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Low Dutch spark spreads stall new gas-fired electricity generation

14 May 2012 16:47:34 | edem esgm

Unfavourable economic conditions for gas-fired generators in the Netherlands have forced utilities to rethink their construction timetables for their new power plants in recent months, questioning the practicality of building new plants in the country.

In the last six months, energy company Intergen told ICIS that depressed spark spreads have undermined the business plan for its 900MW combined-cycle gas turbine (CCGT) plant with commercial operations by 2016 now unlikely (see EDEM 1 May 2012), while Advanced Power and Siemens have cited poor market signals in 2011 for their decision to delay construction of their 1.2GW CCGT by two years (see EDEM 15 November 2011).

"It just doesn't make sense to build a 900MW CCGT plant at the moment," said a spokesman for Intergen, who added that the business plans were currently "under review".

Advanced Power were unable to comment on current market conditions, but stated in a previous press release: "The combined effects of the ongoing financial crisis and the uncertainty stemming from European nuclear reassessment, gas pricing volatility and suppressed wholesale electricity pricing means that the energy market is not currently ready to support new build CCGT."

Gas-fired generation is also shutting in neighbouring Germany, with similarly unprofitable spark spreads, and there have been calls for state intervention to ensure security of supply in some areas (see EDEM 24 February 2012).

Margins at new low

Dutch clean spark spreads for the front year calculated by ICIS have established a new low since the end of January, and prices over the last couple of years have shown a firm downtrend (see graph). Throughout 2010, the average Dutch clean spark spread was €3.94/MWh, while in 2012 so far, clean dark spreads have averaged -€5.80/MWh.

The unprofitable market climate has forced the Netherlands to rely more heavily on its coal-fired generation in recent times, despite the country having a large supply of gas. In addition, low carbon prices have eased the pressure on clean dark spreads making it easier to switch to coal-based production.

"Even the newest gas plants are not really running," said one trader, "They are only really used for flexibility reasons."

Gas-fired generators in the Netherlands look set to be under particular pressure, facing stiff competition from cheap hydropower from the Nordics and nuclear power from France, while further European market integration through new interconnectors will weaken wholesale electricity prices.

"Gas prices are just far too expensive, and demand is low from a power perspective. Prices are not reflecting the actual market conditions," said another source. He added that new gas plants would only make business sense if they were combined heat and power (CHP) projects looking to sell heat to help cover the costs of their electricity generation. CR

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