If The State Can't Keep the Lights On, Who Will?

The Daily Telegraph covered Britain’s energy shortage recently with the headline “Britain could face blackouts if the wind doesn’t blow”. Clear about where the responsibility lay for the small margin between our generating capacity and consumption, the article went on to state that “the margin has eroded in recent years as environmental regulations force the closure of old coal-fired power plants.”

In case you didn’t know, since I wrote this piece last year, the forecast margin between our peak consumption and demand for electricity has fallen to 1.2%. To cope, National Grid has taken a number of emergency measures to boost this to 5.1%, such as paying large consumers to reduce their usage at peak times. But as The Guardian pointed out last year, “The now dismantled state-owned Central Electricity Generating Board at one time used to argue that a minimum capacity to cope with peak demand should not be less than 25%. “#How did we get into this situation? Well you could point to environmental legislation: the EU Large Combustion Plants Directive has played a role in the recent closure of coal and oil-fired power plants. But few would argue with the reasoning behind it — to cut emissions of sulphur dioxide and nitrogen oxides. As the DEFRA website puts it: “These pollutants are major contributors to acid deposition, which acidifies soils and freshwater bodies, damages plants and aquatic habitats, and corrodes building materials. Nitrogen oxides react with volatile organic compounds in the presence of sunlight to form ozone that can adversely affect human health and ecosystems.”Those evil Eurocrats. Who would want to stop that?Of course it is not only coal and oil fired power stations that have shut, or are scheduled to shut. By my count (using this source and news stories), two nuclear stations have closed already and a further six are due to close in the next ten years.Is this more green Eurocracy?Nope. The LCPD doesn’t apply to nuclear power stations. So what do these stations that are closing or scheduled for closure have in common with the coal and oil plants that have shut?Age.The newest of these plants began delivering power to the grid in 1988, 27 years ago. The oldest? 1967.When companies say that they have had to shut their plants because of environmental legislation, what they mean is that the technologies at the core of these stations is so old that it is uneconomic to control their very harmful pollution. The reason we might not be able to keep the lights on is this: whether or not the wind blows, we simply haven’t built enough generating capacity in the last twenty years. Now what happened twenty years ago that might mean we stopped building so much generating capacity? Privatisation.This isn’t a tirade against privatisation — I try to stay away from the ‘big P’ politics in this blog. Rather it is a statement of fact: the state no longer has the powers it needs to keep the lights on for its citizens.It’s not for lack of trying. Take the first new nuclear plant to be built in the UK, scheduled for completion some time in the mid 2020s at Hinkley Point in Somerset. The government has had to guarantee the operator of this plant a minimum price of £92.50 per megawatt hour, inflation linked, for 35 years. Similar prices have had to be provided to renewable energy companies to support their investment. Yet every year the margin of safety seems to fall.It appears the private sector doesn’t want to take the risk on the long term returns a power station might provide. The government doesn’t seem to be able to offer sufficient guarantees to the private sector to make it attractive. And even when it does, it faces challenges over state aid rules.None of the scenarios for future energy produced recently by National Grid suggest the construction of more than one gas turbine plant. There’s notionally more nuclear capacity planned but only one of National Grid’s scenarios shows anything like the total capacity proposed being available. It seems likely that only a couple of these stations will be completed and most likely not before their predecessors are due to be shut down.So where’s the light at the end of the tunnel? Who is going to build the generating capacity to keep the lights on?Firstly, it’s bad news for the Telegraph: wind power walked away with the biggest subsidies in the recent ‘Contracts for Difference’ auction, meaning new on and offshore plants will be constructed. But this only accounts for about 2GW of capacity, and I estimate we’re losing more than ten times that between 2012 and 2023. The total budget for the CfD programme (around £325m) is a fraction of what might be needed to support this scale of generation.What’s going to make up the difference?Well we already import energy from Europe. And most scenarios produced by National Grid recently suggest this will continue.But the big increases? It looks like it’s going to have to come from us folks: small scale generation. Combined heat and power. Community waste projects. Solar panels on your roof and batteries in your basement(Elon Musk will be delighted). And, of course, the continuing decline in demand.This all presents a big challenge for the grid, which wasn’t designed for energy storage or distributed generation and will need major investment to transform. A level of investment the private sector will bear? That’s a post for another day.