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Why Investors Are So Reluctant To Build New CCGT Capacity

December 19, 2016

By Paul Homewood

 

n-power.REUTERSRebecca Naden

RWE npower’s Pembroke Power Station in Wales

 

There are three very good reasons why the energy industry is so reluctant to build new CCGT power stations.

 

The first has been well discussed and concerns the problems of competing with subsidised renewables.

 

But there are two other factors, which have received less attention.

 

 

1) Economic Life Expectancy

From a technical point of view, gas power stations would be expected to operate for at least 25 yrs, which is the assumption made by BEIS in their recent study of comparative generating costs.

But would a new such plant, launched in say 2025, still be allowed to operate in 2050? Obviously, from everything we have been told, the answer would be no. Indeed, it may be forced to close much sooner than that.

This uncertainty is a huge problem in itself. The Capacity Market auction, for instance, only offers contracts for 15 years.

Naturally, a new power station that may only be operational for 10 or 15 years will need to sell its output at a much higher price than if it were to run for 30 years. If it cannot achieve that increased revenue, there will be big question marks over its viability.

 

2) Carbon Pricing

The other big uncertainty is what will happen to the carbon pricing.

Currently this is set at £18/tonne CO2 above the EU ETS price, a total of about £23/tonne at the moment. This equates to about £8/MWh for a CCGT generator.

However, the Committee on Climate Change expects the market price for carbon to have risen to £42 /tonne by 2030. Worse still, they are wanting the government to set a much higher “target price” of £78/tonne.

The latter would push the cost of carbon pricing up to £28/MWh.

With fuel and other variable costs of around £40/MWh, the marginal cost of a CCGT plant by 2030 could have risen to £68/MWh, well above the current wholesale price.

Unless you can at least cover your variable costs, you are better off stopping in bed.

Unless the wholesale price rises substantially, there would be no point in switching on. The only time they might cover marginal costs would be during peak demand periods, when spot prices rise.

 

And it gets worse! All government projections assume that the carbon price will have to carry on rising sharply after 2030. The BEIS study, for instance, assumes it will rise to £200/tonne by 2050 (all at 2014 prices).

Even if a new build CCGT can manage to turn a profit in the early years, it would quickly become totally unviable once carbon pricing starts mounting up.

Given all of these obstacles, it is little wonder that investors are not prepared to finance new projects.

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20 Comments
  1. Derek Buxton permalink
    December 19, 2016 11:41 am

    Do our government not have a “duty of care” for all the populace? If they do, they cannot drive said populace into fuel poverty causing death for many!

    • December 19, 2016 1:06 pm

      You might check on the attitude of your Sir David Attenborough. He is on board with widespread human death. Not his own, apparently.

      • David Richardson permalink
        December 19, 2016 1:19 pm

        Joan – how dare you Sir David is an official National Treasure, just ask anyone in the UK – they just love him!!!!!

        Sorry just being sarcy – I totally agree with your point.

        Ben Pile wrote a piece about him a couple of years back entitled ” Hate Ethiopians,Love Polar Bears “.

        http://www.thegwpf.com/david-attenborough-hate-ethopians-love-polar-bears/

  2. AlecM permalink
    December 19, 2016 11:42 am

    The 2009 Poyry Report predicted exactly this outcome. This is why Davey decided to lie to the Public by opting against David McKay’s expert advice for Diesel STOR.

    The windmills are our equivalent of the Easter Island Statues; they cause more fossil fuel use than no windmills. Davey, Huhne, Barker etc all have well-paid jobs for the energy Mafiosi. They must all be prosecuted for corruption. This must include lord Oxburgh who led the fake CRU investigations – he is CEO of Mafia-owned Falck Renewables.

    There is a solution which bypasses all the Carbon Trader traps. We shall see if T. May has any courage at all by allowing it to proceed despite opposition by those who controlled the Cameron governments, and partially control the present government.

    The alternative is that she will also join the criminals.

  3. December 19, 2016 11:50 am

    Sense has got to prevail long before 2030, hopefully long before 2020, otherwise the country will have civil unrest. The CCA must be repealed and the CCC disbanded. The DECC bureaucrats transferred into BEIS need sacking.

    • rwoollaston permalink
      December 19, 2016 11:58 am

      I agree, but what hope is there? Here is the reply I recently received from my MP upon highlighting to him Lord Donohue’s paper on the costs of Climate Change policy:

      “Thank you for your email of 8th December on climate change policy.

      Whether or not the Labour party change their stance on the importance of climate change, this Government will remain entirely committed to tackling this critical global issue and contribute to international efforts to reverse the man-made damages that have been wrought on our planet.

      The Energy Act is the best example of this, including pledges that are aimed at making the UK one of the first developed countries to eliminate coal (the dirtiest fossil fuel) from its energy equation. All coal-fired power stations in which carbon is not being captured will be closed by 2025 and the overarching age in terms of emissions is an 80% reduction by 2050.

      The Government also set up the International Climate Fund to provide £5.8 billion to help the world’s poorest adapt to climate change and promote cleaner, greener economic growth. Through it, the UK works in partnership with developing countries to:

      – Reduce carbon emissions through promoting low carbon development;
      – Help poor people protect themselves from the effects of climate change
      – Reduce deforestation.

