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Thursday, September 25, 2008

U.K. Faces Power Shortage on Nuclear, Coal-Plants

The U.K., Europe's second-largest economy, risks power shortages and a jump in electricity costs this winter because of corroded wires and other repairs at nuclear reactors and pollution rules that keep coal plants idle.

The nation's electric grid has so little spare capacity that the loss of any one of its 15 largest power stations at a time of peak demand risks forcing factories to shut down to save energy, data from network manager National Grid Plc show. The last time that happened, in May, wholesale electricity costs jumped 13 percent in a day.

U.K. power prices for this winter are already more than double a year ago after British Energy Group Plc closed two of its eight nuclear power stations and extended maintenance at others, while curbs on sulfur dioxide emissions forced coal-fed plants to cut operating hours. One of the reasons the government supported Electricite de France SA's 12.5 billion-pound ($23-billion) agreement yesterday to buy British Energy was its pledge to build Britain's first atomic plants since 1995.

``On paper, it looks like we're going to be very tight, potentially looking at another brownout,'' said Paul Love, an analyst at Dunfermline, Scotland-based McKinnon & Clarke, which advises companies on energy prices.

National Grid said last week that surplus power supplies this winter will be as little as 1,373 megawatts, or 2.5 percent of consumption. The amount represents what's left after the grid meets peak demand and maintains a margin to provide reliable service.

Limited Flexibility

The estimates leave little flexibility. The grid's forecast is based on information provided by the country's electricity generators. Peak demand for the week of Nov. 3 is forecast at 55,300 megawatts.

Winter baseload power, the contract traded via energy brokers guaranteeing around-the-clock deliveries, touched 103.75 pounds-a-megawatt-hour yesterday, more than double the 43 pounds-a- megawatt-hour price for winter a year ago. November baseload power traded at 115.10 pounds a megawatt hour yesterday, the highest price for a monthly contract since at least 2001.

The forecast indicates that for now there's enough generation available, said Stewart Larque, a Warwick, England-based spokesman for National Grid.

``The reason why it is published is so that people can make the right decisions,'' he said. ``If the figures were negative, that's when it becomes a signal to the market to make more capacity available.''

Demand and Prices

Electricity can't be stored, so production needs to continually meet demand. The power grid has spare plants that only run at times when demand and prices are at their highest. Mothballed generators can return to service if the cushion threatens to disappear, Larque said.

``It only takes a few unplanned outages to push it the other way,'' said McKinnon & Clarke's Love.

Supplies may push prices to ``the sort of level that forces industrial demand off the system,'' said Jeremy Nicholson, the director of the Energy Intensive Users Group, whose members include the steel and glass industries. ``We are heading in that direction.''

Day-ahead baseload power prices this month have been as high as 124.50 pounds a megawatt hour, the highest since March 2006, and more than three times costs the same time last year. The next-day contract traded at 99 pounds a megawatt hour as of 8:35 a.m. in London today.

National Grid said on May 27, the day when the shutdown of British Energy's 1,200-megawatt Sizewell-B power plant caused supply interruptions in parts of England, that steps to reduce demand were imminent because of insufficient spare supplies. It was the first such notice since 2006. This year it has warned five times that spare supplies aren't adequate in addition to the demand-reduction notice.

Upgrading Plants

Scottish & Southern Energy Plc and International Power Plc are upgrading plants to comply with restrictions on gas emissions. They may resume normal output in the coming months.

``Until that work has been completed, presumably there's some risk,'' Nicholson said.

British Energy plans to start four reactors in the fourth quarter that have been closed for a year because of corroded wires.

Those plants may be needed. Winter temperatures may be colder than normal, according to Jim Dales, senior forecaster at British Weather Services, which sells forecasts to businesses including energy companies.

November and December may be milder, while January and February may ``deliver significantly below-average temperatures,'' he said.

(Source: Bloomberg)

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