Energy security threat as SSE mulls early closure of coal plant
By Paul Homewood
News from the Telegraph (complete with misleading photography):
Energy giant SSE is considering shutting its Fiddler’s Ferry coal-fired power plant early, threatening to blow a hole in the Government’s plans to keep the lights on, the Telegraph has learnt.
The 2GW power plant in Cheshire produces enough electricity to power two million homes and in 2014 secured a subsidy contract with the Government to guarantee three of the plant’s four units would be available to generate in 2018-19.
But SSE is now understood to be considering pulling out of the contract and shutting the plant sooner, because the subsidies through the ‘capacity market’ scheme may not be enough to outweigh losses the plant is incurring.
Although no decision has yet been taken, analysts say SSE could even opt to shut part of the plant before next winter, when the UK’s capacity margins are already expected to fall dangerously low.
One of the four units at Fiddler’s Ferry has a contract with National Grid to provide back-up power for next winter, but the other three could be in doubt, Lakis Athanasiou, analyst at Agency Partners, said.
Burning coal at Fiddler’s Ferry is increasingly uneconomic due to low power prices and the UK carbon tax.
In December, SSE failed to secure a subsidy contract for Fiddler’s Ferry in the Government’s capacity market auction for winter 2019-20, losing out to other plants including new diesel generators.
In a trading update on Thursday, SSE said it was still analysing "options for the future operation of power generating plant" in light of the auction results and expected "to complete that analysis and reach conclusions shortly".
If Fiddler’s Ferry were to close early it would be the second major blow to the Government’s capacity market after the Telegraph revealed last year that the only new gas-fired power plant due to be built under the scheme, at Trafford, was also in doubt.
Although companies face penalties for failing to deliver promised capacity, SSE could be prepared to take the hit in order to avoid even greater operating losses.
Mr Athanasiou estimated SSE could lose £50m to £60m a year at Fiddler’s Ferry, because power prices were forecast so remain so low that coal plants – which face higher running costs due to the UK’s carbon tax – would only be likely to be running during winter daytimes.
"Doing that, the kind of money they’re going to be earning is just not enough to cover their cash costs," he said.
SSE would have to decide whether it was worth the risk of incurring these losses in order to honour the subsidy contract for 2018-19, which is worth about £27m, and to avoid the penalty for pulling out of the contract, which would be about £35m.
It could also pursue further emergency back-up contracts with National Grid, such as the one for one unit next winter which Mr Athanasiou estimated was worth £18m.
He said he believed SSE would either "wait another year to see what happens or shut down part of the plant".
"It will depend on their view of what the prices are going to do in future," he said. "If they decide the forward curve is what it is, the decision I think is take the penalty and shut down.”
A SSE spokeswoman said: "Following the capacity market auction in December we said we would continue to analyse market conditions and opportunities for all our plant going forward.
"That analysis is continuing and in the meantime existing operations are unaffected."
Ministers announced plans last year to tighten up the penalties for failing to deliver under the scheme, and are also conducting a wider review of the scheme to try to ensure it delivers new gas plants rather than diesel generators.
A spokesman for the Department of Energy and Climate Change said: "We are clear that providing a secure supply of affordable energy for our families and businesses is non-negotiable.
"We have taken steps to protect our energy supply and will continue to do so working alongside National Grid and Ofgem."
I am continually puzzled why “experts” are surprised that coal power has become uneconomic because of the carbon tax. After all, that was the whole point of it. My guess is that Fiddlers Ferry will stay open through 2018/19, but if it really is losing so much money, I can’t see it lasting beyond that.