UK LCPD opt-out plants are conserving hours for winter

21 August 2013 18:16 Source:ICIS

Ironbridge, and Ferrybridge, two of the remaining UK electricity plants that have opted out of the Large Combustion Plant Directive (LCPD) are likely conserving their remaining hours for the winter months, data suggests.

The EU directive will close both plants after a set amount of running hours, as they have chosen not to upgrade to cleaner technologies.

Ferrybridge

At the start of August, utility SSE had just 2,331 running hours left, covering units 1 and 2 at its 1.8GW Ferrybridge coal-fired power plant. The units have a combined capacity of 980MW.

This equates to just 97 days - just over a quarter of a year - of power production were the plant to run flat out.

The units are to close by the end of week 13 next year, SSE has said (see EDEM 21 March 2013), with transmission entry capacity at the plant to be cut from 1 April, National Grid records show.

The two units generated 1.5TWh in the first quarter of this year, when ICIS assessed the Day-ahead Baseload closing price almost flat to Winter '13 Baseload, but production plummeted to 0.2TWh in the second quarter when Day-ahead was on average £5.35/MWh cheaper than the front winter contract.

"They were conserving their hours to max out run time during the [coming] winter," Agency Partners equity analyst Lakis Athanasiou said. "You would want to conserve as much as you can for the winter peaks. That's the strategy we thought they were adopting - but they may look to run opportunistically," he said.

Evidence shows that the utility is sticking to its winter running strategy, as dark spreads continue to show historically high profit margins for coal-fired power plants.

For example, the two units generated for around 12 hours on 1 August, but have since been quiet.

Day-ahead Baseload for delivery on 1 August closed £4.70/MWh below the front winter Baseload on 31 July, suggesting SSE deems this discount sufficiently small to still sell day-ahead output to the market.

Since then however the Day-ahead discount to the front winter has averaged £6.88/MWh and not dropped below £5.50/MWh, with nothing generated.

Looking ahead to September, it appears the conservation of hours will continue, because since 1 August, the front month has on average closed £7.23/MWh below the front winter.

And going into October - the first component month of the front winter - the pricing signals continue to favour conservation, with October '13 Baseload having averaged a £5.08/MWh discount to the front winter since the beginning of this month.

It is not until November that the numbers begin to point towards generation, with a narrow £1.41/MWh discount carried by November '13 Baseload to the front winter this month to date.

This indicates that SEE will still be allowed to run Ferrybridge for a considerable amount of hours well into the new year, quashing any likelihood of an early closure.

Ironbridge

With a total capacity of 600MW, the two units at E.ON's Ironbridge power station were recently converted from coal to biomass.

As of the start of August, the plant had 10,754 hours left before it is obliged to close.

Unit 1 is not yet running. Unit 2, however, has been two-shifting - running in the day and not at night - since mid-June.

"You wouldn't want to be running that plant now," commented Athanasiou. "The profitability of biomass with ROCs is on par with coal until 2015, when the carbon floor price becomes noticeably high."

A spokesman for E.ON refused to comment on the rationale for two-shifting the plant, although he did confirm that it was running on biomass and not coal.

"Declarations of the market availability of the Ironbridge units will be made at the appropriate time," he said. Jamie Stewart and Katie McQue

By Katie McQue