UK Major Energy Consumers Offered Incentive to Cut Consumption

UK power network operator National Grid is asking large energy users to voluntarily reduce their electricity use in return for payment, in a move to protect businesses against an increasing risk of power shortages. It also plans to pay mothballed gas power plants to be ready to come back online if needed.

The company will this month ask large energy users to volunteer to reduce their electricity use this winter between the peak hours of 4pm and 8pm on weekdays, in return for compensation. It does not plan to bring mothballed power plants back online until winter 2015-16.

“Both the new demand and supply balancing services will be used only as a last resort – and are a safety net to protect households in difficult circumstances, such as a hard winter or very high surges in demand,” said the UK government’s energy secretary, Ed Davey.

However, some British manufacturers have criticised the need for ‘last resort’ measures. “Security of energy supply is becoming an issue of increasing concern for manufacturers and today’s projections show a worryingly thin capacity margin,” said manufacturers’ organisation EEF, formerly the Engineering Employers’ Federation. “We should never have found ourselves in the dire situation of having to bring forward last minute solutions to avoid blackouts.”

The UK power sector’s regulator Ofgem warned last summer that the country’s spare capacity margin – the buffer between supply and demand – could fall as low as 2% over the winter of 2015-16, as ageing power plants go offline before they are replaced by new ones. A recent survey of directors at more than 300 UK listed firms by Edison Investment Research found that 26% feared operational issues from power shortages over the next few winters.

Warwick Business School’s assistant professor of global energy, Fred Dahlmann, who researches sustainability in business, was less critical of National Grid’s plan. “This approach is not entirely new as some energy suppliers already do the same for their industrial and commercial consumers by signing so-called interruptible contracts,” he commented.

“For companies willing and able to be more flexible in their electricity consumption National Grid’s tender offering provides companies with extra revenue while balancing overall power demand on the grid. A greater degree of responsive energy consumption would therefore be of benefit to both companies and the wider grid.

“National Grid’s proposal to pay companies to curb their electricity use at certain times of the day is a simple and practical way to reduce and shift demand while some uncertainty over new investment in generation capacity continues.”

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