David Tolley - Institution of Electrical Engineers advisor on energy and the environment

The IEE's Energy & Environment Policy Group, and the Sustainability Professional Network are running an event on the 13 May 2004 titled 'How Secure are Britain's Electricity Supplies.'  Security of Supply is a central policy issue and this event will provide a thorough understanding of the current issues.

This is an exciting opportunity to hear the views of those who determine the UK's electricity policies.  It will be an ideal occasion to discuss the critical issues in this important debate at which the key players in the industry will be gathered.

Question: On May 13 the IEE is hosting an event on the security of Britain's energy supplies.  Why this event necessary?

David Tolley: On the May 13, 2004 the IEE is holding a seminar entitled "How secure are Britain's electricity supplies". We are keen to run this event because there is a lot said about the security of electricity supplies that may not always be fully informed. We thought it would be useful from the IEE’s perspective if we were to try and create a somewhat better understanding of the issues that lie behind the concerns, and thus encourage more rational debate.

 

Question: There has been a lot of questioning from those inside and outside of the industry about the security of fuel supplies and the adequacy of electricity generation and networks across the UK in the aftermath of the London blackout – what is your view on the issue?

 

David Tolley: Discussion on the security of electricity supplies needs to draw a clear distinction between situations of market failure and the problems of technical failure. 

 

We hope that the event will get that particular point over quite positively. The West London blackout was primarily due to a technical failure.  Whilst the ability of electricity supply equipment to perform satisfactorily is an important issue the consequence of equipment failure should not be extrapolated to imply a general concern about the ability of the electricity market to deliver secure supplies of electricity.

 

This is not to say we should be complacent either. There have been relatively few, albeit widely reported, dramatic failures of electricity supplies around the world that can be put attributed to market failure.  To draw the distinction between market failure and technical failures is certainly going to be one of the main objectives of the day.

 

Question: Can you explain the difference between market failure and technical failure?

 

David Tolley: I would define technical failure as being when the failure of equipment results in a loss of electricity supplies. People may lose their supplies simply because a transformer fails or a storm brings down overhead lines.Although procedures and processes can help mitigate the prospect of technical failure the occasional failure of equipment is inevitable in a technological society. 

 

Market failure is quite different. It occurs when the market fails to match supply with demand efficiently.  If the traded market doesn't function properly, then there may be inadequate or perverse economic signals in both operational and investment timescales.  These may result in inefficient operation of the market and lack of appropriate investment.  At the extreme there could be a consequent loss of supplies.

 

Question: You mentioned that people shouldn’t be complacent – do you think people take the supply of electricity for granted?

 

David Tolley: I don't think people necessarily take it for granted, although as a society we are now undoubtedly highly dependent upon electricity.

 

The reason I mentioned complacency was more in the context of the fact we now rely on a liberalised market for electricity, whereas previously we relied upon centrally administered arrangements.

 

Compared to other commodities, electricity is a relatively complex market.  The complexity follows from the inability to store it in any significant quantity. 

 

As a result the market design must cater for many aspects that are not generally found in other commodity markets. We need to be confident that the market will continue to provide under all foreseeable circumstances.

 

There are significant changes in the market place in prospect, not just with increasing demand but also many other aspects that could place stress on the market mechanisms.

 

Question: What external influences are affecting the electricity market at the moment and what effect will they have on the industry?

 

David Tolley: We need to look at external influences from the point of view of both supply and demand. 

 

On the demand side there is continued growth in the use of electricity within Great Britain.  We also have a 2,000 megawatt inter-connector with France and smaller inter-connectors with Ireland. European electricity markets are also becoming liberalised which is likely to make the direction of the inter-connector flows less certain. Electricity growth and supply problems in other parts of Europe will also impact our domestic market.

 

On the supply side there is the prospect of the fairly imminent retirement of the earliest Magnox nuclear power stations. 

 

The government’s policy prescriptions for a low carbon economy will encourage a growth in renewable sources of generation, but many of these sources of generation are intermittent in their operation which raises other questions of security. 

 

There are uncertainties over how the Large Plant Combustion Directive will impact the operation of coal fired generating plant, although it will undoubtedly place a downward pressure on the production of electricity from coal.

 

A lot of people say more investment is needed to "re-wire" Britain. But this simple headline glosses over a lot of complexities that give rise to this view. 

 

Much of renewable generation will be sited in remote places that are not well served by networks. 

 

Distribution and transmission assets are relatively old and require replacement in some degree.  But the move to gas generation and embedded generation will tend to site generation closer to demand and thus possibly reduce the need for more networks. 

 

Effective locational signals in charges for networks could encourage the efficient siting new generation and the appropriate closure of old generation thus reducing the need for investment.

 

Question: What internal influences are effecting the electricity market at the moment and what effect is that having on the industry?

 

David Tolley: GB-wide electricity trading and transmission arrangements, known as BETTA, are expected to come into effect from April 1 next year. This will extend the England and Wales market to Scotland. To date England and Wales have had a combined system operator and transmissions owner.  BETTA will require there to be one system operator but three transmission owners. 

 

There is also much discussion about whether prices based on an energy-only market can encourage sufficient future investment, or whether there needs to be a separate capacity credit in the price, or some other device to ensure a sufficient margin of generating capacity over demand, and thus cater for the unexpected in both forecasting demand and operating generating plant.  

 

Other questions that are raised are whether transmission access should be separately traded, how emissions trading will impact the electricity market, and whether the method of calculating imbalance prices is appropriate.

 

There are an awful lot of issues around that sometimes cause people to question if the market can provide sufficient investment in both generation and networks that will secure Britain’s electricity supplies into the future. I am hopeful that our seminar will provide an understanding of how the market should deal with these requirements.

 

I am naturally optimistic, but as I noted before it would be wrong to be complacent.  Some of the circumstances that face the market are new and there may be aspects of the current arrangements that require further development.  We would hope that the seminar will help identify some of the weaknesses in the present arrangements, and perhaps even suggest solutions.

 

Question: What were the reasons behind the recent electricity collapse?

 

David Tolley: It might be said that the lights only ever go out in the short term.  Whilst some might query the ability of the electricity market to provide suitable investment signals in the longer term there also needs to be confidence that the market arrangements can secure Britain's electricity supplies in operational timescales. 

 

Our seminar also seeks to analyse the reasons for the fairly dramatic failures that have occurred in recent times in the US, Canada, Italy and the UK with the purpose of illustrating this important distinction between market and technical failure, and why markets can sometimes fail.

 

Question: In light of recent terrorist activities, there must be a further concern about electricity supplies?

 

David Tolley: There is a lot of resilience in the electricity system but that's not to say that there won't be situations and circumstances that will result in the failure of electricity supplies.

 

The situation envisaged in this question is a long way from the conditions of normal market arrangements and their shortcomings.  I suppose it is more akin to a form of technical failure, although the measures for guarding against it will be very different.  No doubt system and plant operators will be ever mindful of the prospect.