Is the UK running out of electricity?

This week's Economist front page leader states that “thanks to its posturing politicians, Britain will soon start to run out of electricity”. It appears the first week of August was just too boring and the newspaper’s staff had to make up a story (the news that the Bank of England was expanding its Quantitative Easing programme by an additional £50 billion came too late on Thursday to turn it into a proper story).

The full article in the Britain section cites industry sources, to say that by the end of 2015 there will be a 26GW (E.ON) to 32 GW (EDF estimates) hole in the UK’s generation capacity. The article also provides a chart illustrating how existing generation capacity disappears and compares that with a gently upward sloping estimate of peak demand. I can identify at least three problems with the evidence presented.

Firstly, the chart provided (courtesy of E.ON) does not show (1) additional generation capacity already under construction and (2) capacity for which building consent has already been granted. Once these two categories are considered we find that generation capacity at the end of 2015 and into the early 2020s is expected to remain steady. On top of this there are other potential investments in generation that might take place and for which apparently transmission has already been contracted. So the chart below, from the Low Carbon Transition Plan (page 73) published by the UK Government’s Department of Energy and Climate Change, would appear to be much more appropriate than the one presented in The Economist’s article.

A second problem is the ever increasing peak demand that industry expects. The reality is that electricity supplied in 2008 was virtually the same as in 2002 – 367,000 GWh. And with the recession still with us don’t be surprised if 2009 supply falls to the levels of 2000. Even without the crisis, electricity demand didn’t grow in the 5-year period between 2003-2007. In these circumstances it seems a bit of a stretch to forecast an electricity demand increase of 10% between 2008 and 2015 as the E.ON chart implies.

Finally, you will have noticed that in the previous paragraph I have written about total electricity supply and demand for the year rather than peak demand, which the chart in the Economist article refers to. The peak demand data show a similar picture to aggregate annual demand (see chart below). However, with the anticipated £8 billion investment in smart meters we should see a more efficient use of available generation and transmission capacity. The meters should allow more discriminatory pricing, providing incentives to consume less electricity at peak times and more off-peak. This should in turn lead to lower rates of increase in peak demand relative to aggregate demand - so even if total electricity demand grew by 10% between 2008 and 2015 peak demand could remain stagnant.

So what was this piece of reporting all about then? Advocating the cause of companies wanting more public support for additional generation investments? Adding to the sense of failure of a Government on its way out? Or simple scaremongering to liven up a quiet August weekend?