UK guarantees energy price to cut blackout risk

Suzie Neuwirth
Ofgem said the lights could be dimmed if margins became tight (Source: Getty Images)
The government yesterday guaranteed payment for more than 80 per cent of peak UK electricity demand, to lower the risk of blackouts.

The announcement coincides with figures from energy regulator Ofgem, which show that reserve margins – the safety buffer of spare power capacity between supply and demand – could fall to their lowest level of two per cent during the winter of 2015-16, as ageing coal and nuclear plants go offline.

An Ofgem spokesperson told City A.M. that the lights could be dimmed if margins became particularly tight.

The government will commit to buy 53.3 GW of electricity at the first capacity market auction this December, as part of its energy market reform, although the system will not come into operation until 2018-19.

The capacity market reduces risk for energy generators, by offering a set price for the energy they produce, in a bid to boost the UK’s energy security.

“There was a real risk back in 2010 that an energy crunch would hit Britain in the middle of this decade and lead to damaging power cuts,” said energy secretary Ed Davey.

“But the excellent news is that with today’s announcement we have the final piece of the jigsaw of our detailed energy security plans and can now say with confidence that we have defused the ticking time bomb of electricity supply risks we inherited.”

Ofgem said the likelihood of blackouts had fallen due to rebalancing measures implemented by National Grid. Customers face a one in 31 risk of blackouts in the worst case scenario during winter 2015-16, up from a one in four chance before the measures were put in place.

The network operator is asking large energy users to voluntarily cut back their electricity use, in return for payment.

It also plans to pay mothballed gas power plants to be ready to come back online if needed.

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