Britain heads for an energy shock

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A recent cold day on both sides of the Channel spelled problems for National Grid operators in the control room in Warwickshire, tasked with keeping Britain’s lights on.

As demand rose on November 24, cheap nuclear power from France was not being sent to Britain through the cable running under the Channel. Instead, electricity was being sent the other way due to high prices that day in France.

Wind speeds, too, were unimpressive. Coal and gas fired power stations did offer to ramp up production – but at a steep price. Shortages in the morning turned into too much power in the afternoon.

By the end of the day, the operators had spent a record £64m on the delicate act of balancing power supplies – asking power stations to ramp up or dial down; batteries to accept and discharge power; cables to the continent to export or import.

It was an exceptionally expensive day, but not without warning. National Grid ESO (electricity system operator), is having to spend more on their responsibility of balancing supply and demand in Britain, heaping costs onto industry and, ultimately, consumer bills.

The costs have triggered alarm in the company and among regulators at a time of steeply rising household energy bills, triggering a review by the ESO and raising questions about the design of the market, the readiness of the system to shift to green energy, and whether power stations are profiteering by bidding in with sky-high prices.

Ofgem, the regulator, says: “Our role is to protect consumers, and we have been closely monitoring developments and share the ESO’s concern over rising balancing costs. We look forward to engaging with the ESO on this review.”

Most of the electricity in Britain is traded directly between power stations and suppliers. Electricity supply and demand must be precisely matched second-by-second, however, which the commercial market does not always achieve.

National Grid ESO steps in to smooth out the gaps, trading and storing power through what is known as the balancing market. This is getting more important as the wind, solar power and cables to the continent built onto the system are intermittent and less predictable.

It is also getting more expensive. The ESO spent £1.29bn on this market between April and October 2021, compared to £986m during the same period in 2020, according to data from market specialist Cornwall Insight. Monthly costs have now breached £200m for three months in a row.

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