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UK facing 4GW electricity generation capacity loss from April 2013

03 Apr 2012 18:21:02 | edem

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The UK's effective power generation capacity will be slashed by 4GW from 1 April 2013, new figures have revealed,

and some trading sources believe the potential loss of supply has not been sufficiently priced into the UK power forward curve.

According to National Grid's transmission entry capacity (TEC) register, published on Monday, 12 power plants have notified the system operator of an intention to cut TEC from 1 April next year.

TEC defines a generator's maximum allowed export capacity onto the UK electricity transmission system. It can be traded bilaterally between parties.

The loss of effective generation capacity (see table) includes 445MW at RWE npower's 1.4GW Littlebrook oil-fired plant and the outright closure of the 218MW Derwent gas-fired power plant, owned by SSE, International Power and Mitsui.

A large chunk of the capacity loss - 1,966MW - will come from E.ON's Kingsnorth coal-fired power plant, which last month became the first power station in the UK to declare its closing date under the EU large combustion plant directive (see EDEM 8 March 2012).

Of the 12 plants, six are gas-fired, reflecting the intense pressure on gas-fired power generation economics amid cripplingly low forward spark and clean spark spreads - a measure of profit margins for gas-fired generators.

Debate

The Summer '13 clean spark spread has fallen from £6.94/MWh in December 2010 - its highest level since ICIS began calculating the product's value - to £4.23/MWh at Monday's close.

A recovery over the last two months, which has seen the derivative contract rise from just £3.24/MWh in mid-February, has not encouraged gas-fired generators back into the market.

Centrica previously said it was reconfiguring its gas-fired plants at Peterborough, Brigg and Roosecote, with a combined capacity of 909MW, to operate in the short-term operating reserve market as open-cycle gas turbines (OCGTs) (see EDEM 23 February 2012).

Capacity at its Barry gas-fired plant will also be cut by 103MW, to 142MW from 245MW on 1 April 2013, as it too is reconfigured to sell into the more-profitable peaks market.

The growing loss of generation capacity has been the subject of debate among power traders in recent weeks. "The market is not pricing in the potential reduction in supply," one trader said.

Only last week, traders in France and the Netherlands insisted that participants in markets linked to the UK had not adequately priced potential power exports via the French and Netherlands interconnectors into continental power contracts (see EDEM 28 March 2012). JS

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