Centrica, Gas & Oil Fired, Nuclear, Wind

Centrica chiefs urge UK government to change capacity market design

Centrica’s top management have used the occasion of their annual results announcement to call on the British government to re-draw the country’s capacity market scheme.

Iain Conn, the company’s chief executive urged the action to get subsidies “up to a level where it encourages new investment” as prices were currently too low for investors to build new plants.
Iain Conn
The scheme offers fossil fuel and nuclear power plant owners retainer-style payments totalling more than £800m a year to guarantee their availability in future years and is intended to help keep the lights on as renewable capacity is increased.

However the economics have not added up to the extent that just one new gas-fired power plant may be built, while SSE announced the closure of its Fiddler’s Ferry plant despite being in line for the subsidy.

Because of the unattractiveness of the scheme, “there is a looming gap for 2018-19 winter period”, Mark Hanafin, head of Centrica’s energy production business, said, adding, “Investors are going to need to see significant changes to the way the capacity market is being operated.”

More capacity needed to be secured further in advance, especially as the scheme assumed Britain’s wind farms would produce 15pc of their capacity. “That’s fine if the wind is blowing. If the wind’s not blowing, it’s not 15pc, it’s zero,” he said.

Mr Conn also says existing plants should be awarded three-year rather than one-year contracts, saying it is “not sufficient” to encourage companies “just to limp along and keep their plant running for an extra year”.

Centrica has so far failed to take up its option to build a new 1GW gas-fired power plant at King’s Lynn.

It is also considering upgrading a mothballed old 370 MW plant at the same site, but failed to secure a capacity market contract for the project.

The Department of Energy and Climate Change has already said it is reviewing the design of the scheme.

Profits at the British Gas household energy supply business rose by 31pc to £574m last year, despite the company twice cutting gas prices.