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Why I’m Paying Close Attention to the Looming UK Blackout

by | published December 15th, 2016

The UK is on the verge of another energy crisis. Like clockwork, these seem to hit the country almost every year.

And it’s crucial to pay attention, because what’s happening over there shows the strength and opportunities of the energy market here at home.

Earlier this year, as veteran readers will remember, the Brexit vote lead to a drop in the pound sterling, causing North Sea gas being exported to storage in the EU…

Only to be bought back, at a premium, as temperatures in the UK started dropping.

But now, there’s another energy crisis about to hit the UK. This one is about reliability, and the cost to British citizens may be even heavier…

And it shows just how valuable the energy “independence” making the news in the U.S. really is…

Brexit Spiked UK Energy Prices

You’ve seen before how, reeling from an unexpected Brexit vote, London came up on the short end of natural gas rates in the trading circuit with Europe.

Longtime readers will recall that there’s a “circuit” problem involving natural gas trade between the U.K. and hubs in Europe, especially in the Netherlands. In short, because of the dramatic post-Brexit decline in the pound sterling against the Euro, North Sea gas was being purchased from U.K. sources by Europe at discount and then sold back to the island nation at a nice profit.

Back then the situation was aggravated by a substantial rate hike for end users of electricity by all the power providers in the country, increases that were well beyond the rise in generating costs.

In that move, residential and commercial electricity consumers took it on the chin just as the weather grew colder.

Today’s crisis is even worse…

Brits Might Have to “Sit in the Dark” This Winter

On Monday, Ofgem senior executive Andrew Wright said that some households would have to pay up to keep the lights on while “their neighbors ‘sit in the dark’ because not everyone will be able to use as much electricity as they want.”

Ofgem is the acronym for the Office of Gas and Electricity Markets. This is a non-ministerial U.K. government department that also serves as an independent National Regulatory Authority, as recognized by the EU. According to its own website, the primary task of Ofgem is “to protect the interests of existing and future electricity and gas consumers.”

Wright’s warning, coming as it does from a top member (and former interim chair) of the agency that is supposed to protect the energy end user, does not bode well for what is unfolding in the U.K.

As you’ve seen here before, Britain has embarked on path of heavy reliance upon renewable energy, especially wind farms. Solar is also being introduced, although to a more limited extent.

At the same time, the country has decided to decrease coal use. That has made natural gas the “heir apparent” for the role of primary energy source in British electricity generation.

The government has also approved the first new power producing nuclear reactor in decades. But the French-built facility is already years late, will take years longer to be completed, and is way over budget.

So the decision to phase in more wind power was initially regarded as a way of balancing the rise of natural gas as the dominant source for electricity.

Well, things haven’t worked out that way and the costs of repairing the damage will fall (as it always does) on the consumer…

The UK is Facing Power Shortages

The resulting crisis can be summed up in two words: electricity shortages.

As you well know, a balance of energy sources, including solar and wind, is the best system for any country. But a quick increase in renewables requires attention to redundancies.

Simply put, you need to keep more “traditional” electricity generation around for the days when the sun doesn’t shine or the wind doesn’t blow.

In the U.K., that means older (and far less efficient) coal-fueled power stations would need to be kept online as backup. Ultimately, newer gas-powered equivalents will come online and provide a hybrid approach to Britain’s electricity needs.

Unfortunately, that’s not going to happen quickly enough leading to a somewhat unexpected outcome…

Britain, of All Places, Will Have to Import Coal

Get ready for this one.

Britain, in many respects the great grandfather of coal-based economies, has closed so many coal mines that it will need to import coal to provide enough backup power until a more user friendly balance can be struck between renewables and natural gas.

Power industry costs across the board are already going up more than expected. This crisis is made even worse by the rising expenses of natural gas, wind incentives, and now the added cost of importing coal.

Leading to the two-pronged warning from Ofgem. First, consumers must pay more for electricity, even more than was initially forecast. There will be no government bailout as both Whitehall (the administration) and Westminster (Parliament) is putting this burden squarely on the shoulders of homes and businesses.

That means, as Wright warned, that wealthier homes will be able to afford it; most others will not.

Second, he warned about rationing, which means something quite different than just higher prices – and is much more worrisome. There may not be enough power to go around… at any price.

In short, we’re talking about power outages here.

Absent a radical change in taxation and the introduction of a huge state-supported program of subsidies for a widening percentage of the population (neither of which will come from the current government), this crisis will roil the country.

