Two mothballed power plants’ backers have accused the Government of preventing them from being restarted. This could, it is claimed, cut energy prices by more than £2bn this winter.
Tonight, a row broke out after Severn Power station (South Wales) and Sutton Bridge (Lincolnshire) failed to secure official support to reopen within weeks despite financial backing by a Texas billionaire.
Ministers were told by their directors that the two gas-fired plants would reduce the cost of living and bring down the record-high house energy bills. They claim that the government is “strangling” the market by imposing red tape. However, their power stations will help prevent blackouts and emit less carbon than active gas or coal-fired plants.
Whitehall sources retorted that there was nothing to stop the plants from competing in the electricity market and that striking a special agreement with them could encourage other generators “to try to hold the Government over the barrel”.
This row is occurring amid a global shortage of gas supplies, which has driven wholesale gas and electricity prices to record levels. This placed pressure on households and businesses and led to the collapse of more than 20 retail energy suppliers. The current power price is above £200 per megawatt-hour, which is four times the average.
Calon Energy, the former owners of both power stations, went into administration in August 2020. The plants were able to get financial backing from Beal Bank in March, which was founded by Andrew Beal (a billionaire in Texas) to enable them to restart operations.
The power stations went into administration and lost their capacity market contracts. Under these contracts, generators are paid to be available as an insurance policy against blackouts. They were also barred from being eligible for March’s auction.
On October 21, BEIS officials met with the directors. They stated that they were ready for the plants to be fired up within weeks but were told it was too late. Contracts are awarded according to a set timeframe.
Directors pressed National Grid and BEIS for “a solution that would underpin minimum levels of stable returns for the plants” and then said that officials’ “failure in engaging” had forced them to stop their plans to resume.
According to a source close to the discussion, “The whole thing was a complete s—show.”
This country is currently facing the most severe energy crisis in decades. These plants could reduce prices and keep the lights on in winter. The market is being stifled by red tape, and firms are being shut out.
These poorly-designed rules will ultimately cost energy customers.
Despite more wind and solar power being brought online, gas-fired power stations will still be the biggest single source of power in the UK.
National Grid ESO balances electricity demand and supply in October. This aid shows that Britain is at greater risk this winter due to the limited availability of electricity.
It forecasted a capacity margin, or the buffer of electricity supply, of 6.6pc. This is the lowest level since 2016.
Backers of the dormant power plants argue that they could be restarted to provide additional electricity to meet rising demand.
They also claim that they can cool prices by dampening the scarcity effect, where suppliers capitalize on demand by raising their prices.
They also believe that the plant’s size could mean that Severn, in particular, could set prices on the market rather than less efficient alternatives.
Director argues that this effect could help to shave £2.1bn wholesale power prices in the first three months, which could lead to lower household costs. Whitehall sources claimed that they didn’t recognize this figure.
In a report to the directors, Cornwall Insight’s energy market analysts forecast that wholesale prices will average £209.99 per megawatt-hour in the first quarter of 2022, assuming stations are still on the market. This forecast is £10.35/MWh lower than the base forecast of £220.33/MWh without them.
Tom Edwards, Cornwall Insight’s senior modeller, stated: “If these plants were bought back, particularly Severn because it’s more productive, I believe the [wholesale] prices would drop.
“How much it falls will depend upon behaviour, wind speeds, weather conditions, and other factors.”
Cornwall projects total notional profits, also known as the spark spread, of £96.7m to the plants in the first quarter of 2022.
Directors also suggested that generators should have greater certainty about their revenues in the electricity markets and should face stiffer penalties for not meeting commitments.
Whitehall sources claimed that there was nothing stopping the owners from re-starting their plants outside the capacity market. They also stated that “if stations are as competitive and maintain their status, they could be allowed to enter the market without government support.”
Source added that a bespoke arrangement would weaken the legal and regulatory framework. We might expect future market participants not to enter the capacity market, but to wait until winter before trying to hold the Government hostage. This would undermine the entire process of ensuring supply security.
A BEIS spokesperson stated that they have enough capacity to meet winter demand. It is not necessary or appropriate for Government to make bespoke contracts for the return of Severn Bridge and Sutton Bridge, as well as any other generators to provide electricity capacity, this winter.
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