Rudd: Price spikes from tight winter margins will not hurt customers

Energy secretary Amber Rudd: We can manage winter but we need more power stations.
Rudd: We can manage winter but we need more power stations.

The lesson learned from last week’s tight margin call by National Grid is that security of supply must be the government’s core focus, according to Amber Rudd.

The energy secretary was today questioned about the incident by the Energy and Climate Change Select Committee.

The department of energy and climate change has made clear since May that security of supply comes first in the so called energy trilemma, which also aims to decarbonise power at lowest cost.

NISM education

Rudd reiterated that the use of demand side balancing reserve to balance the power system was no cause for panic. Some 111 notices of insufficient supply margin (NISM) had been called between 1999 and 2008, she noted. That is true, but last week’s NISM was the first in nearly four years. Since then the UK has lost gigawatts of generating capacity.

Rudd, who also faced questions over a leaked letter detailing her concerns about missing renewable energy targets, said that tight margins demonstrated the government was right to prioritise keeping the lights on.

“The main lesson I learned from last week was that we need to focus on security of supply, which is what we have been doing since the start of this government,” she said. “The reason margins are tight is because we have failed to invest in sufficient infrastructure over a long period to support new electricity coming forward.”

The NISM was “about the buffer rather than actual supply”, Rudd said, adding she was “satisfied” with National Grid’s handling of the system.

Quietly confident

“I am confident that we can handle [tighter winter margins],”said Rudd. “But it is a clear indicator nevertheless that we need to deliver new sources of electricity going forward.”

Questioned over reports that generators had earned as much as £2,500 per megawatt hour during the incident – around 50 times the average wholesale power price – Rudd responded that consumers would not be out of pocket.

“That has no impact to consumers because it is such a tiny amount over such a short period. National Grid runs auctions every half hour. There was a period when they paid that [£2,500/MWh] for a small amount [of power]. So it has no impact [on bills],” said Rudd.

The nuclear premium

“But it does have an impact to consumers if you have insufficient supplies [more broadly] – hence being so committed to bringing on new supplies,” said Rudd. She had earlier defended the deal for a new nuclear plant at Hinckley Point as “good value” low carbon baseload. Financiers, however, have described the contract as “an abomination“.

Rudd said she was “absolutely confident we have the tools” to handle tight margins over the next few years, but said that concerns about potential shortages underpinned government’s eagerness to secure deals for new plant.

“National Grid [handled it] last week and will do so again. The system is working as intended. But I would like to have a system that has larger margins and better supply.”

Watch the session here.

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The abominable nuclear contract and new energy act tales

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National Grid moots demand side response rule changes as winter power margins tighten

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