Nobel Prize-winning economist Amartya Sen famously observed that famines are not caused by a lack of food, but a lack of access to food by those who need it most. Last week’s warning from energy regulator Ofgem about blackouts suggests something similar about power shortages: it paints a grim scenario of the lights going out even as Great Britain calmly continues exporting power to our neighbours.
European grid operators have concluded that there is plenty of power generation available until at least 2020. EU power market rules have been agreed to ensure power flows from where it is plentiful to where it is scarce. When there is a supply shortage in Great Britain, price signals should ensure that can import power from its neighbours to prevent disruption.
The regulator’s assessment, however, presumes that at times of high demand Great Britain won’t be able to import any power at all. Not only will Britain be cut off from the continent, but it will continue to export power at full flow to Ireland – even during a capacity crunch. Imagine if you were to make the same assumptions about our gas supply.
The same analysis shows that if Britain were to import power during a supply squeeze, the risk of blackouts all but disappears. Scandinavia has been successfully sharing power resources while keeping the lights on for decades. Do we really mistrust the Irish, the Dutch and the French so much that we can’t agree shared rules on energy security?
DECC’s solution to forecasts of power generation shortages is to introduce ‘capacity payments’ to large utilities to keep power plants running idle, in case they might be needed. So will capacity payments be used to guarantee access unused supply on the continent – potentially the cheapest solution for consumers?
No: in an ironic twist, DECC has concluded in a related announcement that opening the capacity market to Europe is too complicated – hindered, it seems, by the very same EU power market rules that ensure power flows to where it is needed. So consumers face paying over the odds to keep old coal and gas plants alive in Great Britain, when cheaper unused power capacity lies spare at the other end of a high voltage wire.
DECC also announced last week that they will continue work on arrangements to let the UK import renewable power, which opens up opportunities for cost savings by allowing firms to site wind power where the wind is strongest. However, many of the proposed projects are wind farms in Ireland that will connect straight to Britain, without connecting at all to the Irish grid.
This bizarre grid design is driven by complex regulatory arrangements that simply were not designed to allow countries to share power. This is not only inefficient – it means the energy security benefits from linking the two systems could be lost. When the wind farm in question isn’t running at full capacity, the (expensive) transmission line will sit unused, even when Ireland has spare capacity which could be used in the UK.
The picture that emerges from last week’s announcements is a deeply confused one. The UK is using the cover of EU market rules to exclude other European countries from its markets, forcing its consumers to pay for under-used wires and power plants, and missing the opportunity for lower cost energy security.
All of these problems should be entirely resolvable through regional dialogues and through developing trading arrangements that all countries can rely on. For consumers’ sake, the UK needs to start cooperating with its neighbours.