As the first big snowfall of winter threatens to drop this week, it’s not only the forecasters and road gritters who will be twitchy: Britain’s energy executives and policymakers are on tenterhooks.
Many Britons who have held off putting on the heating, afraid of the bulging bills that could follow, may be forced to nudge the thermostat up, putting a strain on the country’s power supplies. National Grid has warned that a confluence of scenarios including a cold snap and a cut-off of Russian gas to Europe could lead to power cuts. Is this the first piece of that grim jigsaw?
An initial assessment appears far more positive than two months ago. Other European countries have filled their gas storage facilities more rapidly than expected, meaning UK competition for supplies has reduced. In fact, Europe’s storage is so full, some tankers carrying liquified natural gas (LNG) have even been idling in European waters, waiting for prices to bounce back. Mother Nature has also played a part: the mild start to winter reduced demand, with some bosses reporting consumption had fallen more than 10% on last year.
But while temperatures have been unseasonably warm, wind speeds have been more concerning. Last week dunkelflaute (German for a “dark lull”) conditions – with barely any wind or solar power available to generate electricity on grey, still days – left gas as a key power source.
National Grid data showed the fossil fuel was responsible for as much as 60% of Great Britain’s electricity generation for much of last week, far higher than its average of about 40% at this time of year, while wind was only 7%. The conditions were concerning enough for National Grid to flirt with using its demand flexibility service, which incentivises businesses and consumers to shift their power usage, although ultimately it stopped short. Freezing conditions predicted in Europe for mid-December are also driving sentiment.
Gas accounted for 49% of electricity generation on Monday, while wind was far healthier than last week at 25%, with nuclear and biomass providing a steady 12% and 6% behind that. However, the cold weather was enough to get energy traders moving – the price of gas for delivery on Tuesday rose 6% to 340p, nearing a three-month high set earlier this month.
Rising prices also have implications for the government’s energy price guarantee, which covers the cost for suppliers between wholesale prices and a fixed cost. The higher gas prices are, the bigger the eventual bill for the government. Nathan Piper, an oil and gas analyst at Investec, says: “It could have been a false dawn thinking we had sorted out the gas issue earlier in autumn. If we get cold and still winter conditions there could still be issues – that’s why we have seen gas prices go up.” He says market watchers now believe gas prices will peak next winter, because of the uncertainty over how Europe will replace the six months of significant Russian gas supplies that were available this year.
One of Britain’s strengths is its diversity of energy supplies: gas from the North Sea and Norway, and LNG from around the globe, notably the US and Qatar. In electricity, there is wind and solar, nuclear, biomass – particularly from the heavily subsidised Drax power station in North Yorkshire – and a small amount of coal. Government efforts to boost supplies this winter have included paying to keep coal units set for retirement on standby. (These have not yet been exercised).
The revived gas storage facilities at Centrica’s Rough – shut down after the government refused to support it – have also been called into action, although Britain’s gas storage is far lower than other European countries.
A factor to watch will be the role of interconnectors – the vast undersea cables carrying gas and electricity to and from Britain, Belgium and France. Britain has built goodwill over the summer, providing LNG to Europe; however, any suggestion France could be short of energy supplies this winter could test relations already dented by Brexit.
Although France was not as reliant as its neighbours on Russian gas, problems getting several nuclear power stations back online after maintenance have reduced its electricity production. If Emmanuel Macron’s government limited supplies to Britain to protect its own citizens, it would risk a valuable long-term relationship (upcoming World Cup quarter-finals notwithstanding). “It may not come down to resource nationalism,” Piper says. “If France doesn’t have the power to export, then the situation could get tight.” Issues with hydroelectric power imports from Norway this year have also caused concern.
The prospect of snowy conditions will also train minds on a much-debated £18m government campaign to encourage households to cut their energy usage. The debate over whether to launch a public information campaign has pitched Conservative ideology over “nanny state intervention” against practical calls to save energy and money. It is expected before Christmas, months after similar drives in elsewhere in Europe, which have led to a 15% cut in consumption.
Simon Virley, a vice-chair and the head of energy and natural resources at KPMG, says: “As we approach the first significant cold snap of the winter, improving energy efficiency and reducing demand couldn’t be more important – both to get bills down and to ensure people can heat their homes properly.
“The government has now signed off an energy efficiency campaign but the overall aim of getting demand down by 15% by 2030 is less ambitious than in many European countries which are already on course to achieve that this winter.”
Snowfall this week could prove the energy industry’s first big test of an extraordinary winter.
