Ofgem: Lights Going out Is Closer than Thought

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The energy regulator OfGEM has released the first annual ‘Electricity Capacity Assessment’, required under the Energy Act (2011). This indicates that the supply capacity safety margin across the transmission network could fall from around 14% currently, to 4% by winter 2015/16.

Older Coal and Oil fired power stations are closing earlier than the 2015 deadline under the EU Large Combustion Plant Directive, as they use up their maximum operating hours under the legislation. This is principally because higher wholesale gas prices and the low carbon allowance price have meant operating coal fired stations at higher output over the past year has proved more profitable.

New capacity is not being built at the speed needed to replace the closing generators. OfGEM have reiterated that the key risks remain:

  • Britain will face significant levels of gas imports, increasing our exposure to uncertainties in the global gas market, supply disruption and potential price increases;
  • given the levels of investment needed, there is a high likelihood of rising consumer bills, especially if oil and gas prices continue their underlying rise since 2003;
  • the closure of aging power stations and the need to meet tough environmental targets; and
  • the difficulty of attracting finance during a global financial crisis.

The report can be reviewed here.