Don’t mention the margin

It’s that time of year again. The leaves are falling, the big coats are coming out and people take a personal vow not to turn on the heating until October. Politicians who have responsibility for energy turn to thoughts of the margin. How much excess generating capacity do we have for the winter?

I’m pleased to say that the industry at least has moved on from that simple measure. Now it talks of the ‘loss of load’ expectation, acknowledging that even the most cautious of us (in power terms) has to be somewhat cautious over cost too, and we ought to avoid building capacity, ‘just in case’ that is never used.

The margin is, however, still a term in common use. It’s time to kill it off – and be much more creative with the LOLE.

BEIS, Ofgem, and all the myriad organisations with a stake electricity and energy industry are agreed on one thing: we want a ‘smart, flexible’ industry with active demand side participation. It’s cheaper, it’s more efficient and it brings consumer benefits. Companies and individuals are encouraged to be active and to provide demand side response.

But if you ask people to invest in the change of mindset, activity and even technology required to full participate in the demand side, you have to provide a market. Every addition you make to the margin kills off the demand side response market a little bit more. You can’t argue that we need a strong flexible demand side and then procure enough capacity to ensure that we will never use it.

Luckily for the growing demand side response industry supplying power is a complex business and it has found some niches that enabled it to grow. Now is the time to do more. Stop politicians  (and elderly engineers harking back to the ‘glory days’ of 20% overcapacity) talking about the margin. And start using the LOLE in a positive way.

At its current level it’s not a problem to be fixed, it’s a market opening up. Think very carefully before trying to reduce it with extra generation – killing the market immediately. Think instead about using it as a way of growing that ‘smart, flexible’ market: the loss of load opportunity.

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