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Ditching LCPD an option for UK, but a risky one - Ofgem

20 Feb 2013 18:07:00 | edem

British energy regulator Ofgem chief executive Alistair Buchanan said the UK abandoning the large combustion plant directive (LCPD) is an option that has been considered for mitigating the UK's looming electricity capacity squeeze, but he warned of the obstacles to such a move.

"We are looking at a substantial plant closure [in the next month]," declared Buchanan, speaking at an industry lecture in London on Tuesday. "Maybe cancelling LCPD is an answer, but it comes with challenges."

Ofgem has previously warned of a capacity crisis in UK as the LCPD plants are taken off line - 10% of old oil and coal capacity is expected to be removed from the grid within one month (see EDEM 19 February 2013).

The challenges associated with backtracking on the LCPD include a judicial review and harm to the UK's international reputation. Buchanan said that compliant operators could sue if the LCPD was cancelled because they have heavily invested in cleaning up their plants, whose efficiencies fell as a result of modernisation.

"Plants may also have been cannibalised and driven into the ground. They could also be expensive to restart," he added.

Buchanan pointed out that the targets related to LCPD were made during a financial boom. Now, several of the greener projects have been scrapped.

"Our visionary policy literally [came] crunching into [the] financial crash," he said. "From 2008 to 2011 33GW was cancelled [and] a further 20GW has been delayed. The UK will not have a new CCGT plant connected to the grid until 2017.

"The companies that had coal took advantage of the declining [coal] prices. Plants were run hard and more than 10% of hours are used up from where they should be. There are also aware of the carbon tax that is coming into force in April."

In addition, 20GW of coal-fired capacity will have to clean up or shut down before the next directive starts, creating further concern, he added.

Breaching the LCPD has been previously discussed by market analysts, who argue that renewables cannot compensate for the loss of baseload generation before a new nuclear plant is built (see EDEM 20 September 2012)

The Ofgem chief pointed out that gas plants are going off line because of shrinking spark spreads, the new carbon tax and energy market reform uncertainty.

"Gas plants are hardly making any money at all. Spark spreads will be negative by 2014, which are affected by the CO2 tax," said Buchanan. "If you're not making any money, why would you invest? Do you close your plant or do you mothball?" Katie McQue

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