European energy key to keeping lights on this winter

National Grid is banking on cables to the Continent to keep the lights on this winter, finds Rachel Millard

‘It’s likely Putin will squeeze fuel supplies this winter... to undermine the coalition in support of Ukraine’

BRITAIN will rely on more imported power to help keep the lights on this winter, the National Grid has said, sparking fears the country will be at the mercy of Russia as it strangles energy supplies to Europe.

In its annual outlook on winter electricity supplies, the Grid says it expects to be able to draw on undersea cables sending power from the Continent this winter, but warned of “tight” periods in early December even with this support.

BFY, an energy consultancy, predicted yesterday that British households could be paying £500 for their power for the month of January alone as supply struggles to keep up with demand. Experts warned that depending on the free flow of power from abroad this winter is a high-risk gamble, potentially leaving the UK in danger of blackouts if Vladimir Putin cuts off the supply of gas.

Energy generators across the Continent are already being stretched by low nuclear power output in France, as well as reduced flows from Russia.

Moscow has further restricted flows to Germany this week, while Ukraine is thought to be on the brink of a counteroffensive to take back the city of Kherson, triggering fears that success could provoke further retaliation from Russia.

High wholesale energy prices and a supply shortage have pushed household fuel bills in Europe and the UK to record levels. Last week Britain had to pay an all-time high of £9,724 per megawatt hour to import power from Belgium, as it sought to prevent shortfalls in the South East.

Gas prices climbed by a further 2 per cent in Europe and 5 per cent in Britain, to 371.62p per therm.

Bob Seely, a Tory MP who sits on the foreign affairs select committee, said: “There is likely to be an energy emergency in Europe, primarily caused by Germany’s disastrous decisions; first, to shut down its nuclear power stations to appease its obsessively anti-nuclear green lobby, and, second, to become utterly dependent on Russian gas.

“Currently, it seems likely that Putin will squeeze energy supplies further this winter to extract the maximum political pressure on EU states that use Russian gas, such as Italy and Hungary. He wants to undermine the coalition in support of Ukraine.

“There are other countries we take from including the coal-burning Dutch power stations, but they will have their own pressures.” The UK expects to be able to draw on 5.7 gigawatts of energy from Europe – equal to about 10 per cent of capacity at peak times, more than forecast last year.

Coal, gas and nuclear power stations in the UK have been shut because of their age and to comply with the country’s net zero drive, making the country more reliant on European neighbours.

National Grid’s forecast assumes that when the system in Britain is stretched, European supplies will be redirected to the UK at inflated prices. Analysts cautioned that competing pressures on the continent may derail that assumption.

‘If you look at the forward prices, French winter prices are above Britain’s. So I would be concerned that it’s not necessarily the case that we would be able to get what we need’

The battle to keep Britain’s lights on is becoming increasingly complicated, as cleaner but intermittent supplies start to nudge out bulky fossil fuel stations and ageing nuclear plants start to close.

Those complications have been ramped up several notches this year, as Russia strangles gas supplies to Europe – triggering an energy crisis rippling through the Continent and into Britain.

Strained supplies have sent wholesale gas and electricity prices on both sides of the Channel to record levels, forcing governments to step in to protect households and bail out stumbling energy suppliers.

This week, the outlook has darkened even more. Russia restricted flows further on the Nord Stream 1 pipeline to Germany, triggering another rally in wholesale prices amid concerns over winter stockpiles.

Yesterday the boss of the International Energy Agency (IEA) warned that European economies need to cut their energy consumption or face “serious rationing”. BFY, an energy consultancy, predicted British households could be paying £500 for energy in January.

Workhorses of the UK power system are set to close or have been mothballed, with Hinkley Point B nuclear power station due to close next week and formerly reliable gas-fired power plants out of action.

That is the backdrop to the electricity market winter outlook report published today by National Grid’s electricity system operator division (ESO), which is tasked with keeping Britain’s lights on.

Its base case prediction is that Britain will get enough energy supplies to remain within normal operating standards in the winter of 2022-23, with a buffer supply of four gigawatts, or about 6.7pc – albeit with some tight periods in early December.

That is slightly higher than the prediction last October for the winter of 2021-22, which was affected by damage on a power cable from France which has yet to be fully repaired.

The bulk of these supplies will come from gas-fired power stations – with renewables making up a greater proportion than last year – plus a significant chunk from power cables to and from Europe.

Indeed, the ESO says it expects to be able to call on 5.7GW of capacity when Britain needs it via those power supplies, boosted by a new link to Norway that opened last year.

However, those base case predictions rest on the Grid’s assumption of “normal market conditions”. First, that assumes Britain will still be able to attract power from the Continent when needed through pricing signals – or high prices.

But the past few months have pushed energy markets into new territory. The low output of France’s nuclear fleet, running at half capacity due to maintenance and corrosion checks, has turned Britain into a major exporter of electricity to Europe for the first time in recent months.

There are concerns this will continue into winter, even as Britain’s demand for power also rises. “My main concern is their assumptions about the interconnectors,” says Thomas Edwards, senior modelling consultant at Cornwall Insight. “If you look at the forward prices, French winter prices are above GB [Britain’s] winter prices. So I would be concerned that it’s not necessarily the case that we would be able to get what we need.”

Phil Hewitt, director at market specialist Enappsys, adds: “National Grid is assuming that interconnectors behave by market rules. We believe this is a risky position to take.”

The ESO had to issue an emergency appeal last week to the operators of the Nemo link between Belgium and the UK to secure supplies due to constraints in the South East, paying an all-time high of £9,724 per MWH.

To justify their expectations, National Grid points to interconnectors’ obligations under the capacity market for back-up supplies. Though suppliers are fined for not meeting their obligations, nondelivery has nonetheless been a problem in recent years.

The ESO also has extra coal-fired plants in Britain to draw on, after three were asked to keep units online.

Its second core assumption is that gas-fired power stations, which typically supply about 40pc of Britain’s electricity, will be able to get all the fuel they need. While Britain is less directly dependent on Russian gas, which typically accounted for less than 4pc of overall supply since before the war, it does rely on large volumes from Norway and also imports from Europe, typically during winter.

In a separate report, National Grid’s gas transmission division said it would model how the UK’S gas supply would be affected if there were no supplies from Europe, and if Norway diverted supplies to Europe.

National Grids’ reports pay more attention to whether energy supplies will be available rather than the price at which they will be available, given its core role to keep the lights on.

But analysts expect these to be high, deepening the cost of living squeeze.

“We are not seeing potential for blackouts if there is no interruption to gas supplies, but we see potential for extreme price events in wholesale markets and warnings to the markets and consumers to conserve energy,” says Hewitt

High energy prices across the UK and Europe are already going some way to keeping demand down, pushing some companies to produce less and some households to use less.

Despite its base case, National Grid is considering involving consumers more as it seeks to “build resilience”.

It hopes to make greater use of schemes such as a recent trial by Octopus Energy, in which consumers were paid to use less electricity during peak times.

Russia, Europe – and National Grid’s modelling – will now determine the extent to which households do need to change their behaviour.