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UK energy bill delay would jeopardise 2015 electricity supply - trade body

01 Nov 2012 12:59:37 | edem

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The UK's electricity market reform process "must not be delayed beyond the end of next year", or risk exacerbating the country's 2015 supply crunch, a renewable energy trade body warned earlier this week.

Any delay beyond that date would aggravate the crunch that British energy regulator Ofgem has warned the UK will face in the middle of the decade, by halting momentum that has built up in the deployment of wind farms, RenewableUK policy director Gordon Edge told ICIS at the lobby group's annual conference in Glasgow.

Wholesale prices on the UK power far-curve were bid up in the immediate wake of the announcement. An increase in interest on longer-dated spark spreads was also reported by traders, with the power outlook adopting a more bullish stance relative to gas.

According to figures released by RenewableUK on Tuesday, there was a 50% year-on-year increase in approval rates for onshore wind schemes across all levels of government from July 2011 to June 2012. "Familiarity breeds consent," the trade body's chief executive Maria McCaffery commented.

Roughly 1.7GW of onshore wind projects were approved, while 1.3GW of offshore schemes were approved, the group said. New installed capacity over the period totalled 774MW onshore and 517MW offshore.

"I'm quite confident that the momentum we have this year is going to be continued, for at least next year, and I'm reasonably confident that we will see another gigawatt each of onshore and offshore wind next calendar year," Edge said.

"The issue that we've got is that to continue that momentum requires being more forthright in order to work out the uncertainty in electricity market reform. [The programme] must not be delayed beyond the end of next year. That is what would keep the momentum going."

Supply crunch

According to Ofgem's first annual electricity capacity assessment, published earlier this month, Britain's total installed capacity stands at 82GW and will fluctuate between 79-81GW through to 2016 with a reduction in fossil fuel capacity offset by an increase in wind capacity.

The regulator expects the deployment of onshore and offshore wind to continue, with onshore growing from 5GW including embedded wind today to nearly 8GW in 2016, while offshore wind will grow from 2.7GW to 5.2GW over the same period. This 5.5GW total increase falls broadly in line with RenewableUK's expectations for capacity growth.

However, the derated capacity margin - which takes into account load factors that are considerably less in the case of wind than for thermal plant - will shrink from around 14% today to just 4% by 2015, the regulator has warned.

The derated margin is the expected excess of available generation capacity to demand, expressed as a percentage.

The window between today and the 2015 crunch is insufficient for new combined-cycle gas turbines to be built, Ofgem has conceded, leaving few options remaining to plug the looming gap other than a reliance on wind deployment. Therefore, if the wind were to be knocked out of the industry's sails, system security could be jeopardised.

Wind power still has "a very significant contribution to make in terms of meeting peak demand", because its capacity credit stands at around 20%, Edge said, citing system operator National Grid figures.

Capacity credit

The capacity credit of wind power is a measure of how much thermal plant can be displaced by wind power, taking wind's variable output into account, without compromising system security.

A 20% capacity credit rating means the 5.5GW of new wind plant Ofgem expects to come online over the next five years could displace around 1.1GW of conventional plant.

But Britain is set to lose 4.9GW of coal-fired plant from its system by 2015 under the large combustion plant directive, according to Ofgem figures, along with 1.6GW of oil-fired plant by 2016.

This loss of conventional capacity, combined with the wind displacement figure, explains the shrinking margin.

But despite the figures, more wind power capacity is in the pipeline, which will further alleviate contracting margins. "There are plenty of projects coming forwards," Edge said, citing 4GW of onshore projects that he said have been granted consent but have not yet moved to construction.

Rachel Ruffle, development director at renewable energy firm RES, added the industry was also looking for an increase in interconnection across Europe alongside advances in storage technology to alleviate future supply crunches. JS

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