June 30 (Bloomberg) -- The U.K. government said it will reduce the risk of power blackouts by guaranteeing payment for about 80 percent of peak demand for electricity generation.
Generators of power from fuels including gas, nuclear, oil and gas will get the payments in return for ensuring electricity is provided when needed, the Department of Energy and Climate Change said today in an e-mailed statement.
Contracts will be awarded in so-called capacity market auctions as part of the government’s strategy to prevent blackouts as the U.K. increases reliance on renewables such as solar and wind power, where generation changes with the weather. The gap between supply and peak demand may fall to as low as 2 percent in the 2015-2016 winter from as low as 5 percent now because of power-plant closures, the energy regulator Ofgem said today.
“There was a real risk back in 2010 that an energy crunch would hit Britain in the middle of this decade and lead to damaging power cuts,” Energy Secretary Ed Davey said in the statement. “We have defused the ticking time bomb of electricity supply risks we inherited.”
Germany, Europe’s biggest energy market, is also among the region’s nations seeking to secure supplies as it depends more heavily on renewables. Chancellor Angela Merkel’s government will set out plans by 2016 to pay utilities for back-up power.
The U.K. energy department will contract 53.3 gigawatts of power, or about 80 percent of demand, during the first year of operation for its so-called capacity market starting April 2018. Most of that will be offered in December, when contracts for 50.8 gigawatts will be sold. The rest will be offered in 2017.
New powers granted to the grid operator to secure supply will cut the threat of disruption in 2015-2016 to about once in 31 years at worst, from once every four years, Ofgem said. The capacity market will further lower risks, the regulator said.
The government will pay as much as 75 pounds ($128) per kilowatt of capacity a year, according to a document posted on the website of power network operator National Grid Plc.
It said the first auction will be on Dec. 9.
Technology eligible for the auctions includes fossil fuel, atomic and hydro power, energy storage, combined heat and power plants, biomass and so-called demand-response measures, which are efforts by power consumers to reduce their usage.
The agreements will last 15 years for new capacity.
Current plants will be offered rolling one-year contracts, rising to three years for facilities that need to be refurbished to stay viable, according to the energy department.
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