Ofgem warns risk of power shortages sooner than expected

Posted on 27 June 2013

Wind turbinesEnergy regulator Ofgem has warned that the risk of power shortages is likely to happen faster than previously expected.

In its second report into electricity capacity published today, the regulator warns that the risk to electricity supplies is now projected to increase from the current near-zero levels within the next two years.

Ofgem also highlights the uncertainty around supply and demand for electricity. National Grid’s projections on power demand vary greatly depending on assumptions on economic activity and energy efficiency. There is also uncertainty over the timing and scale of plant closures and mothballing.

According to today’s report, electricity margins could tighten in 2015-2016 to between around 2% and 5% depending on demand. This means that the probability of a supply disruption increases from 1 in 47 years now to around 1 in 12 years for 2015/16 or lower.

If the projected decline in demand does not materialise margins could fall to 2%.

Andrew Wright, Ofgem’s Chief Executive, said: “Ofgem’s latest report on electricity security of supply highlights the need for reform to encourage investment in generation. This is why Ofgem welcomes DECC’s commitment to introduce a capacity market that will provide a longer term solution to this problem at a time when Britain’s energy industry is facing an unprecedented challenge to secure supplies.

“Ofgem’s analysis indicates a faster than anticipated tightening of electricity margins toward the middle of this decade. Ofgem, together with DECC and National Grid, think it is prudent to consider giving National Grid additional tools now to procure electricity supplies to protect consumers as the margin between available supply and demand tightens in the mid-decade.”