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Durham Energy Institute

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Are the extreme concerns of blackouts expressed in the media justified? Dr. Chris Dent comments on recent media stories about high risks of electricity capacity shortfalls.

(20 December 2016)

Chris Dent, DEI Associate Fellow and Reader in Industrial Mathematics at the University of Edinburgh, provides commentary on some aspects of current media stories on potential blackouts, and questions whether the alarmist tone of these articles is justified.are these extreme concerns expressed in the
media justified

"Will the lights go out?"

This week there have been two separate stories about the risk of electricity capacity shortfalls:

However are these concerns justified?

The common phrase "will the lights go out" used in BIG's report title is somewhat misleading. As described in more detail in my briefing note on What is an electricity blackout? , a shortfall of capacity at time of peak demand would mean a limited number of people being disconnected involuntarily for a limited period of time - this is not desirable, but it is not as bad as "the lights going out" suggests.

High unit prices for extra capacity

BIG further refers to the generating resource being used to meet the last slice of very high demand being paid a very high unit price for electricity. Baseload plant which has higher capital costs and lower fuel costs can make its money back by selling energy year round. However any power system will also have generating units with lower capital cost and higher fuel costs which run much less frequently to meet that last slice of high demand. Without going into the details of exactly how much specific units have been paid by National Grid recently, it is absolutely inevitable that if total payments to such units are divided by the number of kWh produced then this per-unit cost will look very high.

However these units which will only run occasionally to meet very high demands are needed, and their capital costs must be paid somehow - it is important to recognise that the primary service they provide is not year-round energy supply, but providing capacity when needed at times of high demand. Thus it is inevitable that their total income per unit of energy produced will be very high, and this is not a bad thing per se. The correct way to look at these payments is to ask whether there is a more economic way of providing that last little bit of capacity, and expressing concern over the per-kWh payment without this context is missing the point.

"Emergency measures" or standard power market design?

Actions taken by National Grid to ensure an appropriately low risk of capacity shortfalls are referred to in BIG's report (and quite commonly elsewhere) as "emergency measures". The BIG report however does not address clearly how to ensure a reliable electricity supply, if the future prospect of profit through trading energy will not bring enough capacity forward, other than by incentivising additional capacity.

It is certainly the case that variable wind generation makes it harder for the necessary volume of conventional generation to make a return on investment through trading energy alone, as wind reduces the opportunity for controllable generation to sell energy to a greater extent than it reduces the need for the presence of controllable generating capacity. However this issue cannot be blamed solely on the advent of new technologies such as wind - even in an all-fossil fuel system, generation which is needed but which is supposed to make its money by running occasionally at times of very high price is not an attractive investment, due to the lack of a solid bankable revenue stream. What are referred to as "emergency payments" are simply a way of providing that bankable revenue stream, and in one form or another have been a standard feature of power markets around the world for many years.

Differentiated access to energy?

The origins of the reports of differentiated access to reliable electricity supply between customers are unclear. However it may well be that this originated in a discussion of a future system where there are new electrical loads such as electrical vehicles and heating on a mass scale across the country. At present, domestic electricity demand is not very flexible - much of peak demand is lighting, cooking and use of electronic leisure devices, none of which can easily be postponed. However the potential big new demands will be arising from charging electric vehicles (where many people will come home in the evening and need charge the next morning, without caring exactly when it is delivered) and heating (heat can be stored much more easily than electricity).

 

Thus a glass half empty view would be that unless the time at which vehicles are charged and heat produced is coordinated between customers, then massive new investment in generating capacity and networks will be needed (or alternatively a great fall in the cost of electricity storage technologies would be an alternative). A more optimistic view is that as these new demands are inherently flexible, they can naturally be coordinated to match demand, thus avoiding the need for these investments. As a consequence, a reliable electricity supply in this future world might be thought of as one in which people get what they need _by the time they need it_, whereas now a reliable supply is thought of as being one where people get exactly what they ask for immediately.

Summary

To summarise, I am not saying that the current electricity market is perfect, and that there are no concerns about future security of supply - however I found these recent media and parliamentary reports somewhat alarmist, and I hope that this article has provided additional context to help understand what lies behind these reports.

 

Resources

DEI briefing notein association with the Maxwell Institute for Mathematical Sciences What is an electricity blackout?

Watch a video of a DEI event focused on Will the Light Really Go Out? A public debate