Eon threatens Killingholme closure without grid contract

Eon has pulled its 900MW Killingholme power plant from the market ahead of the UK’s looming capacity crunch this winter, warning that it could make the closure permanent unless it secures a supply contract from National Grid.

Eon said on Thursday it would pull the gas-fired power plant from the grid, adding that it had tendered for a winter supply contract which could make the plant economically viable in otherwise difficult market conditions. The company warned that without one the plant faced ‘a real and present risk’ of closure.

The threats come mid-way through National Grid’s tender process to decide which plants will be offered supply contracts to secure winter supply availability as part of its multi-million pound supplemental balancing reserve (SBR).

Eon’s chief executive, Tony Cocker, said “the market conditions for gas-fired power stations are extremely difficult and without support from the SBR contract, permanent closure is a real and present risk to Killingholme”.

Market conditions have deteriorated for thermal plants in the UK and across Europe as subsidised renewable energy drives the market price for generated power lower while relatively expensive gas keeps the costs of generating high, squeezing profits margins for gas-fired generators.

To maintain security of supply as the UK’s surplus margins dwindle, National Grid offers its SBR contracts to plants that can remain on standby for times of system stress.

For winter 2015/16, National Grid has already awarded contracts to two Centrica-owned gas-fired power plants – South Humber Bank and Barry – which will be contracted to provide 40MW and 227MW respectively. In addition Corby Power’s gas-fired plant has been contracted to provide 353MW of power for next winter.

Supply margins for last winter and the winter to come were forecast to be the tightest this decade, prompting criticism that the government’s “last minute” measures have come at a cost to the environment and the consumer.

For longer-term security the government offers contracts through its capacity market to secure supply up to four years ahead. But the Killingholme plant was unsuccessful in the most recent round.

National Grid also offers contracts to energy users to commit to reducing demand if needed. In total the transmission system operator spent over £30 million to hold generators and users in reserve.

Cocker said that “first and foremost” the company was focused on supporting the 50 employees who work at the site “to ensure the best possible options are available on an individual level”.