Transmission charge impasse clouds UK’s Longannet future

British energy regulator Ofgem is standing firm in a row over transmission charges that is threatening the future of ScottishPower’s 2.4GW Longannet coal-fired power station following the company’s decision not to apply for a government subsidy to keep the plant running until the end of 2019.

On Friday, the Scottish utility announced it would not be progressing with plans to enter the power station into this December’s first capacity market auction, citing “disproportionate transmission charging penalties” as a major hurdle to remaining open until the capacity market payments come into force in 2018/19.

Ofgem this summer revealed that a new methodology on payments that generators make to the National Grid, the system operator, for use of the network would come into force in April 2016, following a period of lengthy consultation with industry stakeholders ( see EDEM 11 July 2014 ).

And the industry regulator indicated on Monday that it has no intention to alter the detail of the methodology, with a spokeswoman saying that it had been heavily consulted on.

“SSE was very welcoming of the transmission methodology in terms of closing the gap between north and south generation,” the spokeswoman said.

Charges

The new methodology will see a reduction in the transmission charge bias afforded to generators based close to demand, which are typically based in the south of the UK.

However, the locational signals attached to the charging methodology will remain in order to encourage new generation to be built closer to areas of high demand.

Despite declaring that it has no plans to close Longannet, ScottishPower’s CEO of retail and generation Neil Clitheroe said on Friday that “changes to the plant’s financial situation must be achieved” if the station is to avoid closure.

A spokesman for the company reiterated on Monday that its primary issue was with the transmission charging regime and that it would be engaging with all industry stakeholders including Ofgem, National Grid and the Department of Energy and Climate Change in order to extend Longannet’s life for as long as possible.

Transmission charges for the power station currently amount to £40m per year, placing it at a significant disadvantage to other areas of the country such as London where the plant could benefit from a £4m windfall, according to the company.

Closure

Despite ScottishPower’s proclamations to the contrary, the investment community now seems to be banking on the plant’s closure before the end of the decade.

An investment note published by bank Credit Suisse on Monday revealed that it expects the station to shut before the first delivery year of the capacity market in 2018/19.

However, the investor also expressed surprise at the level of existing thermal plant that had made the decision to opt-in to the pre-qualification process, indicating a desire by a large number of generators to remain online to end of the decade.

Eggborough’s 2GW coal-fired power station, which had earlier this year signalled its intent to close by the end of 2015 because of failure to secure government funding for a biomass conversion, has entered the pre-qualification round.

Doubts over the future of the RWE’s 1.7GW Aberthaw coal-fired power plant remain, after it was rejected by National Grid.

The power station is the subject of a legal dispute between DECC and the EU over the legitimacy of its entitlement to a life extension under the Industrial Emissions Directive (IED). Henry Evans