U.K. Pays Power Companies Early to Keep the Lights On

Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--The looming threat of electricity blackouts throughout the U.K. in the coming years has prompted the government to bring forward its planned power auction payments to encourage electricity suppliers to keep plants running.

The move comes in response to a growing number of power plant closures by energy companies citing uneconomic market conditions. This has worsened the country's growing shortage of spare electricity capacity. Last year, Industrial Info reported that spare capacity stood at just 1.2% facing into the winter, which is the lowest in 10 years, according to figures released by the country's electricity grid operator, National Grid. For additional information, see July 23, 2015, article - U.K. Risks Winter Blackouts as Power Stations Close.

To combat the problem, the government is planning to "buy more electricity capacity and buy it earlier--encouraging more investment in our energy system". To begin, the start of the Capacity Market will be brought forward one year. The first Capacity Market auction took place last year, with successful power generators being guaranteed a fixed price for electricity supplied at short notice to maintain peak power levels. This means that plants which may have been shut down are kept in standby mode.

Energy Secretary Amber Rudd explained: "Ensuring that our families and businesses have secure energy supplies they can rely on now and in the future is not negotiable, and I'll take no risks with this. The Capacity Market has driven down costs and secured energy at the lowest possible price for bill-payers, but I'm taking further action to tackle the legacy of under-investment and ensure our country's long-term energy security. By buying more capacity earlier we will protect consumers and businesses from avoidable spikes in energy costs. We're also sending a clear signal to investors that will encourage the secure and clean energy sources we need to come forward--such as gas and interconnectors--as part of our long-term plan to build a system of energy infrastructure fit for the 21st century".

Last month, SSE plc (LSE:SSE) (Perth, Scotland) announced plans for the early shutdown of three of the four operating units at the 2,000-megawatt (MW) Fiddler's Ferry coal-fired power station in Cheshire, England. It blamed "continuing challenging economic and environmental conditions for coal" for its decision. In the same month, French energy firm ENGIE (EPA:ENGI) (Paris, France) announced the summer closure of the 1,050- MW Rugeley coal-fired power plant in Staffordshire, England, citing low power prices and higher carbon costs for its decision. For additional information, see February 17, 2016, article - SSE Plans Unit Shutdowns at Fiddler's Ferry Plant in U.K. and the February 15, 2016, article - ENGIE to Shut Unprofitable Rugeley Coal-Fired Plant in the U.K..

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