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UK grid to offer energy users payments to cut winter power consumption

10 June 2014

UK power network operator National Grid will launch a tender this month inviting big energy users to reduce their electricity demand at times of peak consumption next winter, the company said on June 10. The country faces a capacity crunch because old power plants have closed but have not as yet been replaced by new generating capacity. 

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National Grid's so-called balancing services tender is aimed at avoiding power cuts in extreme situations by making it financially worthwhile for energy intensive industries to reduce consumption at times of maximum demand, by switching for example to back-up generation.

UK energy regulator Ofgem, which gave the green light for National Grid's new balancing services a few months ago, said it was confident the network operator would be able to keep households' lights on this winter.

National Grid is looking for up to 330 megawatts (MW) Demand Side Balancing Reserve (DSBR) from large energy consumers to reduce consumption between 1600 and 2000 GMT on winter weekdays.

The need to balance capacity will rise substantially in the winter of 2015/16, when additional coal plants are expected to close to comply with EU pollution rules.

Over that period, National Grid will tender for 1,800 MW of capacity and extend the offer to flexible power plants that can be contracted to add generation when needed, which is known as the Supplemental Balancing Reserve (SBR). National Grid expects capacity balancing to fall to 1,300 MW in the 2016/17 winter and to 800 MW in the 2017/18 winter.

But analysts quoted by Reuters said the measure might cause a drop in wholesale prices for peak power which could trigger further mothballing of CCGTs (combined-cycle gas turbines), the power plants most likely to be called on to provide back-up SBR capacity.

It is not thought the services will be needed in 2018/19 because the government is introducing a Capacity Market, which should ensure sufficient capacity is available to meet future demand.

The use of demand-side reserve "will help stimulate a market which ultimately will help keep energy system costs down for consumers by avoiding the need to build additional power stations to service 'peak' demands", National Grid said.

It already buys similar demand-side services from a range of businesses, and many large businesses already reduce their electricity usage in peak demand periods to reduce their costs.

Ofgem CEO Dermot Nolan said an early indication of its analysis "shows that the risks to security of electricity supplies for next winter are going to be very similar to last winter. And while no electricity system anywhere in the world can give a 100 per cent guarantee we are confident that National Grid has the right levers to keep the lights on for households this winter."

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