Utility Week

Utility Week 11th October 2013

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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Finance & Investment This week Bring capacity payments forward and forget supplemental balancing reserve Energy SSE records loss on energy retail Centrica rubbishes 'strategic reserve' Centrica has become the latest energy company to rubbish the idea of a strategic reserve in the power market. Instead, the company is calling on the government to speed up introduction of capacity payments. Ofgem's proposed "supplemental balancing reserve" is Power up: industry waits on capacity payments intended to ease a short-term capacity squeeze mid-decade, before the government's longer-term capacity market kicks in. It would work by giving National Grid powers to pay generators to extend the life of old power stations or bring back mothballed plants. John Watts, managing director of thermal generation at Centrica, warned that the intervention risked dampening wholesale prices and making a "tough market" worse for existing gas plants that do not get the support. "It makes more sense to accelerate the implementation of the enduring regime than develop a new transitional regime," he said. The government intends to hold the first capacity market auctions in 2014, to bring on new gas-fired power stations by 2018. Speaking at the regulator's winter outlook consultation seminar in London, Watts claimed it should be possible to get 1-2GW more capacity through small-scale upgrades by 2016. He said: "We don't need a supplemental balancing reserve. We think that would send the wrong signal… There is no reason why the implementation of the capacity mechanism cannot be brought forward in terms of payments." MD Stock watch SSE's share price took a tumble on Monday as National Grid warned of tighter capacity margins this winter, although it looked set to make a quick recovery on Tuesday, as Utility Week went to press. In the longer term, however, the big six supplier's share price is on a downward trend following Labour leader Ed Miliband's threat of an energy price freeze, made on 24 September at the close of his party's conference in Brighton. SSE has recorded a loss at its energy retail business in a half-year trading statement. The company pledged to maintain its above-inflation dividend increase for the full year regardless. The company attributed the loss to "higher wholesale gas costs and the heightened impact of fixed distribution and other costs, which themselves were rising, during the spring and summer period of lower energy consumption". SSE said it expected its generation and networks businesses to report profits for the six months to 30 September 2013. In a thinly veiled reference to last week's threat by Labour leader Ed Miliband to freeze energy prices should Labour win the next general election, SSE finance director Gregor Alexander assured shareholders that the dividend policy would remain intact "despite the intensifying political debate". He promised an above-inflation increase in the dividend for this financial year and beyond. Energy Green Deal woes hit Carillion for £40m The slow development of the Green Deal has forced Carillion to restructure its energy SSE share price, 2–8 October services division. The company said it would spend £40 million restructuring this part of the business "to ensure that it is aligned in size to the markets in which it operates". The Green Deal had only 12 live plans at the end of August, with a further 677 plans in the system. In a statement to shareholders last week, Carillion said: "The development of the Green Deal market continues to be slow and the Energy Company Obligation may now be subject to further delays." Despite this, Carillion said it was trading in line with its expectations for 2013 and that across the group the order book and pipeline of contract opportunities "both remain strong". Energy Eon completes Matrix acquisition Eon has completed a deal to buy energy efficiency services company Matrix. The transaction was approved by the Austrian merger control regulator, and Eon Connecting Energies completed the deal on Friday 4 October. Matrix has 31,000 data connections across 22 countries and employs 340 staff at nine sites in the UK, including in its corporate headquarters in Manchester and its energy management centre in Glasgow. sse share price, 9 September – 7 October 1484p 1600p 1474p 1560p 1464p 1520p 1454p 1480p 1444p 1440p Date Oct 02 03 04 07 08 Date Sep 09 16 23 30 Oct 07 UTILITY WEEK | 11th - 17th October 2013 | 17

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