Utility Week

UTILITY Week 16th October 2015

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

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Markets & Trading This week Plant delay heightens capacity auction fears Carlton Power says Trafford gas-fired plant may not be ready to generate by winter 2018 deadline A key gas-fired power plant may fail to meet its winter 2018 dead- line despite securing a contract through the government's first capacity auction. Carlton Power told the Tel- egraph that its Trafford gas-fired power plant has still not been able to secure the investment needed to drive the £800 million project forward, so it will not be available to supply power by its contracted 2018 start-date. The news confirms concerns reported by Utility Week last year that UK generators would continue to face chal- lenging market conditions despite the auction contracts. And it raises fresh concerns about the UK's wider secu- rity of supply without investment in new gas-fired plant. Critics warned last year that the auction would need- lessly reward existing power plant – which would have been available to the market even without a contract – and fail to bring forward investment in new capacity. The auction results showed that 49.3GW of power supply secured contracts for 2018/19 at a support price of £19.40/kW per year, well below the expected £25-40/kW. At the time Baringa partner Phil Grant said the low price means generators may need extra support – either from further capacity payments or higher wholesale prices – to avoid having to shut down capacity. Carlton Power's business development director Mike Benson said shaky investor confidence in UK energy regulation and artificially low wholesale power prices as subsidised renewables play a larger role in the market were partly behind the struggle to secure financing. JA ENERGY Profits from gas-fired generation to rise UK energy companies' profits from gas-fired generation could still rise this winter, despite record lows on both gas and power markets. The price of gas for delivery this winter fell to lows not seen since market experts at Icis began assessing the contract's value, it said, and power prices have followed suit because the cost of gas-fired power is the primary market driver. But the difference between the selling price of power and the cost of gas and carbon emissions has widened in recent months, so profits for gas gen- erators could still rise compared with those seen in the summer. Icis told Utility Week that at the end of Q2 the profitability of gas-fired power (known as a spark spread) stood at £2.50/ MWh when taking into account the market price for gas, power and the UK's carbon tax. But by the end of September the spread stood at £4.30/MWh. Although power prices have tracked losses in the gas market to an extent, concerns about the UK's dwindling power capacity have limited losses on the power price to li potential generating profits. The overall price of power for this winter is still expected to be lower than in previous seasons, which might also bolster supply profits if supply tariffs hold steady. ELECTRICITY DSR misunderstood in UK, says ECIU Demand-side response (DSR) is "really misunderstood" in the UK, the Energy and Climate Intelligence Unit (ECUI) has warned. At a briefing in London, ECIU director Richard Black said the UK can "learn a lot" from the US and Germany. "It almost seems to be regarded as a scandal that you shouldn't have enough capacity available to make that sort of peak one-minute demand that you're going to get during the year," he said, "but if you go down that route you end up with a more expensive system." The group pointed out that just 172MW DSR was contracted in the capacity mechanism from 2018, and only 177MW is con- tracted in this winter's reserve. Recent research from DSR developer Open Energi suggests that as supply margins shrink, reducing demand for electric- ity could help balance the UK's power system up to five times faster than using thermal plant. National Grid's head of commercial operations Duncan Burt said it is preparing to rely on demand-side measures for "well over 50 per cent of the time" by 2030. New gas-fired plant is vital to security of supply Tricks of the trade Jillian Ambrose "Subsidised renewables has driven out new-build gas" The UK is braced for some of the tightest power supply margins seen in a generation. And aer years of warnings that the steady shut down of old coal plant, would leave a looming gap mid-decade, few can be too surprised. But what has become clear this week is that Blackout Brit- ain may dominate headlines for many more years than expected. The capacity market was the government's answer to the question of energy supply for new gas-fired power to survive. Neither of these factors is any more surprising than the risk of dwindling capacity margins in the first place. But perhaps Carlton had enough optimism to assume that the capacity market would do enough to bring forward new investment rather than simply reward what's already available. It's a pity that optimism can't keep the lights on – although even that is now looking to be in short supply. the end of the decade. But this week capacity market concerns deepened as plans for the only example of new investment in gas-fired power crumbled. Carlton Power said that even though it had managed to secure a contract in the highly competi- tive capacity market auction this year, it may not be enough to overcome obstacles faced by thermal generators in a new energy world order. As is the done thing for all energy developers, Carlton pointed to a lack of investor confidence. At the same time the rising share of subsidised renewables has driven market prices for electricity too low for 28 | 16TH - 22ND OCTOBER 2015 | UTILITY WEEK

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