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UK’s Centrica expects gas-fired electricity plant switch-off in 2012

17 Oct 2011 16:16:01 | edem

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Centrica is likely to close two gas-fired electricity plants in the UK by June 2012, citing no prospects of a medium-term improvement in spark spread values.

The company confirmed that it is running a consultation from November to close the 340MW Kings Lynn and 245MW Barry gas-fired power stations, with a planned withdrawal in the second quarter of 2012.

Both plants were part of a quartet of stations the utility put into preservation mode in March. However, Kings Lynn, along with the 405MW Peterborough station, was switched back on during the summer after National Grid contracted Centrica to provide 230MW of short-term constraint electricity generation volume (see EDEM 18 July 2011).

"High gas prices and excess capacity has put significant pressure on profitability, in particular on our older, less efficient stations, which have been falling down the merit order," said a Centrica spokesman. "We see no prospect of spark spreads improving in the medium term."

Low margins

Clean spark spreads have been outturning at extremely low levels all year, encouraging mothballing of more gas-fired plants as profit margins are squeezed.

Between 4 April and 14 October this year, the Winter '12 clean spark spread has an average outturn of £1.90/MWh, according to ICIS Heren data. But the spread has more than halved in value over that period, from £3.163/MWh to close Friday at £1.376/MWh (see chart).

Over the same period, Winter '13 clean spark spread averages £4.26/MWh, shedding 65% of its value from £5.60/MWh to £3.39/MWh.

Scottish Power's wholesale director John Campbell has said that spark and dark spreads must be in the region of £16.00-17.00/MWh to incentivise new projects (see EDEM 11 February 2011). But at Friday's close, UK seasonal spark spreads - generation margins without factoring in emissions costs - ranged between £5.46/MWh for Winter '12 and £13.38/MWh for Summer '14. Seasonal dark spreads are more profitable, ranging from £21.88/MWh for Summer '12 to £26.26/MWh for Summer '14.

Capacity questions

Centrica has consent to build a 1GW gas-fired plant at the Kings Lynn site, but the company spokesman added that the final decision on proceeding is dependent on "improved market conditions" and the finer details of the government's electricity market reform.

While supply margins for the UK electricity market remain healthy now, the UK government predicts a capacity crunch by the end of the decade and is relying on a new generation of gas-fired plants to bridge the transition to low carbon power production.

Others such as analysts from Credit Suisse predict a capacity crunch earlier, with the loss of free carbon credits from April 2013 accelerating the mothballing of older gas plants from 2012. Moves such as Centrica's removal of capacity are likely to pressure government plans.

Centrica added that the Barry station will bid to provide peak power, which might see its life prolonged. FOR

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