National Grid Winter Outlook Report 2016

Winter is coming….and the lights will be staying on

Since March this year there have been a number of developments that have raised concerns over the ability to meet the UK’s energy demand, particularly during this winter period. A number of unplanned coal plant outages in the first half of the year have tightened supply margins significantly and placed greater strain on existing infrastructure. Another ongoing issue has prevented injections into Rough storage since June, leaving the UK’s main storage facility (which accounts for around 70% of the UK’s total storage capacity), worryingly short of gas. Uncertainties remain on whether the gas that has been stored can actually be withdrawn over the winter months.

How will UK energy supply look this winter?

When considering the issues that have impacted electricity and gas infrastructure over the last year, the key opinions from this year’s winter outlook may be surprising. National Grid is of the opinion that supply margins for both electricity and gas will be more comfortable than the previous winter, thanks to diverse and flexible sources of gas supply, and electricity margins supported by contingency balancing reserve systems.

Looking at electricity, National Grid have concluded that there will be sufficient generation and interconnector imports to meet demand throughout this winter. Supply margins are expected to be similar to last year, but include a larger proportion of contingency balancing reserve services.  National Grid also believes that demand can be met in all three interconnector scenarios where the UK is receiving low, medium and full interconnector imports from continental Europe.

To give some context in relation to last year:

• De-rated supply margin, which is effectively the measure of the available capacity in excess of that which is needed to meet forecasted peak demand levels, is forecast to be 6.6% this winter – up from 5.1% last winter
• Loss of load expectation, which is the number of hours during the period during which the grid would have to take action to ensure supplies continue, is forecast at 0.5 hours – down from 1.1 hours last year
• Peak demand is expected to be 52GW, down from 53.3GW

The conclusions regarding gas supply were equally positive, with National Grid concluding that UK demand will be sufficiently met thanks to diverse and flexible sources of gas supply through a combination of LNG, Norwegian and Continental European imports and UK Continental Shelf (UKCS) production. Gas will continue to be cheaper than coal for electricity generation over the winter. However, from November, narrowing price differences will increase competition between the two fuel types for the remainder of the winter.

What about demand?

Seasonal demand is expected to be lower than last year’s levels of corrected demand while exports to the continent are also expected to be lower. Despite the ongoing issues at the Rough storage facility and expectations of lower Dutch imports, due to restrictions at the Groningen gas field, National Grid are confident of being capable of delivering sufficient gas to meet demand under severe weather conditions and even with a large infrastructure supply loss.

So, when it comes to this winter, National Grid’s conclusion is that electricity and gas supply will remain tight but still remain within levels that they believe are manageable and represent an improvement on last year. Understandably, there will be some variance in the margins and supply levels indicated by National Grid depending on a number of factors including weather, infrastructure and continental supply & demand.  However, the Winter Outlook Report incorporates a range of scenarios, therefore there is unlikely to be any significant variation.

There has been one development since the Winter Outlook Report was issued that stands to have an impact on both electricity and gas demand this winter. An ongoing situation in France regarding their Nuclear generation fleet has seen a number of units taken offline for inspections, potentially extending into maintenance and has seen a restriction in electricity imports from across the channel over the last week, which is expected to continue into the winter months. Electricity imports to France have also increased while it is widely expected that gas demand will increase as higher levels of gas-fired generation are expected to be required to meet higher electricity demand. While there are expectations of this issue having an impact on winter demand, it seems National Grid still believe margins will remain within manageable levels. Generally good news then for the UK winter energy outlook.

We, of course, will be monitoring this outlook for our clients and if you would like to know how Inprova Energy can help you, please contact us through info@inprovaenergy.com.

Inprova Energy has published a free eGuide:  `Playing the Energy Lottery: How to Manage Risk`.

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