Government 'alive' to energy capacity challenge, says Minister after industry warning

Out-Law News | 22 Mar 2013 | 4:44 pm | 2 min. read

The Government has rebuffed criticism that it is not doing enough to ensure that the UK's energy supply is sufficient to meet the country's demand.

On Thursday SSE chief executive Ian Marchant warned that there is a "very real risk of the lights going out" in the UK because the Government had "significantly" underestimated the "scale of the capacity crunch" the UK is expected to experience in the next three years.

However, Energy Minister John Hayes said that the Energy Bill introduced by the Government last year had properly accounted for the risk of a blackout.

"We’re alive to the challenge facing us," Hayes said in a statement. "The Bill before Parliament will set the conditions for the investment needed to keep Britain’s lights on in the long term. The amount of spare power available today is currently comfortable. As old infrastructure closes over the coming years, we expect this margin to reduce but we will make sure it stays manageable."

"We are not complacent about this, which is why we have an insurance policy – the capacity market. We’re considering how and when this can best be used to bring about any necessary increase in supply or reduction in demand. We are confident in our approach and in the responsiveness of the market in providing secure power supplies," he added.

The 'capacity market' concept is included within the Energy Bill. Whilst the Bill would create a new system of financial incentives designed to ensure that low-carbon forms of electricity generation can compete fairly in the marketplace, it also seeks to ensure that this is supported through the creation of an underlying 'capacity market'. The capacity market, the Government has said, would ensure that consumers continue to benefit from reliable electricity supplies at an affordable cost.

The market reforms that the Government has proposed are set against a backdrop of one fifth of the UK's existing power generating capacity being due to come off-line over the next decade.

Energy Secretary Ed Davey has previously said that capacity auctions could take place from 2014 for delivery of capacity in the winter of 2018-19 if needed, but Ian Marchant of SSE has expressed concern about a potential capacity shortage in the interim period. Marchant was commenting after SSE announced that it was reducing energy generation at five of its sites.

"Ofgem recently expressed real concern about the tightening of the UK’s generation capacity margin that will follow expected plant closures in the next few years, predicting a 1:12 chance of ‘the lights going out’," Marchant said on Thursday. "It is unlikely that the majority of the reductions in generation capacity and the delays to new investment we have announced today will have been included in this analysis, which highlights that the situation is likely to be even more critical than even they have predicted."

"It appears the Government is significantly underestimating the scale of the capacity crunch facing the UK in the next three years and there is a very real risk of the lights going out as a result. The Government can reduce this risk very easily, by taking swift action to provide much greater clarity on its electricity market reforms and bringing forward capacity payments for existing plant from 2018 to 2014," he added.

Ofgem's chief executive Alistair Buchanan said last month that the UK will become increasingly dependent on expensive gas imports over the next few years and this would impact on energy bills. He said the UK's energy reserves would become "uncomfortably tight" within three years due to the upcoming closure of coal and oil-fired power stations and that the "reserve margin" of generation will fall from 14% to just 5% in this period.