By Gerard Wynn
LONDON, July 12 Policymakers have intense
aversion to the risk of lights going out.
The high degree of uncertainty involved in calculating
future electricity supply, therefore, may lead European Union
governments to overreact.
They are likely to err too much on the side of caution and
intervene in energy markets to boost supply by more than is
needed for the future, unnecessarily increasing costs that
consumers will end up paying.
One of the biggest uncertainties, for example, is how to
treat the reliability of weather-dependent wind and solar power,
which will account for the biggest increase in new capacity over
the next decade.
Some power grid operators, such as in Austria, Cyprus and
Estonia, define all wind power as entirely unavailable when
calculating how much overall capacity is needed to prevent a
In Lithuania and Sweden, operators have assumed a slightly
higher 6 percent availability, in Poland 21 percent, Greece 25
percent, and in France and Portugal 30 percent.
"There is not yet sufficient data for wind generation during
winter to enable us to understand the relationship, if any,
between wind availability and high demand," Britain's Ofgem has
The most thorough investigation so far of the adequacy of
the European power supply through this decade has come from the
European Network of Transmission System Operators for
Electricity (ENTSOE), which represents all operators of EU grids
and others connected to their networks.
Its latest conclusion, published in April, was that EU power
generation would collectively fall short of peak demand only if
countries failed to carry out investments in power generation
that are already planned.
The ENTSOE report categorised generating capacity according
to the reliability of power plants in meeting unexpected demand.
It termed total supply as "net generating capacity", which
divided into "unavailable capacity" and "reliable available
capacity". (See Chart 1) Power plants that could be called upon
at short notice were deemed reliably available.
When it came to wind power, for example, ENTSOE combined the
widely varying estimates on reliability from the different
member grids to come up with a regional figure.
It judged that a system adequate to avoid blackouts would
require that "reliable available capacity" be greater than
combined peak demand (measured as the third Wednesday of January
and July at 7 pm) plus a 5 to 10 percent margin of spare
capacity. Spare capacity is needed against the chance that a
large power plant could go offline unexpectedly.
The report explored two main scenarios.
Scenario A was a conservative outlook, taking into account
grip operators' expectations only for the new supply they are
Scenario B was its baseline outlook and included additional
generating supply that the operators expected to be built,
"whose commissioning can be considered as reasonably credible
according to the information available".
Under Scenario B, capacity would be adequate throughout the
decade, rising every year to 2020 except for a dip in 2015/16.
Under the more pessimistic Scenario A, the adequacy level
would turn negative by 2020 (by 7 gigawatts compared with a
total installed capacity of 1,092 GW), which meant that extra
generation would be needed. (Chart 2)
Britain's Ofgem shows how regulators may take a more
cautious view than grid operators. Two weeks ago, it used a
reference scenario that was more pessimistic than the one used
by National Grid.
"We make less optimistic assumptions than National Grid with
regards to plant investment and retirement and the contribution
of interconnectors," Ofgem said in its report, "Electricity
Capacity Assessment Report 2013".
"If we look at National Grid's ... scenario, the trends are
the same, but the margins are consistently around 2 percentage
Ofgem also differed from the National Grid's assumption of
falling power demand.
"We estimate in the Reference Scenario that the probability
of a large shortfall requiring the controlled disconnection of
customers (is) ... one in 12 years in 2015/16. This increases
significantly to around one in four years if the demand
reductions fail to materialise," Ofgem said.
"The Reference Scenario alone should not be relied upon to
assess the risks to security of supply in the coming years," it
Nevertheless, Britain announced a costly intervention in
energy market on the same day as the release of the Ofgem
report. It cited the report to justify plans to pay utilities to
increase gas-fired power capacity in the system.
Britain's plan to use market tools to increase capacity may
be very difficult to reverse. Once the government has encouraged
utilities to build power plants, can it stop paying them?
One alternative that could assuage policymaker fears about
keeping the lights on but avoid risking higher costs than cannot
be reversed would be for the government to temporarily keep
older plants out of retirement to be used as strategic reserves
in case of emergencies.