UK electricity price spike raises questions for national grid

[LONDON] A spike in electricity prices last week in the UK is raising questions about how well the network operator is balancing the grid and at what cost to consumers.

Electricity prices surged to more than 10 times the average following a market warning from National Grid Plc on Sept 15. The network manager said calm weather and warm temperatures were set to lower the supply buffer it keeps to ensure there's enough power in the system. At the same time, the company was paying a nuclear station not to generate.

The incident is threatening to elevate the highly technical practices of grid managers into a political issue. Some analysis suggest National Grid made mistakes in the process that could lead to higher bills for consumers.

The contract with EDF was "a particularly clunky way of dealing with variable demand," Alan Whitehead, the opposition Labour Party's shadow minister for energy and climate change, said in an interview. "What has undone them is that demand has bounced back much more quickly than they thought." Analysis by trading house, Hartree Solutions, show that halting one unit of Electricite de France SA's Sizewell B nuclear reactor, added 73 million pounds (S$128.32 million) to wholesale power prices during the 20 weeks of the contract. If the reactor had been generating on Sept 15, the market warning wouldn't have been needed, the analysis shows.

National Grid said its decisions were made to protect the grid from blackouts.

"We are confident the actions we have taken, including the Sizewell contract, have minimised the impact on consumers, with the potential implications of emergency actions and the associated disruption being even greater," a National Grid spokesperson said.

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Electricity demand fell as much as 20 per cent below normal levels during lockdown as people stayed at home and offices and manufacturing shut. National Grid became increasingly worried about how to manage a system with much lower demand than normal.

On May 7, the network operator agreed a contract with EDF to cut output from its Sizewell B nuclear reactor to avoid oversupply. The contract originally ran for six weeks and cost 17 million pounds to 23 million pounds. It was extended to 20 weeks and now ends on Sept 24.

Electricity demand has mostly recovered and is now just 1 per cent below normal levels, according to BloombergNEF data. This raises the question of whether National Grid should have kept the contract with EDF for so long.

National Grid has said that the cost of fine-tuning supply and demand will be 500 million pounds more than usual this summer because of lower consumption during the lockdown. The power regulator Ofgem was already scrutinising looking at that issue and may probe deeper.

"We regularly review the performance of the Electricity System Operator," an Ofgem spokesperson said. "We also do ad hoc assessments when we think events warrant it."

BLOOMBERG