There weren’t many stand out moments from the interminable Tory leadership campaign this summer.  Yet there was an interesting and revealing moment when Liz Truss was asked about potential blackouts in this coming winter: she said that they wouldn’t happen on her watch. 

That was an extraordinary answer to give for two reasons. First, because there’s no way that Truss can guarantee that. Second, it spoke to an unfortunate defensive reflex which has been on display almost permanently since she became Prime Minister. Surely it would have been easier to level with the public and tell them, as one of her predecessors said, it’s going to be “the nearest run thing” because that’s the truth. 

What’s the most likely outcome this winter? 

The most likely outcome this winter is in fact that Truss is proved right: that there are no blackouts and, by hook or by crook, the UK network survives the crisis into the spring. We know this to be the most likely outcome because it’s the base case for National Grid but, if we get through, it’s National Grid we’ll need to thank and not the Prime Minister, whoever it is at that point. 

As National Grid says, they think it will be a tough winter where electricity supply will require careful management and they have developed the tools and incentives to manage the situation. The incentives include paying consumers to use electricity at different times to when they might usually. In the simple terms, this might see a factory operate from say 11am-7pm rather than 9am-5pm and be rewarded for doing so. National  Grid have also retained two GW of coal-fired supply if needs be which is very wise of them. 

Overall the UK is in a far stronger position than most people give it credit for. In National Grid, we have an entity that is on top of the situation and is admirably clear about what may or may not happen in the months ahead. We also have an enviably advanced position in terms of renewables: in the first half of October we had mild, sunny, windy days which was reflected in our energy mix where renewables dominated. Best of all, the natural gas price has slumped from 800p/therm in late August as Europe filled its storage to 215p/therm today. That remains a high price – three to four times the average of the past decade – but it is clearly a far, far better place to be in than we were. 

With all other things being equal and without wishing to be complacent, there’s no reason to doubt National Grid’s base case. This base case would be substantially improved and more likely if the Truss administration (which it is at time of writing) launched a programme to reduce demand as we have seen in Germany and France. It remains utterly incomprehensible why Truss has not done this – reducing bills, reducing borrowing, increasing energy versus some dogma around the Nanny State? Truss has junked everything else she believes in; time to junk this too. 

What could stop “all other things being equal” and push the UK towards the worst case scenario? 

First of all, the worst case scenario is now not that bad. There’s a bit of a trade in newspaper headlines at the moment telling us we’re all going to freeze to death in unheated homes which is a vast over-dramatisation of “load-shedding”. This is where power is cut to individual parts of the country in turn, for a few hours at a time to balance the grid. This happens in plenty of countries – albeit not many developed counties – and is conducted according to a public timetable. Getting caught out by load-shedding (and thereby freezing to death) would require a significant degree of disinterest in your own preservation. Load-shedding is not ideal but a relatively small degree of load-shedding is infinitely preferable to earlier scenarios, before Europe filled their storage, of mass blackouts. But the key there is Europe. The UK operates within a competitive and mostly cooperative electricity market but this means that if Germany or France sneezes, the rest of Europe catches a cold – including the UK no matter how good our energy mix. 

  • Interruptions to supply of electricity 

Without wishing to state the bleedin’ obvious to Reaction subscribers, electricity is ethereal; one moment it’s generated, the next it is gone. It cannot be mass-stored and is used (fairly) instantaneously. If supply is interrupted, you need to go somewhere – and sharpish – to fulfil demand. In recent months, the UK has supplied substantial amounts of power to continental Europe through over-generation of electricity and as part of the European electricity market. In particular, France has benefitted from having major inter-connectors with the UK national grid as their fleet of ageing nuclear power stations underwent maintenance and repair. Those power stations were due to come back on line earlier this month but public sector strikes have affected these maintenance programmes and it will be mid-November before French power is back up to usual strength. We had better hope that the strikers go back to work and soon or French power suppliers will be bidding for our electricity and that will push the marginal cost of energy right up. 

