Falling gas prices making CCGT investment more likely or are we just reliant on central Government subsidised investment in new renewables and nuclear plant?

Issues affecting electricity generators and the energy market as a whole.

This week there has been much speculation about the potential for new Combined Cycle Gas Turbine (CCGT) plants to be built following a sustained period of low gas prices, particularly as over 70% of costs or running these plants have traditionally been the gas itself.

However a reading of market commentary on this suggests no one is convinced about prices staying low for a sustained period. The fact that Mr Putin continues to threaten to cut supplies of gas that travel through Ukraine into Eastern European, does not help. In addition, the Russians are in the mix again now that the EU has finally laid out its charges against Gazprom - formally accusing it of operating a strategy of artificially partitioning EU markets in breach of EU competition rules – effectively fixing prices too high.

And the ‘bad gas’ news just keeps coming: Centrica reported falls in profits from its gas plants in both 2013 and 2014 –falling to £131m last time. The generator has announced the closure of two gas-fired plants at Brigg and Killingholme and halted plans to sell plants in Langage and Humber. There is even speculation that it is now vulnerable to take-over. The market watchers say that margins on gas power generation remain too thin – probably around 2% - and the market uncertainties too great.

The stats don’t lie: there are currently 18.5 GW of consents held by generators to build new CCGT plants, only one project of which is currently being developed. Apart from this case, the view from a number of the major generators is that market conditions and policy uncertainty are holding back investment in new CCGT plant. Generators certainly want to know much more of the detail around the capacity mechanism and the Feed In Tariff Contracts for Difference (FIT-CfD) in order to be able to plan their investments.

It seems we are now relying heavily for new power capacity on Government subsidies offered for both nuclear power and renewables generation. Take for example the generous CfD terms offered for Hinkley Point C which is set to be built by EDF at a cost of more than £16bn.

The only other genuinely good news in power generation investment and growth is coming through renewables investment right now. Take Iberdrola’s success at West of Duddon Sands Wind Farm, west of Barrow-in-Furness, which was officially opened last October. Production rose by 15% to 1249MWh in its latest numbers.

As Scottish Power’s Chief Corporate Officer Keith Anderson said: “Offshore wind is now coming into its own with the power produced from the new windfarm at West of Duddon Sands ahead of expectations in the first quarter of this year. This shows the potential of offshore wind now that we are able to use larger turbines and better technology, which we will advance further with other new offshore projects, notably the 714MW East Anglia One wind farm in the North Sea.”

So is it renewables and nuclear all the way to achieve UK energy security as coal, oil and gas plants are progressively turned off? We suspect it’s not that simple.
Next time we will look in more detail at the issues of the fossil-fuelled generators.

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