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Helm: Capacity Margin Should be More Than 10%

business energy light bulbRespected energy commentator Dieter Helm has laid bare the failings of the UK energy market.

Helm, Professor of Energy Policy at the University of Oxford, told the House of Lords Science and Technology Committee that the UK’s winter capacity margin should be “North of 10% but probably less than 20%”.

In their Winter Outlook Report for 2014, National Grid have cautioned that they expect optimal winter margin to be just 4.1% but that with a ‘bad’ winter this will narrow to 2.8%.

At 2.8% capacity margin, the network would be unable to meet its “basic reserve requirement” needed to operate the system

Describing the current levels as an “extraordinary situation” Helm added:

“Any reasonable large scale economy with a reliance on electricity is vastly better off in a world where there is a bit of fat in its capacity margin.

“Everyone will pay a higher price to bring the system into equilibrium will be higher because this stuff [electricity] is scarce.

“[But] of course there is enough capacity to meet demand, if you do [spend] what’s necessary to do that”.

Helm’s comments strike an interesting tone. According to his interpretation the capacity exists and is (reasonably) readily available however the underlying commercial incentive to deliver this to market does not.

That can only mean one of two options:

  • ‘Saviour’ capacity remains uneconomic and offline prompting potential shortages or
  • Prices are to rise to make such plant operation economic and to widen the capacity gap.