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BREXIT: Smart power developments could ease security of supply concerns, says expert

Out-Law Analysis | 06 Sep 2016 | 4:02 pm | 2 min. read

FOCUS: The enthusiastic response to National Grid's recent enhanced frequency response tender shows the scale of the opportunity for investment in UK energy infrastructure - despite the uncertainty surrounding the country's vote to leave the EU.

This is part of Out-Law's series of news and insights from Pinsent Masons experts on the impact of the UK's EU referendum. Watch our video on the issues facing businesses and sign up to receive our 'What next?' checklist.

National Grid received 64 bids for a place on the programme, which has the potential to unlock some £70 million worth of investment in grid-scale energy storage products. Of these, 61 of the bids involved battery assets, while two demand reduction projects and one thermal generation project also bid.

The projects which will be built under the eight successful tenders are expected to be online between October 2017 and March 2018 - and the contracts will run for a four-year period, which National Grid has explicitly said will give investors the "certainty that they need" to take them forward. Enhanced frequency response allows the system operator to respond quickly to frequency fluctuations - making intermittent renewable energy sources more desirable.

The enthusiastic response to this tender is hopefully just the start. Speaking shortly after the winning bidders were announced, National Grid's new executive director Nicola Shaw suggested that we may be "at a moment of real change in the energy industry" as the smart energy revolution takes hold - and the appetite is clearly there among investors to develop innovative storage and demand response projects.

The need for gas-fired plant is also acute. It is hoped that reforms to the planned capacity market, now due to begin in 2017, will successfully deliver more investment into the new generation of gas-fired power which is needed to replace the UK's aging coal-fired stations and ensure long-term security of supply.

The capacity market allows providers to bid to be able to provide National Grid with backup power or demand reduction at short notice, in return for a guaranteed revenue stream. In this context, the recent announcement that Eggborough power station will develop a new gas-fired station on the site of its existing coal-fired station in north Yorkshire should give cause for cautious optimism.

But investors do not like uncertainty, and we should not lose sight of the challenges which Brexit will present to both policymakers and the energy sector. Late last year, the previous government announced its intention to end coal-fired power generation by 2025 as part of a drive to decarbonise energy production while continuing to maintain security of supply. But some commentators are now suggesting that if Brexit threatens security of supply, the government may need to revisit this pledge.

The renewed focus on Brexit by the government after the relative lull and uncertainty of its summer recess will hopefully bring more announcements specifically aimed at addressing worries over Brexit, and the security of supply concerns arising as a result of the UK's potential withdrawal from the EU single market.

In recent public statements, both before last week's cabinet session at Chequers and at the G20 summit in Hangzhou, new prime minister Theresa May has been quick to concentrate on the opportunities which Brexit presents to the UK. For the energy sector in particular, these opportunities remain huge – as much as £215 billion investment in energy infrastructure is needed to keep the lights on and decarbonise.

Jeremy Chang is an energy law expert at Pinsent Masons, the law firm behind Out-Law.com.