional support measures for the most vulnerable con- sumers, at a time when Whitehall decision-mak- ing is on hold as the leadership contest to replace Prime Minister Boris Johnson next month continues.
The favourite in the race, Liz Truss, has so far ruled out expanding support to ease energy bills, suggesting instead that a tax cut might help the situation. This and the removal of a green levy from energy bills would save households some £153 annually. The other contender Rishi Sunak has meanwhile said he would build on the government’s existing package once the new level of the price cap for consumers is known.
UK regulator Ofgem is due to announce the next price cap coming into effect in October at the end of this month. It will then be adjusted on a quarterly basis.™
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