And with the weak currency continuing throughout next year as the specifics of Brexit take shape, Britain’s energy costs will continue to grow.

Depending on energy imports has a way of doing that.

The U.S. oil and gas industry, of course, is hard at work at making sure we don’t face this problem. Just take a look at my recent 2017 natural gas price forecast.

 

PS My next letter will be going out on Tuesday. It’s going to be big…

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  1. Malcolm Rawlingson
    December 15th, 2016 at 23:04 | #1

    Kent, This mess has been 30 years in the making. The electricity grid and power generation was for many years owned and operated by the Central Electricity Generating Board – a Crown Corporation – whose sole job was to ensure adequate supplies of power to the British Isles at affordable prices for everyone. It did an admirable job of that. Mrs. Thatcher and her dogma driven stupidity considered that “private enterprise” could do a better job. So it was sold off and broken into bite sized chunks the private sector could feast on.
    The result. EDF an arm of the FRENCH government now controls all the nuclear plants in the country (do you REALLY think they are interested in keeping prices low for UK consumers….NO is the answer to that). Coal…nasty stuff supposedly is now persona non-grata so they shutdown all the coal plants…forgetting that Bejing City alone burns more coal than the whole of the UK. So there is now no indigenous coal supply…no nuclear supply owned by Britain…not much in the way of hydroelectric and of course the gas situation which you just mentioned.
    The bill of goods sold to Britain (and also being sold to Germany) is that wind and solar can fill the gap. The truth…hard as it is for the enviro-nitwits to swallow…is it cannot.
    In a nation where it rains a lot solar is the most stupid possible means of making electricity.
    The reason to anyone with a half ounce of brain cells is that the Sun does not shine very often and the idiots in Whitehall do not understand the basic number of electricity generation which is CAPACITY FACTOR. That’s the amount of power you ACTUALLY produced over the amount you COULD have produced at the name plate rating 100% of the time. Solar operates at about 20 to 30% which means that 70 to 80% of the time it is not operating. THAT means you need many many more solar plants to make the equivalent power output of a single nuclear or coal baseload plant. Of course you ALSO need storage AND you nbeed a plan t top charge the battery while the other supplies the loads. The cost is out of this world and there is no way on this Earth that solar power is or will ever be economically viable in the UK without Government payments.
    The net result. The British have allowed their most essential service to be corrupted by foreign interests and the results will be severe blackouts. Only then will the UK public realize that their power system has been handed over to people whose interests are NOT to keep the lights on but to make as much money as they can.
    And as for cost…the CEGB could produce power at far less than what it is costing consumers today….so what was gained. Answer that for you….nothing.
    I left those islands in 1982 because of that stupidity and I am so glad I no longer liver there.

    All I can say is the Brits have got what they wished for.

  2. Kevin Beck
    December 20th, 2016 at 07:35 | #2

    I always operated on the principle that starvation is not a proper strategy for energy. Meaning that you don’t set any cut-off date for old systems just because a new system is available.

    The proper strategy that should have been implemented was to stipulate that no new facilities designed to operate on old energy will be built, but also that none would be shut off as all future facilities will be based upon renewable energy.

    This would avoid the problem of forcing change based upon the legislated destruction of older energy systems, and would allow for redundancies to continue to exist to ensure continuous power supplies.

  3. Don McCallum
    January 12th, 2017 at 18:14 | #3

    LMAO!!! I have been saying for decades now that all of the renewable energy possible in the world will not be enough capacity to support even the most modest of energy based economies (there really are no other kinds). Nuclear power is the only viable source of energy that comes without a carbon footprint (once built and operating) that can provide enough energy for us all. The reactors we have now are up to the task and as the technology improves to fusion based designs will carry us for eons into the future (where eon is defined as an amount of time so long that no one alive now can predict how long that will be. But be of good cheer o alternative energy supporters. As long as you can get along with pinwheel power and the sun on your backs you will get along. I hope you enjoy eating grass while standing naked in the fields. BTW, there is no real physical nuclear waste disposal problems, just a bunch of alarmists causing political nuclear waste disposal problems.

  4. Wes Marinov
    February 2nd, 2017 at 22:47 | #4

    What is the status of the large oil deposits on Gull Island in Prudhoe Bay, whose discovery was witnessed by Rev. Lindsey Williams?

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