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Trafford CCGT Still Can’t Get Finance

December 20, 2016
tags:

By Paul Homewood

 

h/t Joe Public

 

image

http://www.powerengineeringint.com/articles/2016/12/manchester-gas-plant-gives-up-450m-subsidy.html?utm_content=bufferb0e58&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

 

It looks like Carlton Power have given up the ghost with their proposed new CCGT plant at Trafford.

From PEI:

 

The owners of the 2GW Carlton gas-fired power plant in Manchester have given up a £450m subsidy, part of the UK’s capacity market scheme, as the facility is unlikely to be completed on time.
Carlton Power insist they will still go ahead with the project, capable of delivering electricity to 2 million homes but had to turn down the subsidy after failing to secure sufficient investment to build the gas power plant on time to produce electricity by the end of 2019.
Carlton Power
The Trafford gas-fired power station was the only new large-scale gas plant to get financing under the government’s capacity market scheme, designed to secure the country’s electricity supplies, but failing to meet the financial commitment milestone means they will not be taking it up.
"We did not have sufficient certainty that our Trafford combined-cycle gas turbine project (CCGT) would be completed in the time required," the company said in a statement.
The subsidy, secured in the 2014 capacity auction, was worth around £30m a year for 15 years and capability to commence producing electricity by end 2019 was part of the contract.
Britain began capacity auctions in 2014, looking to head off future power shortages as coal and older nuclear plants close and low power prices dissuade investors from building new ones. Despite the subsidies, investors are concerned about the uncertainty of revenues from new gas plants, Carlton Power said.

 
Trafford gas plant

 
Reuters reports that the company said it would discuss with the Department for Business, Energy and Industrial Strategy (BEIS) ways overseas firms could be encouraged to invest in new gas plants in Britain.
“Since securing the
capacity market agreements in December 2014, we have invested significant resources to complete the development of Trafford with our chosen EPC Contractor GE and we had reached the stage that we would be ready to start Trafford’s construction in January 2017 which would deliver much needed low-cost electricity in early 2020,” a statement from Carlton Power added.
Claiming that the plant would have made a return of 16%, the company added that investors, “remain very concerned about the uncertainty of merchant revenues for new CCGT projects,” and said that despite government statements that new CCGTs were required, “it has become increasingly apparent that the current arrangements for supporting the development of new generation capacity do not give sufficient comfort for this to be brought forward without substantial and unacceptable risk to investors.”
Carlton said it would continue to pursue the Trafford plant and another at Thorpe Marsh, and said it would discuss with BEIS “ways in which much needed overseas investment can be encouraged to participate in this essential regeneration of reliable, low cost GGCT capacity.”

http://www.powerengineeringint.com/articles/2016/12/manchester-gas-plant-gives-up-450m-subsidy.html?utm_content=bufferb0e58&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

 

Carlton were awarded a contract of £19/KW/Yr for 15 years in the Capacity Market auction in 2014. This has subsequently risen to £22.50/KW/Yr in the latest auction earlier this month.

My guess is that it would take a much higher price to persuade investors to put their money in.

 

By  coincidence, I a post summing up the problems facing new build CCGT just yesterday.

Carlton’s statement bears out everything I said:

Claiming that the plant would have made a return of 16%, the company added that investors, “remain very concerned about the uncertainty of merchant revenues for new CCGT projects,” and said that despite government statements that new CCGTs were required, “it has become increasingly apparent that the current arrangements for supporting the development of new generation capacity do not give sufficient comfort for this to be brought forward without substantial and unacceptable risk to investors

 

 

As I pointed out, there are three major issues:

1) Competition from subsidised renewable energy

2) Uncertainty about whether they will even be allowed to operate after the mid 2030s.

3) The threat of large increases in the carbon price.

 

Carlton maintain that they will still go ahead, but this sounds very much like whistling in the wind. The investors have spoken, and it will need something very substantial for them to change their minds. 

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19 Comments
  1. David Richardson permalink
    December 20, 2016 7:21 pm

    Sums up well what you have been saying for a while Paul and especially the piece on CCGT yesterday.

