The possibility of the plug being pulled on Britain’s power supply is a very real one, according to the chief of one of the country’s big six energy suppliers.
Ian Marchant, chief executive of SSE, said the capacity crunch facing the country is one that needs to be taken very seriously if the government, industry and regulators are to avoid a catastrophe.
His warnings follow a recent Ofgem report, which last month estimated that predicted power station closures could mean a 10% fall in capacity by April alone.
SSE has since announced that it is to shut down around 25% of its polluting and unprofitable power capacity over the next 12 months.
The closure or part-closure of the affected plants – Ferrybridge, Peterhead, Keadby, Slough and Uskmouth – will mean 150 employees’ jobs come under threat, though SSE has said these will be redeployed to other power stations.
The company noted that it also intends to postpone further investment in gas-fired electricity generation for at least two years, though perhaps longer.
According to Mr Marchant, the government is “significantly underestimating” the scale of the capacity crunch facing the UK in the next three years, adding that “there is a very real risk of the lights going out” as a result.
However, the SSE chief added that the coalition can reduce this risk “significantly” by taking swift action to provide greater clarity on its electricity market reforms and bring forward capacity payments for existing plants to 2014 — up four years from the original target of 2018.
His views were echoed by Paul Smith, managing director of SSE, who said that costs are increasing to the extent that some plants are actually losing money, and forecasted that his company is unlikely to be the last of the big six to issue warnings.
“The kind of decisions SSE is taking, to close existing generation plants on the one hand and delay investing in new plants on the other, is likely to be reflected across the industry in the coming months,” Mr Smith predicted.
Though stark, the extent of the warning was played down by energy minister John Hayes, who said he is confident that the government’s approach and the responsiveness of the market will ensure a secure supply of power.
He elaborated: “We’re alive to the challenge facing us. The Bill before Parliament will set the conditions for the investment needed to keep Britain’s lights on in the long term.
“The amount of spare power available today is currently comfortable. We will make sure it stays manageable.”
The energy minister also noted that the capacity market can, in effect, act as an “insurance policy”, adding that the government is currently considering how and when it can best be used to bring about any essential increase in supply or fall in demand.
Impact on consumers
Market analysts, including Iain Turner from Exane BNP Paribas, believe that the threat of the plug being pulled is minimal, but consumers are still likely to be affected, with their energy bills ultimately feeling the brunt of the impact.
He told Reuters: “I don’t think you’ll see the lights go out; I think you’ll see volatility in the prices, that’s how it will manifest itself.”