EnergyUK fears interconnector threat to UK plants

EnergyUK fears interconnector threat to UK plants

The head of generation for the UK’s leading energy trade body, EnergyUK, has warned that the UK government’s attempts to increase the level of interconnection with the rest of Europe could harm the competitiveness of existing generation assets and threaten the country’s security of supply.

“I’m concerned about security of supply as interconnection could displace existing assets,” Barbara Vest said in a panel session on Wednesday at Scottish Renewables’ annual conference in Edinburgh.

“More interconnection sounds great. But the flows, which we think will come to us may not actually turn up,” she added.

UK wholesale electricity prices have traditionally been higher than both French and Dutch markets, which has pushed flows predominantly through the respective interconnectors into the UK.

Higher wholesale prices in the Irish market have had the opposite effect and made the UK a net exporter of power to the country.

“Many of these European countries have an obligation to supply at their own door first,” she said, highlighting hypothetical situations when a combination of cold weather and low wind generation could restrict exports from the continent. Vest fears that the advantages conferred on generators in the wider EU compared to the UK would push flows to UK outside peak hours and price out indigenous generation from the market.

“It’s not a level playing field,” she said, citing disparities in transmission charges paid by generators and the UK’s carbon price floor (CPF), which adds a premium onto charges faced by the UK’s fleet of fossil-fuelled plants for emitting carbon.

She also questioned whether the government’s quest to increase renewable energy supply through interconnector imports would materialise in practice if thermal generation in Europe can supply more competitively than the UK’s plants.

“I’m not sure it’s all green energy flowing across,” she said.

“We’re starting off from the position that interconnection is good until proven otherwise,” she added.

A recent parliamentary energy report urged the government to conduct in-depth analysis on the actual impact that greater interconnection is likely to have on the UK market.

“There is a worrying lack of clarity about what options exist if a number of interconnected countries experience system stress simultaneously,” the report stated (see EDEM 12 March 2015).

National Grid on Thursday signed a contract with the Norwegian operator Statnett to build the 1.4GW NSN interconnector by 2021. It is the second interconnector project that National Grid has signed this year as the UK attempts to commission up to 7.5GW of new interconnection by 2020.

Vest’s comments add to a swathe of profitability issues that are currently circling the UK’s fleet of gas- and coal-fired plants.

One of the UK’s largest coal-fired power stations, ScottishPower’s 2GW Longannet, is on the cusp of permanent closure because revenues have been squeezed primarily by high costs associated with accessing the grid.

A 100% increase in the CPF floor from the start of this April will also place more pressure on coal operators’ profits, who will pay a premium over their gas counterparts because of the higher level of carbon emitted from coal burn.

But recent confirmation by two of the UK’s largest utilities that they will close some of their combined cycle gas turbine (CCGT) plants also reaffirmed the precarious nature of market conditions for gas-fired generation (see EDEM 19 March 2015).

Dirty spark spreads – the notional profit margin for CCGT generators excluding the cost of carbon – have provided little incentive for many CCGTs to run in a baseload profile and have forced them predominantly to the margins of the UK market in the last five years. Henry Evans