The National Grid Must Change to Stop a New Dark Age
Ministers must break up the Soviet-style National Grid in order to save Britain from an energy crunch
New figures released by the National Grid last week highlighted that Britain is facing an energy crunch. Demand is going up, power generation spare capacity is going down and that means a very real risk of the lights going out.
How did we get here? Clearly, recent power station closures have not helped but the real issue is the UK’s ageing energy infrastructure.
The National Grid has a mandate of managing a reliable and forward looking power grid, yet it is also a listed company with a responsibility to shareholders and driven by commercial considerations. It has to make money and it does, from projects such as building its own interconnectors and managing power grid in several US states. This duality is said to be managed through Chinese walls but we all know Chinese walls can be fallible at times.
For many years, the National Grid has failed to invest in future-proofing. In fact, it has actually driven the grid to a state where no new capacity can be added without major upgrades.
A programme to develop new energy generation is urgently needed but building new power stations clearly involves significant investment and cannot happen overnight. However, there is another highly efficient but oft-overlooked option – something called interconnectors. These are large cables that allow power to be traded across market boundaries. To date Britain has four working interconnectors, linking it to France, the Netherlands and Ireland.
Interconnectors offer a cheap, quick and clean way of increasing capacity but the current state of UK energy infrastructure requires major reinforcements across the whole network to connect even the smallest one. As an investor in a private interconnector scheme, I know first-hand just how bad a state the UK power grid is in. For example, as it stands, the grid at the South Coast of England where energy demand is highest simply does not have available capacity to connect any new generation or interconnection.
Not only that, but National Grid is entering new markets, such as carbon capture and storage, which the company is not properly qualified to do. This creates problems for the whole industry, but such problems are actually favourable to the National Grid as it is unable to connect any project any way.
There is also an example of wasteful spending. National Grid recently announced a costly program to replace pylons across the country with a new better looking design. True, they do look better across British landscape, but wouldn’t it be better if that money was invested in expanding capacity instead?
This must change and the answer lies in reforming the National Grid. Today, it resembles a Soviet-like stale organisation, with a massive bureaucratic structure, lots of hidden costs and an opaque development strategy. No one outside it has any real insight into National Grid operations. This is a real problem and set to become more so following Ofgem proposals set out earlier this year as part of the Integrated Transmission Planning and Regulation paper.
Britain’s spare capacity margins have been tight before. Source: National Grid
Ofgem proposes to enhance and extend the National Grid’s remit as a public service responsible for coordinating and directing the flow of electricity across the country. In order to deliver this, the National Grid would need to work with outside contractors but that exposes the conflicts at the heart of the organisation.
With a vital public service at stake, we simply cannot afford to let the situation continue. The National Grid needs to be broken up into a profit-generating arm, with responsibility for global links and interconnection, and a public service that focuses on the maintenance and improvement of our power grid. They could start discussing this as soon as tomorrow, when the Annual General Meeting takes place.
This push must come from the top. The Government cannot just say the right things about the importance of energy infrastructure; it has to act and push National Grid reform ahead. In fact, its own program of building new affordable housing is at risk. New housing requires substantial additional capacity which is not reflected in any grid planning. If nothing is done, we risk seeing a winter of blackouts turn into a new dark age.
Alexander Temerko is deputy chairman of OGN Group and a minority shareholder in the National Grid
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