Powering the islands

Could the way in which energy is supplied to the Channel Islands have an impact on their ability to develop digital industries? Kirsten Morel looks at the lie of the land.

Although renowned as successful offshore centres, the financial crisis and subsequent recession has forced the Channel Islands to look at diluting their reliance on their finance industries.

Not unlike many jurisdictions the world over, there is currently a big effort in both Jersey and Guernsey to develop their digital offerings. Much of the thinking behind this is based on the idea that the infrastructures they've developed to serve finance, particularly in terms of communications links and technology, are ideally suited as foundations upon which to develop new digital economies.

While there's been much debate about the quality and affordability of the communications infrastructure, little has been said about the islands' energy supplies. This lack of concern changed abruptly last June, however, when both islands experienced total power failures following the disruption of electricity supplies from France – including the permanent loss of one of the two interconnector cables feeding the islands from the continent.

Coming within months of a number of other power failures, islanders began to question the resilience of the power network, and – importantly for those seeking to promote Jersey and Guernsey as digital hubs – concerns began to be raised about the islands' capacity to provide sufficient, uninterrupted power for the nascent digital sector.

To appreciate how the islands came to be so dependent on links to France for their electricity, it's useful to understand the way their energy networks are structured and the differing energy priorities for each island. When it comes to powering the Channel Islands, importation is the name of the game. Whether energy is generated in-island from fossil fuels or is imported directly from Europe as electricity, it is currently impossible for the islands to avoid importing their power supplies.

Jersey Electricity laid its first cable to France in 1984, immediately reducing reliance on its own generating capacity. It wasn't until EDF2 was brought online in 2000 that Guernsey began to import European electricity – though with only one interconnector at its disposal, it has had to continue generating a greater proportion of its own energy.

Before last year's cable failures, Guernsey Electricity was importing about 82 per cent of the island's electricity whereas Jersey had been importing between 90 and 95 per cent. Much of Jersey's in-island generation was coming from waste incineration at the La Collette combined heat and power plant, while the rest of Guernsey's needs were met by burning oil.

Different strokes

Possibly as a result of the difference in electricity sources, the islands have different attitudes to security of supply. “We work to a high security policy called N-2,” explains Alan Bates, Managing Director of Guernsey Electricity. “This means that we can lose our two largest sources of supply and still meet full maximum winter demand.”

In Guernsey's case, the two largest sources of supply are the EDF2 cable and the new medium-speed generator at Vale Power Station. These are supported by three gas turbines and a number of low-speed, oil-fired generators.

Jersey works to the less stringent N-1 standard and therefore doesn't need to maintain as many generating assets as Guernsey. This helps the larger island maintain lower pricing than its neighbour, but there is a cost to the island in its reduced security of supply. Chris Ambler, CEO of Jersey Electricity, feels that overall the island has this balance right.

“Over the last 10 years, we've been between two and eight times more reliable than the UK,” he says. He does accept however, that the recent power failures and the loss of a cable to France will make for a difficult year ahead. “This year we'll be less reliable than the UK, but it's important to take the events of the year in context. Our customers have grown used to a reliable supply.”

There is no doubt the islands have enjoyed more stability since in-island generation was reduced. Oil price volatility and infrastructure maintenance makes in-island electricity production an expensive business, creating a simple economic case for the importation of electricity from Europe. “Importation is a cheaper source of power, generally more reliable and it's low-carbon,” says Ambler.

Certainly, reliance on imported electricity is only going to increase. Both energy companies have recently signed a €1bn 10-year contract with EDF. The resulting electricity came online from 1 January 2013, but contrary to many islanders' understanding of the energy supply structure, there is no guarantee the islands' electricity will be generated in the nearby Flamanville nuclear power station. “Jersey is connected to the French grid, and electrically most of the power will come from Flamanville – but there are other generators. There are 55 nuclear reactors in France,” explains Ambler.

Power surge

In some respects, last year's catastrophic cable failures proved the islands were able to reinstate power to highpriority areas – such as finance companies – relatively quickly. This success in the face of adversity along with increasing political pressure to reduce prices has emboldened both Guernsey Electricity and the regulator (CICRA ) to look at the possible relaxation of the N-2 energy security policy, resulting in some interesting ideas.

“We have queried whether riding two horses is best for Guernsey Electricity,” says Andrew Riseley, Chief Executive of CICRA . “They bear the cost of both generation and import. When you're looking at security of supply, maybe you don't need to look at these top-end users. Are there instances where those capable of smallscale generation could feed back into the grid?”

Riseley isn't specifically thinking about renewables, he's contemplating the possibility that possessors of small back-up diesel generators, such as data centres, could feed back into the grid to top-up the islands' supply.

While it's an interesting idea, Alan Bates just isn't convinced. “Standby generators are generally small and very inefficient,” he says. Rather than have the regulator force this issue, he thinks that “if the island were in severe difficulty, then we would go to the island and ask [for help].”

The idea that financial services or digital businesses could actually lose their electricity supply at times of high demand is intriguing, and contradicts the accepted wisdom that these companies need a round-the-clock centralised source of power. Whether Riseley's suggestion ever makes it into practice remains to be seen, but it does make the point that the most energy-critical business users are self-sufficient to the point that they may be able to help power the islands.

As the regulator, CICRA has its eye on the monopoly suppliers and reserves the power to restrict pricing if it feels the companies aren't operating as efficiently as they could be. Interestingly, while Guernsey Electricity is regulated by CICRA , Jersey Electricity is not. Instead, it is directly overseen by the States of Jersey, and CICRA is used both as an advisory body and to ensure that it does not abuse its dominant market position.

The received wisdom for maintaining efficient markets is to ensure there is sufficient competition but the capital intensity and small market size of the Channel Islands means that the regulator as well as the regulated, believe an open market will have adverse consequences. “I suspect the market might not be large enough to do that. You might end up with a lack of coordination if you have disparate providers,” says Riseley.

The most likely source of future competition is renewable energy generated either by wind or by tide, but this is a long-term play and turbines on the seabed are still many years away. In the meantime, strengthening the Channel Islands Electricity Grid is seen as the most effective means of maintaining low prices. When the long-awaited 100MW cable, EDF3, comes online in 2014 – at a cost of some €60 million – the islands will return to having a dual-source, resilient, relatively low-cost electricity supply from Europe.

The June cable failures last year were undoubtedly an unusual event, and provided a stern test for the islands' energy security, but businesses continued working using their own generating capacity until the backup generators came online within hours of the failure.

Importantly, the electricity companies believe they're able to meet the future demands of a growing digital economy – even if that includes an increase in the number of heavy consumers, such as data centres. With further plans for increasing cable capacity to France after the installation of EDF3, the power firms believe they'll be able to concentrate on keeping prices down while letting the cables provide the energy security the islands need.