National Grid warns of tight electricity supplies and winter blackouts

Electricity pylons carry power away from Dungeness nuclear power station in Kent as the National Grid warned that a record low demand for electricity during the UK's coronavirus lockdown could lead to windfarms and power plants being turned off to avoid overloading the electricity grid. (Photo by Gareth Fuller/PA Images via Getty Images)
Around half of the UK's gas demand is used to heat homes, while another quarter is used to generate electricity. Photo: Gareth Fuller/PA Images via Getty Images

National Grid (NG.L) has issued a stark warning that the UK is facing a greater threat of blackouts this winter, as well as tight electricity supplies.

The company’s electricity system operator (ESO) said Britain’s infrastructure will be able to get enough gas to see it through the winter period, but cut its forecast of buffer supply.

Around half of the country’s gas demand is used to heat homes, while another quarter is used to generate electricity.

National Grid oversees the country's energy supply, and ensures supply and demand are evenly balanced. The ESO is a legally separate business within National Grid.

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It comes as Britain is facing supply constraints following a fire which knocked out a key subsea cable that brought electricity from France, the UK’s top electricity supplier.

The blaze halted electricity imports via the 2,000 megawatt power cable, half of which is not expected to be available until March 2022.

On Thursday, ESO, said the “derated margin”, which is the amount of excess capacity that could be called upon if needed, was expected to be 6.6% or 3.9 gigawatts (GW).

It added that in a worst-case scenario, such as multiple power plant outages, low wind speeds and a colder winter, could cause the margin plunge to just 4.2%, or 2.5GW. This would be well below the 5.1% forecast.

“Forward wholesale electricity prices are higher than last year,” the ESO said in its annual winter outlook. “In addition, tight margin days are likely to see significant price spikes in the balancing mechanism.”

Chart: Yahoo Finance
Gas prices have risen to record highs due to low gas reserves, strong commodity and carbon prices, heightened global demand, and low wind output. Chart: Yahoo Finance

In recent weeks, nine small energy suppliers have gone bust amid soaring energy prices.

Enstroga, Igloo Energy and Symbio Energy went bust at the end of September. The others included People’s Energy, Green Supplier Ltd, Utility Point, PfP Energy, MoneyPlus Energy and Avro Energy.

Wholesale gas prices have already surged more than six-fold, while the price cap on energy bills has risen £139 ($188) to £1,277. Experts have predicted that it could rise by another almost £400 in April.

According to research firm Cornwall Insight, energy bills could climb by as much as 30% next year if gas and electricity prices continue to rise, and more suppliers go under. It expects the energy price cap to increase to around £1,660.

Reasons behind the dramatic increase in power prices include low gas reserves, strong commodity and carbon prices, heightened global demand, and low wind output.

Read more: UK petrol prices to hit all time high by Christmas, warns RAC

“Great Britain has a well-functioning electricity market and so we would expect a market response driven through higher prices,” the ESO said.

UK gas prices hit record highs on Wednesday, but retreated on Thursday after Russian president Vladimir Putin suggested that state-backed Gazprom could increase supplies to help Europe avoid a full-blown energy crisis.

“Let’s think through the potential increase of supply on the market, only we need to do it carefully,” he said.

His comments sparked a near 10% sell-off in natural gas prices overnight after European benchmark gas surged 40% on the day.

Watch: Gas prices swing wildly as Putin comments put the brakes on latest spike