Last night a regular theme of this blog nearly came home to roost and the timing of it showed how vulnerable we have become. By timing I mean that last night the weather was not especially cold as for example according to the Met Office the area around Edinburgh had 3.4 degrees centigrade as its lowest temperature and the London area had a minimum of 7 degrees centigrade. Accordingly domestic heating was far from the peaks we might expect in a British winter. However the National Grid issued the rather ominous acronym NISM.
One of the tools we’re most likely to use in our Electricity National Control Centre at National Grid is called a NISM (Notification of Inadequate System Margin). NISMs are a long-standing part of our toolkit.
Worrying for those who worry about what official denials imply we were also told this.
Issuing a NISM doesn’t mean that we’re moments from a blackout.
Okay so what is it then?
A NISM is a signal to the electricity market that we would like the safety cushion between demand and available supply to be greater. Typically we’ll issue one up to a day ahead of when the extra power is needed.
I will return to the safety cushion later as this is the moot point that has been discussed on here over the past few years. However to the question what happens next there is an official answer.
When we issue a NISM for a future demand peak, generators can respond by making more generation available. They do this by either increasing the available output from generators already expected to be running, or by bringing online additional generators in time for that peak in demand.
The details were that there was an expectation of a shortage of 500 megawatts in the early evening.
Speaking of official denials
Only on Tuesday as in the day before the outgoing Chief Executive of the National Grid told us this according to the Financial Times.
said he was handing over the business in good shape to his successor.
Still perhaps he meant this.
Mr Holliday became chief executive in January 2007, and since then has overseen total shareholder returns of 136 per cent — or 10 per cent a year.
I guess he will consider his departure to be good timing and to be fair it is the UK political establishment which has set the strategy here which has been mostly to imitate an ostrich. Back on the 15th of October I warned that there was as Taylor Swift would put it “trouble,trouble,trouble” ahead and I have added some emphasis.
Oh and the actual National Grid report has just been published and the margin has “Hey Presto” gone to 5.1% which means that we are likely to feel the pain in our wallets as prices rise as more expensive production methods are bought in.
What happened last night?
The Financial Times takes up the story.
The scale of Britain’s energy supply crunch was laid bare on Wednesday as an unexpected outage of power plants sent wholesale electricity prices soaring and prompted the grid operator to call for the first time ever for industry to reduce power.
As someone who recalls his mother buying candles for the 3 day week I am rather dubious about the “first time ever” and as it has issued NISMs before so is the National Grid! However look at the impact which was not via blackouts but via price.
Traders watched in amazement as prices surged, with the grid paying £2,500 per MWh to one operator, Severn Power, as it bought in emergency supplies; the usual going rate is around £60.
Extraordinary! Albeit no doubt that it was an extreme case.
The underlying cause
As we have discussed on here many times before the UK has been decommissioning what are considered these days to be “dirty” power stations which rely on coal. This has been partly to comply with European Union rules and partly because successive governments have wished to apply a green tinge to their actions. However whilst I welcome some of the shift to renewables as for example there have been considerable improvements in solar power there are problems as they are not a like for like replacement. For example solar power does not work in the dark and we know what happens to wind power on a calm day. The UK political establishment seems to have ignored this basic fact.
Until we get a way of storing power the renewables always need a back up and here we get the biggest irony of all. Some industrial plants switch to diesel generators which according to the Volkswagen press release test results are modern,efficient. and clean. Oh hang on…..
So in essence we pay a premium to switch to methods of power generation which are dirtier and less green than the ones we have scrapped. I note that someone has pointed out that the UK government is planning to purchase the equivalent of 24,000 diesel Volkswagen Golfs.
2015 has been a year of energy price disinflation with central bankers regularly informing us that apart from it they would be “on track”. Indeed if we check the prices I note that coal prices have been falling since 2012 and have fallen around 20% in 2015 so far. The UK has lots of coal but having rejected it there is natural gas where I note that Henry Hub gas futures are below US $2 continuing the same message.
Therefore our incompetent establishment has managed to light the fires of inflation in the UK in a disinflationary environment. “Outstanding” as the drill sergeant in Full Metal Jacket might say. This is part of what I mean when I write about the UK being a nation that has institutionalised inflation. We do not know what this winter will bring as the we may be lucky or unlucky but we are vulnerable.
Mind you as it is “Super Thursday” the Bank of England may be pleased by signs of an inflation rise.
Balance of Payments
In the short-term we import power from different countries such as France and Ireland vis the interconnectors as we drive our balance of payments deficit ever higher. There is an irony in us importing what is effectively French nuclear power partly because we have failed to build news ones of our own. I know that there are “green” arguments against but we have a lot of coal.
The steel crisis
I am fascinated by this in the Financial Times
The problem has been caused in part because electricity prices are too low to provide incentives to suppliers to build new capacity which can be used at short notice, such as gas.
Our steel industry does not seem to think that electricity prices in the UK are too low! I doubt whether many domestic consumers think so either.
What about the credit crunch?
This may be the only time you read this from me but it may in this sense have had a benefit. What do I mean? Well you know all those graphs the Bank of England produces ( at 12.45 pm today for example)? You know the ones where everything would otherwise by much better/higher? So if economic output was much higher we would find the extra power from where……?
In essence this is a failure to plan ahead and goes back to past governments as these are long-term issues over decades as much as years. If we look to South Africa we can see an extreme example of what can happen. From Public Finance International.
It is much darker than usual on Kloof Street in Cape Town, popular for its restaurants, cafés, coffee shops and trendy bars. The street and traffic lights are off, and most restaurants, residences, and shop windows ooze darkness. Somewhere in the background a diesel generator grumbles as a pedestrian walks by, wearing a head torch. ……It is the second power outage in 10 hours.
Worryingly the causes look familiar.
Culprits include substandard long-term planning by Eskom management, lack of investment in and poor maintenance of the grid, dilapidated infrastructure and shortfalls in corporate governance.
Whilst I have little faith in those at the top I am sure that the UK National Grid still has lower down the chain some people who understand electricity supply and are working hard to keep the lights on. But we faced an issue on a mild calm foggy night which poses the question of what we would do if temperatures were lower? As it turned out we did get some wind power as I followed the numbers and it rose to 2% of usage, how lucky were we?
The most likely outcome is that we face higher power bills which is quite an anti-achievement in the current environment! A clear risk is that industry gets turned off which will do what to the “march of the makers” exactly? Lesser so is the prospect of blackouts. As Ian Dury so aptly put it.
What a waste! What a waste!
What a waste! What a waste!
I rather like this reply from Chuffy to the Financial Times.
I think the government need to revisit the fag packet the Department for Energy have been working everything out on for the last 20 years because it appears not to have been entirely correct…