London at night sparkles with beautiful lighting, from the 11,500 lights that brighten the Edwardian facade of iconic department store Harrods to the 4,000 that illuminate the outline of Albert Bridge, spanning the River Thames. But are these popular tourist attractions—and the rest of the United Kingdom—at risk of going dark?
British authorities have been issuing some dire-sounding warnings. In February, the man then in charge of Ofgem, Britain's industry regulator, warned of an impending "near-crisis" of energy supply, calling the situation "horrendous" and likening it to being on a roller coaster headed "downhill—fast." Deputy Minister Nick Clegg was quoted saying that he was working to "keep the lights on." (See related quiz: "What You Don't Know About Electricity.")
In June, Ofgem released a capacity assessment warning that "risks to electricity security of supply over the next six winters have increased since our last report in October 2012." The report warned that Britain's ability to provide spare electric power capacity could plunge to between 2 to 5 percent, about half what it is now.
The main reason for the possible crunch: Britain is closing a number of aging coal-fired plants—as well as some oil and nuclear ones—to meet European Union environmental laws. One fifth of the existing power stations are scheduled to close over the next ten years. According to Reuters, the U.K. is set to lose more than 12 gigawatts of generating capacity in the next two years. Currently, the country operates 13 coal plants, but nearly half are slated to close by 2015, and all of them could be shut down by 2023, according to government figures.
Higher Prices and Supply Pinches
Though Britain does face a bleak shortfall of energy in the coming years, "consumers are more at risk from higher prices than blackouts," said Wilf Wilde, executive director of the Durham Energy Institute at Durham University. Indeed, Ofgem was quick to say in its recent assessment that it "does not consider disruption to supplies is imminent or likely, providing the industry manages the problem effectively."
Major industrial electricity users, such as makers of aluminum and fertilizer, might feel a heavier impact. Wilde said that larger power users face a 30 percent chance of losing power within the next few years because many of them have "interruptible contracts," paying a bit less for power while accepting that power suppliers can cut them off, if necessary.
But any blackouts that cause key industries to go dark, even for short periods, could greatly disrupt the U.K. economy and likely inflict lasting damage at the polls for whichever political party is in power. "There would be political implications, none of them very good," Wilde said.
Just how bad the energy gap will be depends in large part on demand. While Britain will be losing significant generation capacity, Ofgem said peak demand has fallen over the past seven years by about 5 gigawatts because of Britain's sluggish economy, along with improvements in energy efficiency.
The electricity and gas company National Grid predicts peak demand should fall by another 3 to 4 gigawatts by the 2018-19 season. If that happens, Ofgem admits that would indeed compensate for the lost generation capacity. But that estimate, it notes, is far larger than National Grid's previous forecast, and it assumes "a more pessimistic economic outlook." In other words, the grid operator is banking on the U.K. economy staying in the doldrums to keep power flowing without interruption.
Rocky Transition From Coal
Ofgem first warned that electric power capacity was tightening back in 2009, but it now says that is happening "faster than previously expected." That's because the U.K. recently went on a coal binge, taking advantage of dirt-cheap coal from the United States, where a shift to natural gas has sent coal producers looking for other markets. As a result, 39 percent of the U.K.'s power came from coal plants last year, up from 30 percent in 2011. (See related story: "As U.S. Cleans Its Energy Mix, It Ships Coal Problems Abroad.")
That burst of coal power came at a price: The U.K. is maxing out on the number of coal-plant operating hours it was allowed under EU law more quickly than anticipated. (See related story: "Obama Unveils Climate Change Strategy: End of the Line for U.S. Coal Power?")
Should a supply shortage come, there are several short-term remedies that National Grid could put into effect to ensure consumers wouldn't experience rolling blackouts. "A huge number of things would happen before the lights went out, as it were," said David Newbery, director of the Electricity Policy Research Group at the University of Cambridge.
One solution, according to Ofgem, is for Britain to keep in reserve some of the coal plants it plans to mothball, so that they could be re-fired, if needed. But that would require retrofitting the plants to keep them from violating pollution regulations, a costly exercise. Still, Newbery said, "If [electricity] prices were high enough, there might be a willingness to clean up noncompliant plants." Alternatively, Britain could put the plants back on line as they are and risk paying large EU fines.
Another possibility, Durham's Wilde said, would be to make high-use industries bear the brunt of power outages. To avoid being cut off altogether as part of their interruptible contracts, industrial power customers could be offered financial incentives to sell back unused power to the grid at peak demand times, effectively earning a premium to cut back on power usage when demand is high.
Also, Newbery said power companies could be asked to exceed their capacities during peak periods, or conversely, to reduce voltages by 3 to 5 percent in certain areas to keep the grid stable.
Gas Plants in a Holding Pattern
Currently, the United Kingdom gets 30 percent of its electricity from gas-fired plants, but that's expected to rise to 60 percent. Some existing gas plants that had closed or reduced operations could come back, and new additions are expected. "Constructing a gas plant is fairly simple," said John Mitchell, an associate fellow for energy, environment, and resources at the Royal Institute of International Affairs. "It's an easy add-on."
A new gas plant typically takes just 18 months to build. The U.K. already has in place a gas distribution infrastructure that could handle the extra demands, Mitchell says, and it also has sufficient terminals to handle additional liquid natural gas (LNG) imports. (See related story: "U.K. Dash for Shale Gas a Test for Global Fracking.")
But outside the United States, gas prices are high, so an increase in LNG imports would likely hit British consumers hard. And power suppliers are for now dragging their feet on constructing new plants, mainly because of uncertainty over what will be in the final version of a new energy bill slowly working its way through Parliament. That bill is designed to unleash £110 billion ($172 billion) of investment for new generating capacity. It's also expected to guarantee minimum prices for power supplies.
While power companies wait to see what prices the politicians ultimately decide to set, they're in no hurry to build new plants. Oilprice.com cites a report by AT Kearney, a London consulting firm, which says construction of nine gas plants, capable of producing nearly 20 gigawatts of power, has been delayed while the legislative debate continues.
Newbery noted that power companies have one other reason for not building new plants: "They don't think demand is going to be there." Forward pricing, he says, indicates that the industry doesn't see a shortage looming. They're betting that National Grid's pessimistic forecast that the economy and demand will remain weak is accurate.
If they're right, the U.K.'s current Conservative Party-led coalition government may not have to sweat out close encounters of the blackout kind after all—but that means it will be sweating out a still-faltering economy instead.