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Imminent electricity capacity crisis threatens UK, Ofgem warns

19 Feb 2013 16:13:22 | edem esgm

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The UK is at a "near crisis" over an imminent electricity capacity squeeze that will leave it heavily reliant on natural gas imports, Ofgem's chief executive Alistair Buchanan has warned.

"10% of old oil and coal plants will off the system within a month. That's coming off early," said Buchanan on BBC Radio 4 in the UK on Tuesday. "Coal is being run as if it's going out of fashion, and it is going out of fashion. It was meant to go out of fashion in 2016 but it's coming off the bars now."

Ofgem's first annual electricity capacity statement in October flagged a potential "pinch point" for generation capacity by 2015, (see EDEM 5 October 2012), and market sources have been quick to point out that shortages could develop earlier as coal-fired plants use up their running hours under the EU large combustion plant directive (LCPD) (see EDEM 18 January 2013).

Buchanan pointed out that the UK will not have any new nuclear capacity on line until at least 2020, clean coal was not on the near horizon and carbon capture and storage facilities have yet to be developed.

"This means we are going to have to reply on gas," he continued. "Gas currently provides 30% of our power stations; it will be providing 60% of power stations."

Buchanan highlighted power prices in Japan, which relies on imported gas, and are 60% higher of that in the UK, as an example of future pricing levels.

He added that the UK could not look to replicate the US's shale gas industry, which garners low power prices in the country. "Gas shale could be exciting, but the challenges, both environmental planning and technical, mean that it's not going to be on the horizon for the next five to 10 years."

Capacity market plans

The UK Department of Energy and Climate Change (DECC) reinforced Buchanan's comments, pointing to the electricity market reform bill proposed in November (see EDEM 29 November 2012).

"We have legislated to introduce a capacity market that will help guard against blackouts and ensure there is sufficient supply when margins get tight," said a DECC spokesperson in a statement. "Investing in a diverse energy mix will help us to insulate consumers from the high price of wholesale gas, which drives up bills."

Debate

Buchanan's comments received further support from the government, including member of parliament Charles Hendry, a former energy minister, who told the BBC he agreed with "every word he said".

However, other market participants accused the Ofgem head as being alarmist.

"UK energy demand is at a 14-year low and not expected to rise dramatically over the next five years. Tighter reserve margins such as those warned of by Buchanan are not an entirely unheard-of phenomenon," wrote analysts at IHS Energy in a note.

"The country saw similarly low levels of the percentage of installed capacity exceeding the expected peak demand in the early years of the millennium." Katie McQue

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