Utility Week

Utility Week 27th September 2013

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Finance & Investment This week 'Weak economics' lead energy supplier to drop plans to build extra gas storage capacity Centrica writes off £240m in gas storage Centrica has dropped plans for two gas storage investments worth more than £1.5 billion because of "weak economics". This month, the government ruled out extra subsidies for gas storage, saying the costs outweighed the potential benefits. The energy company wrote Rough: going more smoothly for Centrica off £240 million spent developing the projects at Baird in the southern North Sea and Caythorpe in East Yorkshire. Centrica said in a statement to the Stock Exchange on Monday: "This decision was taken in light of weak economics for storage projects and the announcement by the UK government on 4 September ruling out intervention in the market to encourage additional gas storage capacity to be built." It announced the Baird project, which would have increased the UK's storage capacity by a third, has been cancelled. Centrica held a 70 per cent stake in the scheme; Anglo-French oil and gas company Perenco owned 30 per cent. Meanwhile, Centrica's wholly owned Caythorpe scheme has been put on hold "indefinitely". It would have added 5 per cent to the UK's storage capacity. Following a cold snap this spring, the UK's gas storage capacity has been questioned by MPs and the media. It has traditionally been far lower than capacity in other European nations because of the UK's proximity to the North Sea. The move follows Centrica's decision earlier this year to pull out of new nuclear in the UK because of increasing costs and delays. The company continues to operate Rough, the largest gas storage facility in the country. Stock watch ELECTRICITY Fallon says market is ripe for investment The financial strain on traditional utilities is creating opportunities for independent generators and different types of investors to enter the market, energy minister Michael Fallon told the Renewable Energy Finance Forum this week. Fallon said the electricity sector would require £110 billion of investment by 2020 – double the current rate. He said this was a "significant opportunity", adding: "I fully accept that without government support and clarity, and the right incentives; investment in low carbon will not come forward at the scale and pace we need." Fallon said the government was "taking complementary measures to ensure that independent generators can compete effectively". He did not refer to the Green Power Auction Market – a system a number of MPs, independent generators and renewables groups are lobbying for – but said: "The energy regulator is introducing greater liquidity to the electricity wholesale market and we are looking to improve the market for power purchase agreements so that independent generators have a secure route to sell their power." He said the government was evaluating 23 applications for Centrica share price, 17-24 September Energy 'Difficult times' see RWE halve dividend RWE is cutting its dividend to reflect the declining fortunes of its coal- and gas-fired power stations. The Germany-based utility, which owns power stations and retailer Npower in the UK, plans to offer €1 a share in 2013, half that of the previous year. In future years, it proposes a payout ratio of 40-50 per cent of recurrent net income, down from 50-60 per cent. The retained funds will go to service debt. Conventional power plants in Germany have suffered from weak electricity demand and a rapid expansion of renewable capacity lowering power prices. Chief executive Peter Terium said earnings from conventional electricity generation are expected to drop further: "We are undoubtedly facing difficult times, and our dividend policy must take this into account." National grid price, 17-24 September 768p 403p Centrica shares took a tumble on Monday, following the announcement of its £240 million write-off (see news story, above, and chart, right). Other utilities' shares suffered a knock-on impact, with National Grid also affected by UBS downgrading it from "buy" to "neutral", saying its expected rise in regulated asset value was already priced in. Final Investment Decision Enabling for Renewables, and would inform applicants if they could go through to the next round in November, with final investment contracts awarded and laid before Parliament in March 2014. He said the government would launch a consultation on the further details of EMR from October 2013. 764p 401p 760p 399p 756p 397p 752p 748p 395p 744p 740p 393p Date 171819 202324 Date 171819 2023 24 UTILITY WEEK | 27TH SEPTEMBER - 3rd OCTOBER 2013 | 21

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