This oversupply by the UK grid is not unusual at all during the summer but it is often reversed during the winter and it’s very hard to see what the UK government could do to guarantee supplies of electricity from Europe to the UK if push came to shove. It’s a market after all in which we are just one player and with a weaker currency than we had previously. If the EU decides, and well they might, that, in the interest of fairness, there needs to be electricity rationing across Europe, then we will have no choice but to play our part. 

  • Interruptions to gas supply 

Something else that might lead to electricity rationing is problems with gas supply. While Europe has done a stellar job in filling its storage this winter, gas storage is not a strategic reserve – it’s designed to be used for variations in demand, for example, during a cold snap. As noted before, the UK’s need for storage is less than others given how much gas we produce. Critically, storage does not replace the need for Europe to receive gas through the winter from Norway, the UK North Sea, LNG imports and the last remaining imports from Russia via Turkstream and Ukraine Transit. 

John Kemp, oil and gas industry analyst at Reuters, explains it best: “Storage is intended to deal with seasonal variations in consumption, not provide a strategic reserve in case of an embargo or blockade. In the event of a complete cessation of imports from Russia, a colder than normal winter, or both, gas would become scarce before the end of March 2023.” In short, if gas supply is disrupted into Europe, storage helps us but it doesn’t solve the problem. 

The UK has played an enormous role in helping Europe fill its gas storage. We have three LNG terminals which have been pumping gas across into Europe through the summer and autumn. In previous winters – and this winter will be no different – the UK has needed to import gas from Europe to meet demand. If gas supply into continental Europe is interrupted, as with electricity, the UK will have to suffer with our European neighbours and there’s little we can do about it except pray for wind. There’s no reason why the UK would benefit from having been a useful ally over the summer especially as our overall position within an European gas or electricity crisis is likely to be better than our neighbours due to our strength in renewables and our gas supply from Norway. It’s here that removing ourselves from Russian gas will really count. That said, it’s hard not regret the fact that the UK doesn’t have provisions with the owners and operators of its gas fields that ensure that the UK benefits first from UK generated gas in emergency situations. 

  • Excessive demand

Or the Weather. It’s been a mild autumn so far. Long may that continue. There have been some long-term weather forecasts saying it’s going to be the coldest European winter in a decade which was breathlessly reported by, of all newspapers, the Financial Times. In more recent weeks, we’ve seen more long range forecasts saying the exact opposite which is no surprise. 

Either way, cold winter or mild winter, we know what we really don’t need: grey, winter days with low cloud and no wind. That would very obviously drive up demand and simultaneously force us to use more fossil fuels and gas in particular. In the UK, our average consumption at anyone time is around 32 GW. In summer this averages around 26 GW but it winter it can spike as high as 50 GW depending on the severity of the weather. It really would not be sensible for the UK to test that level of generation too many times this winter and especially not at nighttime. Hence, the need for that public information campaign – do you need to sleep naked in a room heated to 24 degrees? No, you don’t…. 

  • Unknown knowns

In very simple terms, this is the Putin Problem. Will he seek to cause maximum disruption in Europe as winter takes holds? What desperate steps will this desperate man take with gas pipelines and interconnectors in the Baltic or the North Sea to try and disrupt NATO unity? He has already – almost certainly – sabotaged the NordStream pipelines in the Baltic and we have seen Scandinavian concerns around drones, on which Putin is now very keen, targeting energy infrastructure. Forewarned is forearmed, of course, and we can never underestimate the Russian military’s ability to be, well, not very good but this feels the clearest threat to power in Europe this winter. There are other geopolitical risks out there – there were reports this week that China has started to prioritise domestic supply of gas over sales of LNG to Europe – but its Putin and his war that’s the obvious risk. 

In conclusion, when National Grid explains their base case, they talk about managing margins and that’s what this is all about. Whether the UK makes it through the winter uninterrupted is a balance between supply and demand and how close we get towards those operating margins and the point at which National Grid will be forced to take action. We should take comfort from National Grid’s base case and be confident that they know what they are doing. In the end, however, there are myriad factors that contribute to supply and demand some of which are not within our control, some of which definitely are. As has been said before, it’s time to get on with controlling what we can control. In a world of fine margins, it might make all the difference.

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