UK power plants facing immediate cash-flow crisis

LONDON (ICIS)–UK power stations could “run out of money” to pay for maintenance in the continued absence of capacity market payments, the operator of the 1.2GW Saltend CCGT has said.

Generators are still reeling from the UK government’s decision to suspend capacity market payments following a recent EU court ruling upholding an appeal against the EU Commission’s handling of an investigation into the UK’s capacity market policy in 2014.

“I don’t think people realise the immediate pain plants are going through,” COO of Triton Power Mick Farr told ICIS.

“Plants are going to run out of money to pay maintenance providers and other suppliers. If you cut back on those maintenance activities, then reliability is affected and fixing things in an emergency becomes much harder.”

Triton Power is a subsidiary of US private equity firm Energy Capital Partners, which acquired Saltend and the now-mothballed 515MW Deeside CCGT from French utility Engie in 2017. The company also runs a 140MW peaking OCGT called Indian Queens, formerly part of Engie’s portfolio.

No transparency

Farr was critical of the lack of transparency around the government’s legal advice for halting capacity market payments and any analysis conducted by energy department BEIS about the potential threat to security of supply.

“In terms of what BEIS have been saying on security of supply being unaffected, it relies on trust and goodwill with generators rather than any contract or rule of law,” Farr said.

“If they [BEIS] have done the analysis, they have not been sharing it with us or the wider market. There’s been no significant risk assessments of what’s happened that we know of. We want to know if the government has risk assessed the consequence of these payments being removed immediately.”

BEIS has made no public statement following news of the capacity market suspension just over two weeks ago but said at the time it would “not impact security of supply this winter” .

The industry is also no closer to knowing whether capacity market payments received over the last 12 months will have to be repaid and how suspended payments, owed under current 2018/19 contracts, will be backdated if the policy is reinstated.

Most of the UK’s existing 11GW of coal-fired and 30GW of gas-fired capacity have capacity market contracts in place for the year beginning 1 October 2018.

ICIS has seen a strongly-worded letter sent by EnergyUK’s CEO Lawrence Slade to BEIS in which he states there is a “real and present danger that security of supply will be at risk in winter 2019/20”.

The letter also described banks financing new projects on the back of capacity market contracts as “currently supportive but nervous” while the trade body urged BEIS to be completely transparent with the legal advice it has received and the process it intends to follow with the commission.

Meanwhile, legal opinion offered to one generator suggests the government can continue to make capacity market payments, irrespective of the recent court judgement, if it deems security of supply to be threatened, ICIS understands.

‘Replacement’ T-1 auction

Farr was also wary of BEIS’ plans to seek immediate state aid approval for a ‘replacement’ T-1 auction for 2019-2020 delivery while the overall capacity market policy remains in limbo.

Cancelling all capacity market contracts for 2019-20 delivery and allowing plants to bid again for contracts through a replacement T-1 auction would be unwelcome, he said.

“The T-1 auction for 2019/20 will only work if that T-4 auction is revalidated. Assets made investment decisions and agreed to the clearing price based on their bid/exit strategy.

“Rerunning it now would invalidate these assumptions. If you reran the T-4 auction [for 19/20 delivery], we believe it would undermine the capacity market and could lead to massive volatility in the wholesale market.”

Farr said he was against the commission appealing the EU court judgement as this would create “even more delays”. “My advice to the commission would be to do your investigation and get on and do that as quickly as possible. Unless the appeal can go in parallel with the investigation, it’s not worth it,” he added.

Drax deal

Independent generator Drax also announced revised terms to its deal to acquire 2.5GW of thermal and hydro assets from ScottishPower on Monday due to the current impasse around capacity market payments. However, the generator is confident the scheme will be reinstated.

“Based on the information available and legal advice it has received, Drax believes that the most likely outcome is that the European Commission will re-approve the existing capacity market in its current or a broadly similar form,” Drax said in a statement.