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French gas-fired electricity generation struggles with fuel costs

15 Mar 2012 10:02:37 | edem esgm


Fuel contracts have rendered at least one French gas-fired plant uneconomic, despite the shortage of peakload generation.

Poweo's 412MW combined-cycle gas turbine (CCGT) power plant in the north of France is facing receivership because the operator is tied into a long-term oil-indexed gas contract that resulted in "huge" losses for the plant.

The Pont-sur-Sambre plant, near the Belgian border in the Nord department, came online in 2009 and was subsequently bought by Austria's Verbund as the French independent Poweo struggled to compete with incumbent generator EDF.

According to a statement from Verbund emailed to ICIS Heren, the plant has not ceased production, but has been placed under "safeguard proceedings" - a French legal nuance that allows a still solvent company to implement measures that might improve its economic situation. Should matters fail to improve, then receivership is a possible outcome.

Verbund said the plant management had tried to renegotiate its oil-indexed gas contract with its supplier, "but no agreement could be found".

Squeeze on margins across Europe

The utility stated that oil-indexed gas contracts constitute "a common problem" for CCGTs across Europe.

"Since late 2008, European gas markets have clearly shown a development characterised by two different prices: hub-prices and oil-indexed prices. Indicators show that these changes are long-term changes," Verbund said. "CCGTs with long-term oil-indexed gas contracts and take-or-pay clauses are as a consequence no longer able to operate economically."

The failure of Pont-sur-Sambre to operate economically may be of some concern to other independent generators considering investment in gas-fired generation, but neither Poweo nor EDF as French CCGT operators had returned calls seeking comment as ICIS Heren went to press.

Poweo's part owner Direct Energie fought off competition earlier this month (see EDEM 1 March 2012) from EDF and ENEL, winning the right to develop a 422MW CCGT in Brittany.

A cold snap in February highlighted France's need for flexible generation, when a sudden uptick in demand necessitated significant volumes of electricity to be imported from neighbouring countries to avoid blackouts (see EDEM 10 February 2012).

But analysts have previously questioned the profitability of gas-fired power plants (see EDEM 3 November 2011), while coal-fired plants are likely to be met with environmental opposition. TH

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