UK “opted out” LCPD plants make the most of high summer prices
Scottish Power’s 1,150 MW Cockenzie power station has already used up approximately 18% of its 20,000 hour limit and could be shut down by mid-2010 if it carries on at this rate. The plant “opted out” of the large combustion plant directive (LCPD).
The estimated operating rates are reported by UK generator Drax* in its recent first half year results. Scottish Power itself would not confirm how many hours the plant has operated.
The effects of the LCPD on the market have been significant, as it has caused uncertainty over plant availability. “Traders are still finding their feet in the new LCPD landscape,” according to one counterparty.
The LCPD came into force at the beginning of the year and with high gas prices and a large amount of nuclear capacity offline, the directive caught the market off guard. “Judging by prices over the summer, the market had not anticipated the effect the LCPD would have on power supplies,” said one trader. And if National Grid had anticipated the impact, then “it may have asked for tenders of extra power earlier in the year,” he added.
Cockenzie is one of nine coal and oil power plants in the UK that opted out of the LCPD (see table for complete list). The total amount of “opted out” capacity equates to 11,672 MW, all of which will generate for a maximum of 20,000 hours from the beginning of 2008 to the end of 2015. The plants could use up their hours and shut down at anytime before 2016. However, 2016 is the deadline, after which all the “opted out” plants must be shut down.
Eon UK’s Kingsnorth has clocked up 13% of its 20,000 hour quota, according to Drax’s estimations. The original plan for the plant was to use up the hours and close the station in around 2012/2013 – in time for the ramping up of the company’s next generation coal-fired plant, which is to be built at the same site. However, this is dependent on the new plant being given the go-ahead by the government. A decision is expected later this year. Again, Eon UK would not give away any plant operation details.
Each of the nine plants spent the first six months of the year operating in varying ways (see table for estimations of hours used). The opportunity costs for each plant are set at different levels. Some, such as Cockenzie, regarded the summer’s high prices to be worth cashing in on; while others, such as the 980 MW “opted out” unit of Scottish and Southern Energy’s Ferrybridge plant, were more conservative in their operation over the summer. The unit used up just 7% of its 20,000 hour allocation during the first six months of 2008.
“High wholesale prices will encourage some stations to run for more hours now, but other companies may decide to balance their output across the period. Companies are investing in new power stations that will come online over the next few years to replace the outgoing capacity,” said a spokesperson for the Association of Electricity Producers (AEP).
The differing behaviours are down to how a company chooses to operate. For example, a spokesman for Eon UK said that Kingsnorth has continued to predominantly be a Baseload plant, while “Ironbridge operates more as a peaking plant, and has done so for some time.” Both plants only have one chimney, and so would only operate when the pricing signals are high enough to ensure good prices for the full capacities of each plant.
If power stations spread their allocations evenly over the next eight years, the annual percentage would be 12.5. The fact that Cockenzie has used up 18% of its 20,000 hours in the first half of the year could signal that generators believe the likelihood of wholesale prices lowering from current levels is high.
Increasing environmental legislation on the table
On the horizon, plans have been tabled by the European Commission (EC) to increase limits on sulphur and nitrous emissions under the LCPD, post 2016. This would mean that all the “opted in” plants, including Drax’s 4,000 MW plant, EDF’s 2,000 MW Cottam plant, and Eon UK’s 2,000 MW Kingsnorth would have to invest further to reduce the emissions from the plants. This is causing a stir in the industry, after the “opted in” stations already fitted expensive FGD (flue gas desulphurisation) kit into their chimneys in time for the 2008 deadline.
“We are concerned that the EC has recently suggested tightening the LCPD limits still further, which could lead to more plant closures around 2016. This would have severe consequences for security of supply, and we are talking to the Government to avert such a situation.” AEP told ICIS Heren. CA
* The Environment Agency is an official source for this data, however inaccuracies were found and the Agency is now reassessing its collation of “opted out” hours used. The three Scottish power stations: Cockenzie, Longannet and Peterhead are regulated by the Scottish Environment Protection Agency, which collects data on an annual basis and so could not provide any information on operational hours.
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