Blow To UK Energy Plans As New Gas Plant In Doubt

By Paul Homewood

 

http://www.telegraph.co.uk/news/earth/energy/11925444/UK-energy-crisis-Trafford-gas-plant-in-doubt.html

 

From the Telegraph:

 

The Government’s plans to keep the lights on have suffered a fresh setback after it emerged the only new large gas power station due to be built in coming years is now in doubt.

Energy firm Carlton Power was awarded a subsidy contract by the Department of Energy and Climate Change last year to build a new 1.9 gigawatt plant at Trafford in Greater Manchester – big enough to supply power to 2.2 million homes.

The £800 million plant was due to start generating in October 2018, but Carlton Power told the Telegraph it could no longer meet that date – and had so far failed to secure financial backers for the project to go ahead at all.

Mike Benson, Carlton Power’s business development director, said securing investment had proved "more difficult than we would have hoped" due to a combination of long-term policy decisions that had skewed the market, and uncertainty caused by recent cuts to wind and solar subsidies.

The Trafford plant had been supposed to begin construction this summer after getting a subsidy contract through the Government’s ‘capacity market’.

The scheme is designed to ensure there will be enough power plants to keep the lights on by paying their owners to guarantee they will be available.

Carlton Power signed up to build the Trafford plant in return for subsidies of more than £30 million each year for 15 years. On top of the ‘retainer’-style payment, it would then get revenues from selling electricity into the wholesale market.

Mr Benson said long-term political intervention through "continuing direct subsidies for low carbon technologies such as wind, nuclear and solar" skewed the wholesale power market, making the price artificially low and making it harder to invest in gas plants.

"Despite the widespread acceptance of the need for new gas fired generation, there is no market signal to support that investment," he said.

He added: "The recent changes in government support for renewables is an issue that concerns the investors we are talking to, as this demonstrates an increase in political intervention and uncertainty over the long term structure of the UK market."

 

Subsidised wind farms have skewed the wholesale market

If Carlton Power fails to secure investment for the Trafford plant by next summer its subsidy contract will lapse and it will face an £8 million penalty.

Ministers would then be left to make up any shortfall in electricity supplies for 2018 by offering subsidies to other plants, such as old mothballed coal or gas plants, or diesel generators.

Industry experts have been questioning for some time whether the Trafford plant would be commercially viable with the level of subsidy it agreed in the capacity market.

Last week the Telegraph reported warnings from Alan Whitehead MP, Labour’s shadow energy minister, that some 20 gigawatts of new gas plants were needed by 2025 under the Government’s own plans, and that much higher subsidies – totalling billions of pounds – would have to be paid through the capacity market to secure them.

There are more than a dozen proposed gas-fired plants with planning permission, but many have been on hold for years.

Richard Howard of think tank Policy Exchange estimated that gas plants could need subsidies at up to double the level secured by Trafford in order to go ahead.

Many existing gas-fired power plants are losing money currently.

 

 

And so the lunacy continues.

Gas fired plants are losing money, partly because of subsidised competition from renewables, but also because they are working at well below normal capacity levels due renewables being given privileged access to the market.

The first auction for capacity market, held last December, provided 49GW of capacity for 2018/19, but nearly all was won by existing plants, including coal and nuclear. This was inevitable since they could offer a price well below that which would be viable for new build.

The cost of this capacity auction, which is added onto electricity bills, was £956 million. If the new gas capacity suggested by Alan Whitehead is to be built, the cost in future years will be much greater.

The first hurdle though is getting them built at all.