Sunday, March 9, 2014

Emergency electricity – U.K. on verge of strategic reserve

I think the financial Post's Nick Butler could have this one wrong overall, but he makes a number of pertinent points in reporting the U.K. is about to choose a strategic reserve model for ensuring sufficient electricity supply at all times.

Emergency electricity – here come the Green Goddesses | Nick Butler:
Older UK readers will remember the green goddesses – fire engines held in reserve for moments of national emergency. At the height of a crisis army drivers would maintain an essential service. Well lo and behold some new green goddesses are to be created as the Government launches its “emergency electricity reserve”.
...who will invest in capacity which might only be used 10 or 20 per cent of the time. ?
After much agonising and hundreds of notes an answer has emerged from Whitehall.
The Government will invest. Under the energy legislation this is close to impossible and so in a lovely sleight of hand worthy of Yes Minister the investment will be labelled as a matter of national security. The details are not yet all fully agreed but the current plan is for up to a dozen stations which are currently mothballed to be re-commissioned. These will be gas fired but some argue for including coal as well. They will be controlled by National Grid to avoid any suggestion that the Government is enriching the energy companies. The remit is to create a strategic electricity reserve for use if we ever get close to a brown out.
That might sound sensible but the plan starts to break down as soon as you get to the detail. Power stations cannot be switched on and off at will. ... Then there is the gas supply issue. To have stations ready to go onstream requires a guaranteed gas supply.... The gas market is not very liquid – most gas is supplied on long term contracts – and take or pay deals of this sort will leave a lot of gas which is unwanted most of the time. That will be destabilise the market. Unless, of course, the Government intends to hold its own permanent gas stocks ...
Read the entire article at the Financial Times

The issue is how to ensure supply is available at all times, and it's a much greater issue in markets (particularly isolated ones) where variable Renewable Energy Sources (vRES) are growing; generally, having no fuel costs, wind and solar production will bump generation from fuel sources making those traditional generators increasingly uneconomical.
The model for an emergency reserve mechanism is probably found in Nordpool.  My understanding is the market participants set the rules, and pricing levels, at which the strategic reserve can be activated.
Another model is the single electricity market (ie. Texas), which is struggling to incent new capacity by significantly raising the maximum price allowed (I think it's set to go to $9000/MWh, but would need to verify).
The last major model is the capacity market - probably the main example being the PJM market.

All have strengths and weaknesses. My preference is the strategic reserve model.


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