(Bloomberg) -- The UK is planning for several days over the winter when cold weather may combine with gas shortages, leading to organized blackouts for industry and even households.
Under the government’s latest “reasonable worst-case scenario,” Britain could face an electricity capacity shortfall totaling about a sixth of peak demand, even after emergency coal plants have been fired up, according to people familiar with the government’s planning. Under that outlook, below-average temperatures and reduced electricity imports from Norway and France could expose four days in January when the UK may need to trigger emergency measures to conserve gas, they said.
The scenario is “not something we expect to happen,” the government Department for Business, Energy and Industrial Strategy said in a statement. “Households, businesses and industry can be confident they will get the electricity and gas they need.”
While the UK doesn’t envisage such shortfalls under its base case, the analysis lays bare the difficult winter potentially in store for Liz Truss or Rishi Sunak when they succeed Boris Johnson as prime minister next month. If they materialize, the power cuts would come even as Britons face up to average annual energy bills possibly rising above £4,200 ($5,086) in January from just under £2,000 currently, stoking already soaring inflation.
If the winter is particularly cold, Britain may have to rely increasingly on pipeline shipments of gas from mainland Europe -- where supplies are already thin as Moscow curbs flows. That presents a dilemma for the UK, which has very little domestic storage capacity. The nation has been shipping record amounts of gas to the continent and will want the favor returned when temperatures plunge.
The pound hit its weakest in two weeks against the euro following the report. It erased earlier gains against the US dollar to trade around $1.2080.
BEIS in its statement said that the UK isn’t dependent on Russian energy imports, has its own North Sea gas reserves and “steady imports from reliable partners.” It also pointed to the UK hosting the second largest LNG port infrastructure in Europe and “a gas supply underpinned by robust legal contracts.”
The UK’s main fall-back option was to restore Britain’s biggest natural gas storage site, Rough. Owner Centrica Plc says its initial return to service this winter would equate to 10 LNG cargoes, not really enough to make a significant difference. The nation will also face stiff international competition for cargoes of liquefied natural gas.
The first stage of the UK’s emergency plan involves the network operator directing flows of gas on the system, temporarily overriding commercial agreements, the person said, asking not to be identified because the information is private. The second stage involves halting supplies to gas-fired power stations, triggering planned power cuts for industry and domestic users.
Life could get more difficult for Britain if supply of electricity is curtailed along huge cables connecting to France, Norway, Belgium and the Netherlands. Norway said on Monday it’s looking at ways to limit power exports in winter to prevent domestic shortages.
The UK has higher power prices than Norway and relies on imports, so any limitations would raise costs further and may force National Grid to utilize its strategic reserve of coal, Aurora Energy Research said.
Truss, Sunak Pledges
There is also a looming threat from the unavailability of Electricite de France SA’s nuclear fleet, National Grid said. Usually a power exporter, less than half of France’s reactors are running now with maintenance and repairs taking longer than expected.
National Grid has warned of sky-rocketing prices this winter putting even more strain on consumer bills. There’s mounting pressure on the government to do more beyond the £400 discount on household tariffs already announced earlier this year by Sunak when he was Chancellor of the Exchequer.
Johnson’s spokesman said this week that any further help for ordinary Britons would be for his successor to decide. The prime minister on Tuesday told guests at a Downing Street reception that he was “absolutely certain” whoever succeeds him will want to announce further assistance for householders, and that Britain has the “fiscal firepower” to do so, according to a readout from his office.
Truss, the front-runner in the leadership contest, has promised immediate tax cuts and the removal of the green levy from energy bills, saving households £153 a year. Sunak has said he’d build on the existing government package once the level of a new price cap on energy bills is known.
At a leadership hustings in Darlington on Tuesday evening, Sunak suggested that if he becomes prime minister he would focus additional support on the poorest households. Truss refused to be drawn out on whether she would offer new handouts.
That’s due to be announced by the regulator, Ofgem, at the end of August, and effect in October. Thereafter, the regulator will adjust the cap quarterly rather than half-yearly, meaning bills are likely to rise again in January.
©2022 Bloomberg L.P.
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