Centrica Launches $740 Million U.K Power Project as Bid from Gazprom Looms

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Researched by Industrial Info Resources (Sugar Land, Texas). As the proposed acquisition of the United Kingdom power utility Centrica (LSE:CAN) (Slough, United Kingdom) by Russia’s Gazprom (LSE:81JK.L) appears to be in the final closing bid phase, the U.K. power and gas company has announced a $740 million project to construct what will be the first major power station to be initiated in over five years.

The 885-megawatt (MW) gas-fired plant in Langage, Devon, is set to start commercial operations in 2008–2009. Power generated by the unit could meet approximately 11% of Centrica’s forecast peak residential electricity demand with the capacity to supply more than one million domestic residences. Only a limited number of large-scale power station projects have gained planning consent. Langage is scheduled to come into operation as the U.K.’s generation reserve margin continues to decrease in the coming years. The additional power will also enable Centrica to further optimize the cost of supplying electricity to its British Gas customers.

“British Gas is a leading household electricity supplier and we will continue to seek opportunities to increase our level of power generation, major contracts and tolling agreements in order to continue to offer competitive prices to our customers,” said Sir Roy Gardner, chief executive of Centrica.

Alstom has won the fixed price E+P+C (engineering, procurement and construction) contract to develop the combined cycle gas turbine plant. The investment will include covering the associated costs to develop a gas pipeline connection to the National Transmission System and current development costs. Alstom will provide maintenance support to Langage for an initial 12-year period under a long-term service agreement.

Langage, in the southwest of England has little existing power generation capacity. Centrica will benefit by receiving Transmission Network Use of System (TNUoS) payments. The project will also assist in underpinning National Grid’s reinforcement to the gas and power networks in the region.

Centrica was formed in 1997 after the demerger of British Gas and the company retains major gas and power assets in the U.K., Europe, U.S.A., as well as other countries. The company owns the largest fleet of combined cycle gas turbine stations in the U.K. When Langage becomes operational, Centrica, with its existing gas and renewable power generation assets, its Drax power station supply contract and tolling agreements, will be able to supply around 71% of its forecast peak British Gas electricity customer demand from its own sources.

The prospect of combining with Gazprom to ensure long-term, secure gas supply for the U.K. has supporters in government and industry. Gazprom is unashamedly on the prowl for acquisitions and extension of its reach internationally. It is backed by the weight of its reserves and monopolistic position in the Russian industry. It is looking to finalize plans to enter the U.S. LNG market within six months and might acquire an existing U.S. company or form a joint venture to market Russian LNG in the U.S. In a memorandum signed in April 2005, Sempra (NYSE:SRE) (San Diego, California) may provide its terminals for Russian LNG sales. For related news item see April 18, 2006 – Gazprom and US Await Critical Decision on $20 Billion Shtokman Gas Project.

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