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U.K. Ready to Pay Power Users to Switch Off for ‘Negawatts’

The U.K. is ready to step up payments for factories, offices and supermarkets that switch off electricity as rising demand drives up prices and the nation turns to cleaner but less-reliable power.

The government, planning for a six-fold jump in wind capacity in the next decade, is seeking comment from power suppliers and consumers until March 10 on its so-called Electricity Market Reform. The unpredictable nature of wind generation, combined with rising electricity consumption, is likely to drive up U.K. power prices as plants that burn coal are phased out to help reduce pollution.

“There’s huge revenue to be made, and no one is really doing it,” said Ziko Abram, a former Credit Suisse Group AG banker who co-founded Kiwi Power Ltd. in London to enroll power consumers in the U.K. program. “You can reduce air-conditioning or some non-essential lights. Most places don’t even realize when demand response is taking place.”

Billionaire developers David and Simon Reuben signed up through Kiwi Power this year for payments amounting to five times the wholesale cost of electricity. Millbank Tower, London headquarters for the U.K. Conservative party, is their latest property to join, following Oxford Airport and nearby Eden Shopping Centre last year.

“Energy-efficient change has to be to the economic advantage of a business or an individual,” James Reuben, director of the London Oxford Airport, said today by e-mail.

Depending on Wind

The U.K., scheduled to set new rules this year that may include a market for “negawatts,” or power that users can do without, has predicted power demand may rise as much as 30 percent in the next two decades as the nation turns to electricity for heating and transportation.

Wind farms built off the coast may increase to 33,000 megawatts over the next decade. That compares with the 5,200 megawatts of U.K. wind capacity now.

Wind turbines generate only when the weather is favorable, making it difficult to predict electricity supplies. The power can’t be stored, and there’s no guaranteeing it will be sufficiently windy at time of peak consumption, forcing National Grid Plc to manage demand for electricity as well as supply.

Britain’s energy plan calls for strengthening the existing program that lets National Grid ask companies to reduce demand. It may also establish an auction whereby companies bid for negawatts they can switch off, competing with companies that bid to increase power supply. National Grid, which paid RWE AG as much as 14 times market rates for emergency power during the December 2010 cold snap, would be able to cut demand, whichever is cheaper.

Challenge for the Grid

“In most of Europe there is ample supply, but the amount of renewable coming online creates a lot of problems for grid managers,” said David Brewster, founder of Boston-based EnerNOC, an energy-management company that works with 8,000 facilities worldwide to manage consumption. “You don’t want to have to build a megawatt of gas plant for every megawatt of wind, and there is a growing demand for balancing reserves.”

GDF Suez (GDFZY) SA said it has the biggest market share in offering demand response in the U.K. and has helped manage customers’ energy use over the last decade.

“We have witnessed a strong upsurge in customers looking to take part in the scheme over the past six months, no doubt encouraged by the income generation available to them as well as the carbon reductions made,” said Andy Cooper, Leeds-based head of sales at GDF Suez (GSZ)’s U.K. unit.

‘No Brainer’

U.K. power consumers can earn an average 220 pounds for every megawatt-hour they don’t use in response to a request. National Grid said. That’s on top of an annual payment of about 50,000 pounds for a shopping centre just to sign up to the system, according to information from Kiwi Power. Payments come from charges to use the network and are ultimately passed through to electricity bills.

Baseload power for delivery tomorrow was 48.75 pounds ($79.39) a megawatt-hour, as of 3 p.m. local time. Prices may rise to nearly 70 pounds by 2020 and exceed 100 pounds a megawatt-hour by 2030, according to Redpoint Energy, a London- based research firm, based on government assumptions.

“We get a text message, a call and an e-mail asking if we can be available within the next 20 minutes,” said Paul Hone, a data-center support manager for InTechnology Plc, which has an agreement with EnerNOC. “We can respond in about five,” he said. Taking part in a demand-response program “was a bit of a no brainer.”

‘Huge Benefit’

RWE AG (RWE) teamed up with Edinburgh-based Flextricity Ltd. last month to bid for supplying negawatts.

“It’s a check for doing almost nothing,” David Cockshott, RWE’s director of industrial and commercial markets, said in a phone interview. “We will effectively be able to replace an oil-burning unit by making this available. All the carbon- dioxide emissions savings is a huge benefit.”

RWE, Germany’s biggest power producer, earned 700 pounds a megawatt-hour last year to switch on its oil-fired power station at Littlebrook, southeast England, to help cover the tea-time power surge when Britons get home from work, switch on lights, and start cooking and watching television. The plant, built in the 1980’s to operate around the clock, was otherwise idle for all but four days last year.

“You’re never going to justify building another power station just to sit there on standby, just to cover those peaks,” Cockshott said.

Small Generators

National Grid said it currently oversees 2,600 megawatts of contracts in its so-called Short Term Operating Reserve, most is switching on small generators, while 200 megawatts is power use that can be switched off. National Grid said it had contracted 400 megawatts of demand reduction out till 2025 and predicts it will need to increase its Short Term Operating Reserve to about 8,000 megawatts by 2020.

Demand-management programs may help deal cope with the U.K.’s greater reliance on power from wind, said Richard Green, a professor of energy economics at the University of Birmingham.

The swing in power demand and supply balance could reach as high as 17,000 megawatts within an hour, according to Green’s research. He modeled power balances in Britain using 13 years of data. Such a high change would be brought about in exceptional circumstances, when demand rose and wind supplies dropped rapidly, he said.

“There’s no reason why a big shopping mall should be running air-conditioning at 21 degrees all the time,” said Abram of Kiwi Power. “If you changed it to 24 degrees for a couple of hours you don’t feel the effect.”

To contact the reporter on this story: Catherine Airlie at cairlie@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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