Winter outlook and security of supply: everything you need to know

Written by Louise Ward | 02/08/2022

There’s a lot of uncertainty at the moment around energy prices and if there is enough supply to meet demand in Great Britain (GB), particularly for businesses. We’ve been in close contact with our business energy customers to keep them updated on the action being taken by us, as well as the wider energy industry, to protect them and minimise the impact of energy imbalance.

The GB energy market has a diverse supply base and is well set up to cope with the current global uncertainties around physical supply. Nonetheless, the risks around supply are materially higher for this winter than in previous years and so understanding and preparation is key. We are confident that the GB market can continue to call on a variety of supply sources to minimise the risk of physical interruptions to customers’ energy supplies, but to do this is likely to require much higher prices than in previous years.

What businesses need to know right now

The current energy situation is volatile due to the ongoing conflict in Ukraine and the relationship between Russia and Europe. Although we generally only get a small percentage of our gas from Russia, supply concerns across the Continent and the subsequent price rises can impact the price in the GB gas market through competition.

Increased volatility in global energy markets is also having an impact on liquidity, i.e. the ability to easily transact volumes of energy on the wholesale market. It also means that there is a larger risk premium commanded by sellers to sell their energy on the market.

It’s important to remember that the current supply of energy to GB is well managed, but we understand the concerns businesses have, and we’re working hard to keep in touch and provide all the necessary information and resources.

What to expect this winter

As the gas crisis threatens security of supply across Europe, National Grid is stepping up its preparations for any potential energy shortages. As part of its emergency planning, National Grid prepares and updates strategies so it has policies in place for any crisis scenario from the pandemic to major supply disruption. Here’s the process if that were to happen:

Gas

In a Gas Deficit Emergency (GDE), gas transporters (the licensed operators of the gas transmission system) follow a four-stage process. The GDE continues until it is decided the gas network can return to normal operation:

Stage 1: if the potential for a gas deficit is identified, suppliers (through the companies that ship gas for them) will be asked to voluntarily drop demand or source supplies elsewhere
Stage 2: if the situation becomes more complex, then National Grid takes full control as coordinator and the largest sites will be instructed to reduce their load. If these steps prove to be inadequate, gas transporters will instruct a wider range of consumers to bring down their gas usage
Stage 3: involves phased isolation of parts of the gas network to keep pressure in the remaining sections, as planned by the Network Emergency Coordinators. There will be gas rationing within the Local Distribution Zone (LDZ) managed by transporters
Stage 4: restoration. Following the shortage, National Grid will begin to restore the areas of the network which had been shut down, with full safety checks at each offtake

Power

The GB power system operator, National Grid Electricity System Operator (ESO), will use all of its available tools to avoid shortages occurring in the first place. For example, using the balancing mechanism to contract with generators who have spare capacity available; calling on frequency response providers and using their precontracted reserve contracts to manage any power imbalance before it reaches the point where power cuts or voltage control are needed.

If the system operator identifies a potential shortage, it will issue warnings to the market in increasing severity to reduce usage.

If an imbalance or shortage remains, Distribution Network Operators (DNOs) will begin to carry out steps to reduce demand – which consists of voltage control or load shedding, starting at around 5% of national demand curtailed, up to a cumulative 60% of demand.

Could my business be exempted from interruptions to supply?

Gas customers may apply to be classified as a priority customer in the event of a GDE, but this does not guarantee it will be exempt from load-shedding. Applications should not wait until a GDE is imminent, but be made during normal circumstances.

For power supply, the immediate control of the system to protect the network is handled by the ESO as mentioned above. For protracted periods of limited supply, the concept of ‘protected sites’ may enable power import to be maintained. However, your business must meet several criteria to be considered a protected site. Your supply can only be maintained if:

● There is a national or regional critical need

● Public health and safety would be impacted

● There is the potential for catastrophic damage to high-value plant

You must also show that your site does not have standby generation and it’s not feasible to install standby generation.

To apply for protected site status, you should contact your Network Operator in writing. Depending on the situation, you may still be asked to reduce your consumption.

You can read the full criteria for protected sites and power supply here for power, and here for gas.

What can you do to proactively load manage?

If you are able to shift your consumption load then you could make additional revenue or savings through participating in grid balancing schemes in both power and gas markets. Or, if you're a customer of ours, you could benefit directly from wholesale market optimisation, where our Trading Team can monetise your voluntary demand response in the wholesale markets.

To participate, you must be able to either turn down your energy consumption in response to external signals or increase generation on-site.