    The people who are responsible for our energy policy are truly stupid. Those who are calling for all subsidies to be removed from all forms of generating must prevail in the end – mustn’t they?? Answers on a postcard to …….

    The capacity market is similar to sawing the legs on a chair to balance it up – whenever you “fix” what is supposed to be a market it will end badly.

    Nigel Lawson said a while back that when he was Minister for Energy in the 80’s, it was his job to ensure reliable energy supply for citizens at the lowest possible cost – and now the idea is to make energy as expensive as possible.

    I don’t know whether the next few decades will be colder as many scientists are now predicting, but if they are, then the energy policy and cost has been driven in totally the wrong direction.

    Not completely O/T – a good Stateside sunmmary of where we are

    http://www.hoover.org/research/obsolete-climate-science

    • December 20, 2016 7:40 pm

      Great article David. Hard to imagine that any one could take exception to comparing cost and benefits. How this deception has gone on so long is mind boggling.

  2. December 20, 2016 8:15 pm

    It would be a rash company that built a power station that might only operate for 15 years. I would imagine that a director making such a decision could be sued by shareholders for gross negligence (but I am no lawyer).

  3. HotScot permalink
    December 20, 2016 8:59 pm

    Excuse my ignorance, but what’s the difference between CCGT power and GGCT power?

    • Dung permalink
      December 20, 2016 11:55 pm

      I have never heard of GGCT, I think somebody made a mistake and you assumed the opposite.

  4. December 20, 2016 10:48 pm

    I could do worse than repeat an argument which is in danger of becoming my theme song.

    The whole edifice of capacity market auctions, contracts for difference and all the other make-money-for-troughers schemes (why not call them “the Deben System”?) is destroying what used to be a pretty reliable electricity generation and distribution network for most of my lifetime, as I am sure my aging contemporaries will agree.

    Its success was built on that wonderful organisation the Central,Electricity Generating Board run, pretty much, by people who had virtually total control of that network, from commissioning the power stations right through the process of generation and transmission to the final delivery by the regional boards to the consumer.

    It wasn’t bust; it didn’t need fixing. Separating generation from transmission was always likely to be a disaster because they are as intimately linked as a pair of conjoined twins. Giving every Tom, Dick and Harry with a windmill access rights to the grid as and when his windmill happened to be producing electricity was also always likely to be a recipe for disaster.

    Paying him over the odds for every watt he produces, giving him priority over cheaper sources, and paying him yet again when his windmill is not wanted or needed is the economics of the madhouse.

    Pretending that “the wind is always blowing somewhere” or that the nameplate capacity of a windmill bears any relation to its ability to generate electricity as/when needed is tantamount to a fraud on the British public. As, indeed, is the whole concept of a competitive market in generation.

    The only solution that makes any sense from where I sit is to re-establish the CEGB, invest every generating plant and the grid in that organisation and leave it to do the job of generating and distributing power as it thinks fit. If that sends French and German energy companies scurrying for the Eurostar home then even better(!); the only reason they invested in UK energy in the first place was because we allowed them to make bigger profits than their own countries. They have been milking the British consumer, ably assisted by clueless British governments, for the best part of two decades.

    There are some things that are genuinely better run and owned centrally where the decision making is coherent across the organisation. Electricity infrastructure is one. Let’s do it!

    • December 21, 2016 7:07 am

      I agree with 99% of what you say. However, although the CEGB was a fine engineering organisation and produced a reliable electricity supply system, it really did need fixing as it was incredibly inefficient.

      • December 21, 2016 9:59 am

        I suppose it was and it does tend to be a failing of state monopolies but I think we have moved on enough by now to overcome that and even in its inefficiencies it was better than the dog’s breakfast we have now!

    • December 21, 2016 11:48 am

      I would rather see a system like the railway or defense industries , some central body decides that a new CCGT is needed, private industry competes to build it, and it gets paid for (guaranteed) over several years, then private industry competes to run it, making a small profit even if a loony-green govt comes along and forces it to be mothballed.

  5. December 21, 2016 1:39 am

    Reblogged this on Jaffer's blog.

