Bloomberg : U.K. Ready to Pay Power Users to Switch Off


The government, planning for a six-fold jump in wind
capacity in the next decade, is seeking comment from power
suppliers and consumers until March 10 on its so-called
Electricity Market Reform. The unpredictable nature of wind
generation, combined with rising electricity consumption, is
likely to drive up U.K. power prices as plants that burn coal
are phased out to help reduce pollution.
     “There’s huge revenue to be made, and no one is really
doing it,” said Ziko Abram, a former Credit Suisse Group AG
banker who co-founded Kiwi Power Ltd. in London to enroll power
consumers in the U.K. conservation program. “You can reduce
air-conditioning or some non-essential lights. Most places don’t
even realize when demand response is taking place.”
     Billionaire developers David and Simon Reuben signed up
through Kiwi Power this year for payments amounting to five
times the wholesale cost of electricity. Millbank Tower, London
headquarters for the U.K. Conservative party, is their latest
property to join, following Oxford Airport and nearby Eden
Shopping Centre last year.
     National Grid Plc, which paid RWE AG as much as 14 times
market rates for emergency power during the December 2010 cold
snap, also rewards customers for immediately curtailing demand
when a blackout is threatened. The U.K. is scheduled to set new
rules this year that may include a market for “negawatts,” or
power that users can do without.

                        Depending on Wind


     U.K. electricity demand may increase as much as 30 percent
in the next two decades, according to government reports, as the
nation electrifies heating and transport.
     The nation plans up to 33,000 megawatts of offshore wind
turbines over the next decade, responding to a European target
to get 15 percent of its energy from renewable sources. That
compares with the 5,200 megawatts of U.K. wind capacity now.
     Turbines only generate when the wind blows, making it
difficult to predict electricity supplies. The power can’t be
stored, and there’s no guaranteeing it will be sufficiently
windy when power demand is highest.
     “In most of Europe there is ample supply, but the amount
of renewable coming online creates a lot of problems for grid
managers,” said David Brewster, founder of Boston-based
EnerNOC, an energy-management company that works with 8,000
facilities worldwide to manage consumption. “You don’t want to
have to build a megawatt of gas plant for every megawatt of
wind, and there is a growing demand for balancing reserves.”

                        ‘No Brainer’

     U.K. power consumers can earn an average 220 pounds for
every megawatt-hour they don’t use in response to a request from
National Grid. That compares with power for delivery tomorrow at
48.75 pounds ($79.39) for a unit, as of 10 a.m. local time.
Prices may rise to nearly 70 pounds by 2020 and exceed 100
pounds a megawatt-hour by 2030, according to Redpoint Energy, a
London-based research firm.
     “We get a text message, a call and an e-mail asking if we
can be available within the next 20 minutes,” said Paul Hone, a
data-center support manager for InTechnology Plc, which has an
agreement with EnerNOC. “We can respond in about five,” he
said. Taking part in a demand-response program “was a bit of a
no brainer.”

                        Money for Nothing

     GDF Suez SA, owners of Britain’s biggest natural-gas-fueled
power plant, said it was one of the first companies to manage
client’s energy use. RWE AG teamed up with Edinburgh-based
Flextricity Ltd. last month to bid for supplying negawatts.
Consumers are paid an annual sum for offering to reduce power
use when asked, and they get a payment when they do so. Costs
are passed through to utilities that use the grid to transport
power, and are ultimately passed through to electricity bills.
     “It’s a check for doing almost nothing,” David Cockshott,
RWE’s director of industrial and commercial markets, said in a
phone interview. “We will effectively be able to replace an
oil-burning unit by making this available. All the carbon-
dioxide emissions savings is a huge benefit.”
     RWE, Germany’s biggest power producer, earned 700 pounds a
megawatt-hour last year to switch on its oil-fired power station
at Littlebrook, southeast England, to help cover the tea-time
power surge when Britons get home from work, switch on lights,
and start cooking and watching television. The plant, built in
the 1980’s to operate around the clock, was otherwise idle for
all but four days last year.

                      Generators on Standby

     “You’re never going to justify building another power
station just to sit there on standby, just to cover those
peaks,” Cockshott said.
     Britain’s energy plan calls for strengthening the existing
program that lets National Grid ask companies to reduce demand.
It may also establish an auction whereby companies bid for
negawatts they can switch off, competing with companies that bid
to increase power supply. National Grid would be able to
increase supply or cut demand, whichever is cheaper.
     National Grid now oversees 2,600 megawatts of contracts in
its so-called Short Term Operating Reserve. Most of that comes
from switching on small generators, while 200 megawatts comes
from lowering power consumption. Demand-management programs may
need a six-fold increase in the next decade to cope with the
U.K.’s greater reliance on power from wind, said Richard Green,
a professor of energy economics at the University of Birmingham.
     “There’s no reason why a big shopping mall should be
running air-conditioning at 21 degrees all the time,” said
Abram of Kiwi Power. “If you changed it to 24 degrees for a
couple of hours you don’t feel the effect.”

For Related News and Information:
U.K. power-market stories TNI UK PWRMARKET
Today’s top energy news ETOP
U.K. electricity prices ELEU
Natural-gas markets menu NATG