Centrica could close the UK's largest gas storage site. Are your energy systems really ready? | Nils Pratley

Monday was a cold, Dunkelflaud day with little wind and no sun. At times, gas-fired power plants produced as much as 70% of Britain's electricity, while wind farms and solar plants combined accounted for just 7%.

It's a reminder why 35GW of gas-fired capacity currently remains backed up despite the government's rapid program to decarbonize the grid by 2030 by expanding renewable energy. Fossil fuel power plants may sit idle for most of the year, scheduled to account for only up to 5% of electricity generation for a full year in 2030 (34.7% in 2023). Full felt.

So I have a question. What level of gas storage is appropriate for energy settings that will need to become more flexible in the future?

It is also an urgent question as Centrica, which recently partially reopened its massive rough storage facility on the Yorkshire coast in 2022, is already suggesting it may close again. CEO Chris OShea said in a presentation to City last month that Rough would suffer an operating loss of between 50 million and 100 million won in 2025. Creating material losses is not sustainable or something we cannot sustain, he said.

The economics of gas storage only work when the difference, or spread, between summer and winter prices is large, the company says. That was true for two years after Russia's invasion of Ukraine, but not now. Centrica has not ruled out the possibility of closing Rough, which currently accounts for half of the UK's gas storage capacity, before next winter.

One response to this warning-cum-threat is to say that Centrica is engaging in self-interest lobbying to find a long-desired long-term deal with the government that also covers Rough's eventual transition to storing hydrogen as a future energy source. (Probably) for UK industrial plants in the 2030s.

So comments made at another dunkelflaute event a few weeks ago that the UK's gas storage levels were quite low were met with a chorus of skepticism. To some, that sounded too selfish. The Department of Energy Security and Net Zero said there was no need to worry about supplies this winter.

However, it is also true that the complete closure of Rough may change future calculations. Talk to an energy systems expert and he'll give you two details: Firstly, it is not suitable for Centricas case. The importance of the Rough has been exaggerated because it cannot pump huge volumes when it is most needed (the site has only partially reopened in 2022, so pressures are low). The facility is actually more of a balancing mechanism with other sources such as Norwegian liquefied natural gas shipments and interconnectors. The UK dealt with the Beast from the East in 2018 when Ruff closed.

But there is a second point. The real question is whether the UK needs the expanded luff as a strategic gas reserve or as a form of insurance against future geopolitical and supply shocks. For that matter, even many advocates of maximum wind and solar power would be quick to agree with the argument that we need to store more gas because backup systems need to be safe.

Most of the UK's gas is used for heating, but the renewable energy-heavy system has made gas demand for power generation more volatile and unpredictable. The argument is that strategic reserves are more important than in the past to protect consumers from price spikes, avoiding costs such as paying nosebleeds of $5,000 per megawatt hour (MWh) to a few gas station owners. It was the same this month too.

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That said, there are pros and cons. But one would be in vain to look for a clear assessment in key strategic documents produced at the end of last year, the Clean Power 2030 Consultation Report by national energy system operator Neso and the government's own 2030 Action Plan. Gas storage is barely mentioned. Meanwhile, Ruff's immediate future is believed to be only a commercial issue for Centrica.

It feels like an oversight. The UK already has some of the lowest gas reserves in Europe. If capacity could soon be halved, shouldn't someone be modeling the risks? Renewables are an interesting sector, but the gas side will remain important for some time to come.

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