  6. Dung permalink
    December 21, 2016 1:00 pm

    @ Climanrecon

    NOT Defence!
    Our Destroyers have engines that do not work in warm waters, our surface warships no longer have the ability to attack enemy surface ships with anything other than the deck gun, our aircraft carriers can only operate with one friendly aircraft (F35B). Our newest aircraft (F35B) carries too small a weapons load, has too short a range is not fast enough and the airframe will not tolerate hi speed stress (it can’t dogfight) . You mentioned a dogs breakfast, I give you an Irish Wolfhound breakfast.

    • December 21, 2016 3:03 pm

      Actually, Dung, it was me that mentioned canine meals, but I agree with you that defence procurement as presently practised is not the way forward.

      I still (and speaking as a convinced libertarian and capitalist) cannot get my mind round the idea that vital infrastructure — electricity supply, telecoms, railways — can be safely handed over to the market to satisfy an ideology.

      I’m not talking front-end; I don’t care who runs the trains or sells me the electricity or my internet connection but I do care that the nuts and bolts — the track and its equivalent wires and satellites and things — are being run by experts who are doing it purely for my benefit and not cutting corners because they are trying to maximise profit or because they kept their tender price down.

      Or, as seems to be the case with UK energy policy, because they can con government into believing that windmills, solar panels, and tidal barriers are capable of providing a cheap, reliable, guaranteed electricity supply.

    • A C Osborn permalink
      December 21, 2016 4:00 pm

      Totally agree.
      You forgot, Scrapping Nimrod and destroying the aircraft that had been built plus selling off perfectly good Harriers for a pittance.
      Don’t forget we also have more Admirals than we have Naval Ships.

      • Dung permalink
        December 21, 2016 4:11 pm

        Do not get me started on defence! My blood pressure will not stand it ^.^

    • December 21, 2016 4:18 pm

      Most of those problems are due to the involvement of the State, in particular the procurement agencies, sometimes changing their minds, sometimes not really knowing what they want, sometimes being useless at project management.

      CCGTs are pretty much off-the-shelf systems, which should not cost a lot if paid for up-front, but will cost a lot if that cost can only be recovered via a highly uncertain numbers of hours operation at a highly uncertain price of electricity, with a highly uncertain amount of taxation.

  7. Dung permalink
    December 21, 2016 4:07 pm

    It is the involvement of the government itself which is the problem, however much you distrust ‘the market’ I trust the governmment even less and also it is the involvement of environmental NGOs in the process.
    In an open, competitive market, customers should be the winners..

    • December 21, 2016 4:36 pm

      That is why I advocate the simple notion that if a sensible govt comes along and decides that it needs a new CCGT it should just sign a contract to buy one, that contract makes it very difficult for loony-greens to get rid of the CCGT.

      • December 21, 2016 9:55 pm

        I know exactly what you are saying, climanrecon, and the only point where I might differ is over who owns the power station. I don’t want anyone except the CEGB involved in decisions regarding generation. By all means if a new power station is needed put a contract out to tender for construction only.

        I don’t expect Ford to tell me what to do with my car after I’ve bought it and I certainly don’t want Babcock (or whoever) dictating which power stations can be used and how much they will charge for electricity. That is the bind we are in now.

        And like Dung I don’t really trust government. They are too prone to listen to superannuated cabinet ministers with 50-year-old History degrees who re-invent themselves as experts on renewable energy just at the time they happen to join companies with interests in renewable energy. Which is also an integral part of the bind we are in. Time was when Prime Ministers would have had the guts to have that revolving door slammed in somebody’s face!

  8. BlueJohn permalink
    January 3, 2017 12:58 pm

    I was waiting for this to happen, and am not surprised that it has been hushed-up and not reported. It remains to be seen whether the winners and losers in these two current auctions will be clearly identified, and whether the government or National Grid will be seen to be forcefully claiming the £8M penalty charge from this mysterious company Carlton Energy / Trafford Power / Wainstones Energy or whatever subsiduary has made all these promises and bid an unrealistic amount for the contract.

    It’s amazing that projects like Knottingley Power are emerging while established, consented projects like Thorpe Marsh (Carlton again) and others have no immediate prospect of proceeding.

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