05 Jul 2023

The UK electricity outlook for winter 2023/24

We’re just a short time into the second half of 2023 and it’s time to start thinking about the energy outlook for next winter. In the run up to last winter the media predicted, wrongly, electricity blackouts in the UK. Quite to the contrary I forecast that there would be no blackouts, which was the case. I had no special or exclusive insights, but I did speak to a variety of industry participants who played their part in planning for the winter period. Same applies this year, there’s no secret forum where this information is shared, but there are a number of sources of information that in aggregate help us understand the situation next winter.

To be completely clear, there was absolutely no interruption to customer demand due to unavailable supply last winter in the UK. The winter period was milder than average with three notable cold spells in December, January and March and there was only one Electricity Margin Notice (EMN) issued on Tuesday 7 March, which was ultimately cancelled ahead of time. That same day was the only day that the coal contingency units were dispatched, more about that later.

This time last year we were still grappling with the gas supply situation following the sanctions against Russia and the cessation of gas supply to Europe and on top of that the sabotage of the Nord Stream pipelines. As a result, and because the electricity price is intrinsically linked to gas price, the wholesale electricity spot price was around double today’s prevailing level, GBP200/MWh versus <GBP100/MWh, and the price then went on to reach astronomical highs of nearly GBP600/MWh in August 2022.

The situation is generally more benign this summer and prices especially reflected that during the first weekend in July when day ahead prices went below GBP10/MWh. For several consecutive half hours prices were actually negative due to a surfeit of wind and solar generation from continental Europe. Gas supplies from Russia to continental Europe have largely been offset by imports from Norway and international LNG imports, which has also had a stabilising effect on electricity prices.

At the end of June the UK market received the good news that Centrica has increased gas storage capacity at Rough, the UK’s largest gas storage facility. The Rough facility had previously stopped storing gas in 2017 but was reopened for gas storage in October 2022 to store approximately 30 billion cubic feet (bcf). Further investment in the facility means Rough will now be able to store up to 54 bcf of gas, boosting the UK’s energy resilience for the coming winter. Rough now provides half of the UK’s total gas storage, which takes the UK storage levels up to the equivalent of 12 days at average UK consumption or seven and a half peak winter days. The UK still lags its European counterparts by some distance though with German storage capacity the equivalent of 89 days, France at 103 days and the Netherlands at 123 days.

For anyone unfamiliar with gas storage, it’s a simple concept; inject gas into storage when prices are low, and there’s an excess of supply, and withdraw when we need it the most, generally at points of peak demand when prices are at their highest. Prior to the announcement of additional capacity at Rough UK gas storage was standing at around 70%, a healthy position with much of summer still remaining, where demand will be low and injections into storage will continue. By the start of winter I’d expect UK storage to be largely full in preparation for the winter period.

While the gas situation is stable there is some less positive news about the winter contingency contracts with coal-fired generating plants. During the 2022/23 winter both EDF and Drax operated two coal plants that were made available as winter contingency but neither of those plants will be available this winter as the operators have started decommissioning those units. A further coal operator, Uniper, that made its Ratcliffe-on-Soar plant available for winter contingency last year, has returned that plant to the market having secured a Capacity Market contract. While it’s a concern that these units won’t be available this winter it’s a fact that they weren’t required to keep the system whole last winter.

A mechanism that will continue this winter is the Demand Flexibility Service (DFS). Last winter the DFS delivered 3.3GWh through consumer and business demand flexibility and demonstrated that demand flexibility can be provided at national-scale, allowing customers to benefit from shifting electricity usage away from specific periods. By the end of winter more than 30 suppliers had signed up to the scheme and the service was used for two days in January, due to concerns around interconnectors flows, delivering around 300MW in a live environment.

National Grid Electricity System Operator (NGESO) is working closely with industry counterparties and government to assess and mitigate risks and uncertainties this coming winter. NGESO recognises that the market has stabilised following the invasion of Ukraine but also recognises that things can change quickly and the need to maintain resilience.

NGESO expects winter margins to be adequate with a sufficient operational surplus throughout winter but there will be some days when the standard tools in their operational toolkit may need to be used, for example system notices. Alongside that, NGESO will be working with its European counterparts to maintain reciprocal arrangements across market interconnections, with electricity flowing in both directions as and when required.

So should Kao Data clients be concerned about blackouts once again this winter? In short, no. Any blackout that does occur, albeit very highly unlikely, will be confined to very narrow peak periods and critical national infrastructure like data centres will be maintained as a priority. On top of that, even if there is a blackout that affects Kao Data, planned or otherwise, Kao Data has its own contingency in place in the form of generators that can run for 48 hours on 100% sustainable hydrotreated vegetable oil (HVO). And even further to that, Kao Data has a priority service contract for supply of HVO meaning that they will be resupplied as a priority during that 48 hours!

Kao Data clients can rest easy in the knowledge they will be well served by their data centre operator but they can also have confidence that our national energy system will be balanced and maintained through winter 2023/24 by National Grid ESO, just the same as it was last winter.

Wayne Mitchell

Wayne Mitchell has 25 years experience in the energy business across coal, gas and renewable electricity, spending the last 14 years with E.ON and npower, and is now working independently. Most recently Wayne was the Director of Corporate & Strategic, and one of the senior leadership team of the industrial and commercial division of E.ON UK, and was responsible for all major clients across electricity, gas, export, and metering.


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