(Bloomberg) -- The UK will rely on imports of electricity from Europe to meet demand at peak times after it closed its last remaining coal plant last week.
The buffer of spare capacity the UK network operator has for this winter, the first without power from any coal plant, is set to widen to 8.8% as the country bolsters links with the continent, according to a Winter Outlook published by the UK’s National Energy System Operator.
That’s an increase from 7.4% last year because imports will play a bigger role, after a new cable linking the UK to Denmark started up in April. Imports of power will increase by 30% from a year earlier, according to the operator.
“The higher year-on-year margin is driven by new interconnection, growth in battery storage capacity and an increase in generation connected to the distribution networks,” the operator said. “This combines to more than offset generation retirements — such as the recent closure of Ratcliffe-on-Soar,” it said, in reference to the decommissioned coal plant.
Although supply margins are the most comfortable since 2019, wholesale power prices are still about double what they were five years ago, even after dropping from the extreme levels seen during the energy crisis. This has caused some permanent demand destruction and means households are still struggling with bills. Debt due to energy bills in the UK has reached a record £3.7 billion ($4.8 billion), according to regulator Ofgem.
“Household energy prices remain historically high, so we do not expect demand to recover to the levels seen in 2021, as consumers continue with many of the behavioral changes,” operator National Gas Transmission Plc said in a separate report.
There’s also a risk global gas prices could increase further this winter given geopolitical risks, which would impact the UK as well, National Gas Transmission said. Coal closures across Europe are making economies more exposed to volatile gas prices on days when the wind is not blowing.
An increase of gas prices in Europe and the UK “exposes the market to stronger price rallies” during these periods, according to Sabrina Kernbichler, lead power analyst at Energy Aspects Ltd.
Despite the improved supply margins, the system operator still expects to issue alerts to balance supply and demand on occasion, such as cold days when the wind drops.
“We may still see some tight days where we need to use our standard operational tools, including the use of system notices,” the NESO said.
The NESO identified periods in November and December when supplies could be tighter than usual, because nuclear plants won’t be running due to maintenance. Interconnectors will play a vital role during these periods, with the UK set to be a net importer of electricity overall this winter.
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