Pricing
14 Oct 2022
Alex Done

What’s in store this winter? - a look at National Grid ESO’s Winter Outlook

On 6 October, National Grid ESO published its Winter Outlook. The document highlights its view on Great Britain’s security of supply this winter - and the potential effects. You may have seen headlines about rolling blackouts and “nanny states” - but what’s actually likely to happen? In this article, we look at:

  • The assumptions behind the ESO’s three scenarios for winter.
  • What the results say - including the potential for rolling blackouts.
  • And additional risk factors to be aware of this winter.

This is a two-part summary of the Winter Outlook. In Part Two, we look at what it means for battery energy storage.

Scenarios and assumptions

The ESO’s Winter Outlook presents three scenarios for winter. There is a base case, and two additional scenarios highlighting the risks and uncertainties ahead. These three scenarios aren’t equally likely - they are not forecasts, but plausible scenarios.

Table 1 (below) summarises these three scenarios using assumptions around:

  • Interconnector import/export availability.
  • Interruption to gas supply.
  • The use of contingency coal contracts and the Demand Flexibility Service.
Table 1 - Assumption summary for NG ESO Winter Outlook scenarios. Source: NG ESO Winter Outlook.
  • Base case - The key assumption within the base case is the availability of interconnectors. Specifically, it assumes that all our interconnection with continental Europe is available to meet demand. (The Early View used the same assumption, which invited criticism for going against recent interconnector activity - more on that here.)
  • Scenario 1 - Scenario 1 excludes interconnector imports from continental Europe (but does assume full access to Norwegian imports).
  • Scenario 2 - Scenario 2 also excludes interconnector imports from continental Europe, and also assumes full access to Norwegian imports. However, there is one additional key assumption: interruptions to the gas supply. A two-week interruption is modeled (over an arbitrary fortnight) - leading to a 10 GW reduction in generation from CCGTs.

Results

One way the ESO assesses its scenarios is through operational surplus. This means the difference between expected generation (including outages) and expected demand. For each scenario, the ESO show how they expect operational surplus to evolve over winter. By varying weather, demand, generation, and interconnector flows, it produces a 90% confidence interval around expectations (based on average conditions).

Figure 1 (below) shows the operational surpluses and confidence bounds for each Winter Outlook scenario.

Figure 1 - Operational surplus across three NG ESO scenarios from Winter Outlook. Source: Winter Outlook databook.

Base case

The base case scenario sees sufficient surplus throughout winter, without using the Demand Flexibility Service and coal contingency. Tight periods are still likely to occur (albeit infrequently), but can be managed with electricity market notices.

Scenario 1

With reduced interconnector imports, the ESO expects to use the Demand Flexibility Service and coal contingency contracts to manage margin throughout winter. Periods of tight supply are more common than in the base case. Fortunately, these do not indicate supply disruption for customers - as long as they are sufficiently managed via electricity market notices.

Scenario 2

This scenario is where the ‘risk of rolling blackouts’ headlines have come from. It represents the most extreme (and scary) outlook for winter. The last graph in figure 1 (above) shows significant periods where surplus drops below zero, even in ‘average’ conditions. Should this occur, electricity market notices would not be sufficient to manage the system. It may be necessary to interrupt customer supply, even with the addition of the Demand Flexibility Service and coal contingency contracts. Should this happen, temporary load shedding would occur (as laid out in the Electricity Supply Emergency Code), whereby certain customers would be without power for three-hour predefined blocks.

Can we rely on the North Sea Link?

All three scenarios assume imports via the North Sea Link interconnector will be available when needed, to deliver up to 1.2 GW. This would primarily come from Norwegian hydro plants. However, in September, the Norwegian Parliament discussed limiting exports in the event of low reservoir levels - to preserve domestic energy reserves for winter, following extended periods of low rainfall.

Figure 2 (below) shows the current reservoir levels on both a national and regional level in Norway, in addition to historical ranges observed from 2000-2021.

Figure 2 - Current and historical reservoir levels for Norway at national and bidding-zone levels. Source: Nordpool.
  • Reservoir levels across the whole of Norway are currently sat at 69%, relative to an all-time low of 62% over the past 20 years.
  • Low reservoir levels in the NO2 bidding zone (where the North Sea Link connects to Norway) are currently sitting around their 20-year minimum. Due to network constraints between North and South Norway, this could increase the likelihood of limits being imposed on exports.
  • We are yet to hear if/when the Norwegian Parliament will introduce export limits on the North Sea Link. Any limits would cause a significant reduction in Great Britain’s import capacities, relative to the Winter Outlook scenarios. Therefore, this is something to watch as we move into winter.

Final thoughts

Headlines following the Winter Outlook have understandably focused on the worst-case scenario. However, the ESO appears well-positioned to manage tight margins through new market mechanisms: coal contingency contracts and the Demand Flexibility Service.

That being said, interruptions to gas supplies pose a big risk to the system. Should they occur, Great Britain could face rolling blackouts. However, this is only the result of scenario analysis and is not a forecast of what’s to come. Considering these dire scenarios allows the system operator to be prepared for the worst.

In our view, the main oversight of the analysis conducted by the ESO focuses on the availability of our interconnection with Norway. It is possible that exports to the UK will be capped this winter due to dwindling hydro reservoir levels. This could seriously impact how winter pans out, compared to the ESO’s scenarios. Ultimately, restrictions on North Sea Link exports would make blackouts more likely - even with the measures in place to manage tight margins.

In Part Two, we’ll dive into the details of what the Winter Outlook means for batteries.