9 October 2002 – UK utility Powergen today announced its decision to withdraw 1800 MW of generation capacity because of the prevailing level of market prices.

Powergen, now part of Germany’s E.ON group, will withdraw from service the two operational 675 MW oil-fired units at its Grain power station and the one operational 450 MW CCGT module at its Killingholme plant.

Dr Paul Golby, Chief Executive, Powergen UK, said, “Since the start of NETA, wholesale electricity prices have declined to below the cost of production – this situation is simply not sustainable, the market is bust. What is needed is a clear long-term energy policy that delivers all the Government’s objectives and not just low prices. And a market framework that establishes an appropriate balance between the various fuels.”

Today’s announcement follows the mothballing of unit 2 at Killingholme earlier this year. In recent months US-owned TXU mothballed several UK coal fired generation units and the Fifoots Point plant of U.S. group AES was placed into receivership as plants across the country struggle to cover costs, let alone turn a profit. International Power PLC mothballed half the generation capacity of its 500 MW CCGT Deeside power station in North Wales from 1 April.

The latest ‘seven year statement’ published by National Grid (NGC) in May 2002 showed that the capacity available for the 2002/3 winter was 67564 MW. NGC projected that the demand for electricity in a very cold winter could reach 55306MW – giving a plant margin of 22.2 per cent even in extreme weather.

The consequence of an oversupplied market is that prices are very low and have fallen 40 per cent from the level in 1998. Current forward energy prices are in the range £13-15/MWh with UBS Warburg estimating a new entrant price of £21/MWh

Dr Golby said, “Since putting proposals to mothball loss-making plant to Ofgem several weeks ago, the events at British Energy have served to highlight the problems faced by generators. Whilst these actions will have an immediate and positive effect on costs, we will continue to review our options in light of these difficult market conditions. The current state of the market is a critical issue for generators and one which must be addressed as part of the Government’s Energy Policy review.”

Powergen said that every effort would be made to re-deploy staff to other Powergen facilities.