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Tight margins expected over winter as National Grid ESO eyes risk to supply security

There is concern that security of supply will come at a very high cost given gas prices and the continuing uncertainty. Image: Getty.

There is concern that security of supply will come at a very high cost given gas prices and the continuing uncertainty. Image: Getty.

While tight operational margins are expected over the coming winter, National Grid Electricity System Operator (ESO) is confident it will be able to manage these using its standard operational tools, it has said.

The operator has released an early look at its Winter Outlook Report – which is normally published in autumn – in light of the concerns around security of supply due to uncertainties arising from the invasion of Ukraine by Russia.

It states that margins are expected to be within the Reliability Standard under normal market conditions. National Grid ESO puts its Base Case margin at 4GW/6.7% with an associated loss of load expectation (LOLE) of 0.1 hours, which is within the Reliability Standard of 3 hours LOLE.

The operator is expecting tight periods to also be within its operational margins, these will likely occur in the first half of December. But it will have enough available capacity to manage this using operational tools, such as issuing electricity margin notices (EMNs), the operator noted.

EMNs as well as Capacity Market Notices are relatively common over the winter period, for example National Grid ESO issued numerous notices over the winter of 2020/21 when particularly cold weather hit Britain, leading to turbulence in the market that pushed the Balancing Mechanism price over £1,000/MWh.

In a much rarer occurrence, last week amid the heat wave in Britain it issued two Capacity Market Notices, as generation suffered the impacts of the record high temperatures.

Beyond this, National Grid ESO has highlighted a number of ways it is looking to additionally prepare for this winter, given the risks and uncertainties associated with possible shortfalls in Europe’s gas supply.

“While Britain is not reliant on Russian gas to the extent that the rest of Europe is, it is clear that the cessation of flows of gas into Europe could have knock-on impacts, including very high prices,” notes the report.

“As a prudent system operator, we are working closely with BEIS, Ofgem and National Grid Gas Transmission to assess the potential scenarios that may arise, and taking steps to ensure we are well prepared to maintain safe and secure operation of the electricity system.”

The operator pointed to actions it is taking to boost its resilience over the winter given the potential risks of gas shortages in Europe. This includes extending the life of coal units, with Drax and EDF agreeing to keep sites operational over the winter following a request from the government.

Additionally, it is exploring market-based demand side response measures, including running a trial together with Octopus Energy earlier this year to test the ability to send signals to consumers asking them to turn-down energy use during fixed periods.

It is also working with transmission operators to minimise the impact of network outages and engaging with industry stakeholders to ensure any emerging risks are mitigated as they materialise.

“We may well get through the winter without major incident but the gas bill at the end will likely be extortionate,” said Jess Ralston, senior analyst at the Energy and Climate Intelligence Unit, in response to the Winter Outlook.

“With calls for the £15bn winter energy package to be expanded, the government will be kicking itself for not having invested more in energy efficiency over the years. The high cost of gas will be adding £2,000 to bills from October, but this could rise with Putin already turning down the flow to Germany.”

National Grid ESO will continue to develop the full Winter Outlook Report over the coming months, and release the full document as normal in autumn.

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