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Electricity margins could tighten says Ofgem

The risk to electricity supplies to increase.

The Office of Gas and Electricity Markets (Ofgem), in its second report on electricity capacity, has said that electricity margins could tighten between 2 and 5 per cent in 2015-16 depending on demand.

The British regulator highlighted the importance of government reforms to support more investment in power generation, and urged the implementation of the Department for Energy and Climate Change’s (DECC) capacity market.

Andrew Wright, CEO of Ofgem, said: “Ofgem’s latest report on electricity security of supply highlights the need for reform to encourage investment in generation. This is why Ofgem welcomes DECC’s commitment to introduce a capacity market that will provide a longer term solution to this problem at a time when Britain’s energy industry is facing an unprecedented challenge to secure supplies.”

Ofgem noted that the risk to electricity supplies is forecasted to rise from the current near zero levels, although it does not consider disruption to supplies to be imminent or likely, if the industry manages the problem effectively.

The regulator also highlighted that there is uncertainty around supply and demand for electricity and also over the timing and scale of plant closures and mothballing.

Wright added: “Ofgem’s analysis indicates a faster than anticipated tightening of electricity margins toward the middle of this decade. Ofgem, together with DECC and National Grid, think it is prudent to consider giving National Grid additional tools now to procure electricity supplies to protect consumers as the margin between available supply and demand tightens in the mid-decade.”

Ofgem’s Project Discovery report in 2009 first identified the need for tightening of electricity capacity margins in the mid-decade.