      In addition, the UK supports efforts to integrate climate change policies into international development plans. Rest assured that at both the domestic and internationally level the Conservative Party remains committed to a greener future.”

      Absolutely dreadful!!

      • Harry Passfield permalink
        December 19, 2016 4:22 pm

        RW: That reply from your MP is pretty much word for word the same as I received from mine when I also complained about power generation strategy in the UK. My guess is that these responses are pulled from a central database of responses cobbled together by Greens who are deep sleepers within BEIS/CCC etc. The DECC (as was) refused my FOI request to find out how many of their staff had been or were currently members of a green organisation.

        What it comes down to is that MPs are scared witless to speak there own minds based on logic. They know they will keep their jobs by following the government/party line.

  4. John Fuller permalink
    December 19, 2016 12:01 pm

    It is 11:59 am on Mon 19 Dec. Currently in the UK demand is 46.8GW; Coal is supplying 9.0 GW, Nuclear 8.3GW, CCGT 25.1 GW, Wind 0.8GW, Biomass 2.1GW and Solar 0.5 GW. But I guess there is a plan…

  5. December 19, 2016 12:17 pm

    I notice that the Renewable Heat Incentive scheme (scam) in Northern Ireland is getting more publicity. http://www.bbc.co.uk/news/uk-northern-ireland-38363206

    We need the same publicity for the waste and corruption involved in all renewable energy scams.

    • AlecM permalink
      December 19, 2016 12:32 pm

      Another Mafia scam. The ministers who put forward the legislation must be sacked, if only for incompetence.

  6. December 19, 2016 12:42 pm

    Even the strongly pro-renewable Guardian highlights the UK’s power problem.

    Risk of Christmas electricity blackouts next year, warn MPs
    http://www.theguardian.com/business/2016/dec/19/risk-of-christmas-electricity-blackouts-next-year-warn-mps

    [Grant] Shapps said: “A radical rehabilitation of electricity markets is required to bring both consumer prices and capacity concerns under control in the short term.”

    In the longer term he said the government should “work to make it profitable for private companies to invest and innovate in our electricity markets once again”.

    If the government is supposed to manipulate the market forces, what was the point of privatisation?

  7. Dung permalink
    December 19, 2016 12:45 pm

    What are the responsibilities of governments in terms of making sure that the utility needs of the population are fully and cheaply met?
    At what point in time did the voters tell the government that we neded them to ‘fight climate change’ or the even more ludicrous ‘save the planet’.
    Our government has answered voters questions about our actions on climate change and admitted that after spraying hundreds of billions of our taxes at the problem, it has no idea if we made any difference.
    There are no climate change/energy experts in government , in fact most of them are not even capable of asking a coherent question on the subject let alone answer one.
    UK government in 2016 is not fit for purpose.

  8. December 19, 2016 12:46 pm

    Another report has been produced recently about the impending UK capacity crunch, this one from the British Infrastructure Group (of MPs):

    http://britishinfrastructuregroup.uk/wp-content/uploads/2016/12/Electric-Shock-17.pdf

    Not read it properly yet, but they seem to be attacking from the wrong angle, the cost of providing reserve capacity, which they say is very high, but to me the real scandal is that providing 5% extra capacity is such a small percentage of bills, because of all the profits, dividends, subsidies and various other gravy train provisions that make up a huge fraction of electricity bills.

  9. December 19, 2016 1:17 pm

    From the last Sunday Telegraph (the one with Paul’s excellent letter about tidal power), here is a failed CCGT bidder complaining about coal still getting capacity payments:

    http://www.telegraph.co.uk/business/2016/12/17/scottishpower-demands-government-change-coal-plans/

  10. December 19, 2016 1:21 pm

    Reblogged this on Jaffer's blog.

  11. Jack Broughton permalink
    December 19, 2016 1:26 pm

    There is another insidious movement by the green-blob: and that is to demolish the UKs coal fired power stations as fast as possible. Ferrybridge demolitiion contracts let, while they crow about the miniscule wood-burning “green” power stations being built on the site of a great power station.

    These coal-fired power stations could be brought back into service at low capital cost and even using imported coal would provide the cheapest (true) cost electricity for the UK. Once they have been demolished new will not be economic even without the foolish carbon taxes…… another victory for the lunatics unfortunately.

    The wood-burning replacement of coal is so stupid as to be incredible.

  12. Tanveer permalink
    December 19, 2016 7:39 pm

    I fail to understand why then so many CCGT Projects are in Pipeline and many are in Completion Stage around the World Particularly in Countries formerly in USSR, in Middle-East. I do understand these Countries have Huge Deposits of Natural Gas. But why then Europe is also in Que?
    This Technology is Dominated by Companies from Japan and few from Europe.

  13. Max Sawyer permalink
    December 24, 2016 12:25 pm

    Abolish carbon pricing – job done.

  14. Max Sawyer permalink
    December 24, 2016 12:30 pm

    The only relevant figure is the UK’s minuscule contribution to global CO2 levels – around 1.5%. So it really matters not one iota what we do. We should generate our electricity by the cheapest possible means. Even if that doubles our CO2 emissions, so what – 3% is neither here nor there and the benefits to the economy of cheaper energy would be massive.

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