Gas generation in Britain set for ‘comeback’: ICIS

Up to 15GW of new gas-fired plants could be built in Britain over the next five years, as improving market conditions lead to a “comeback” for the fuel, according to research by ICIS.

The price reporting firm has compiled a list of 18 plants which are currently in the pipeline and are expected to come online by the end of 2020 – if they go ahead. Their report says this represents 20 per cent of new generation which could be commissioned over the period.

Deputy editor of European Spot Gas Markets at ICIS Ben Samuel said: “They are in various stages of development. So some of them are planned; some of them are still making investment decisions; … some of them are more just pipeline activity.”

According to the report the UK has more gas-fired plant in the pipeline than any other European country, accounting for more than half of the 28.5 GW of gas-fired generation currently in development in 12 countries across the continent.

Samuel said some of the plants on the list might not end up being built, and that the list might not be exhaustive as some projects might be being planned which haven’t been announced yet. 

ICIS said gas generation is looking set to make a “comeback” after suffering through “difficult times” in recent years due to a combination of factors including falling demand following the 2008 recession; low coal prices and the growth of renewables. In Britain gas generation fell from 40 per cent of the total energy mix in 2011 to 25 per cent in 2013.

The introduction of the carbon price support in 2013 – which is more costly to coal generation because of its higher emissions – and subsequent increases to its level, as well as the falling price of gas over the past year or so, has led to improved market conditions for gas generation.

The clean spark spread – the difference between the wholesale price for a unit of power and the cost of the gas and carbon allowances used to produce it – has been trending upwards according to ICIS.

In October 2014 they calculated that the clean spark spread for a typical gas-fired plant delivering power in the winter of 2016 was £2.22/MWh. They said by mid-May this year that figure had risen to £6.57/MWh. By comparison they said the equivalent figure for a typical coal-fired plant fell from £12.42/MWh to £4.42/MWh.

Samuel said after “coal having been king for quite a long time” due to low coal and carbon prices, we are now seeing a switch towards gas. According a recent report by market monitoring firm EnAppSys there has been a “dramatic role reversal” for coal and gas in the first quarter of 2016.

This year has already seen the closure of Longannet and Ferrybirdge coal-fired plants as well Eggborough leaving the main energy market. Fiddler’s Ferry was given a last minute reprieve after being awarded black start contracts by National Grid and Rugeley is set to close this summer. Earlier this month the UK ran without coal-fired generation for the first time in more than a century. 

Gas plants are also set to benefit from the capacity market payments when generators start delivering in the winter of 2017. The list compiled by ICIS includes two new build plants which have already capacity secured capacity contracts.

Carrington Power Station – an 800MW combined cycle gas turbine (CCGT) plant being built by Irish firm ESBI in Greater Manchester – was awarded a one-year contract in December’s auction, after missing out in the first auction the year before. The plant is due to come online this year and is currently undergoing commissioning.

Another CCGT plant in Greater Manchester – the 1.9GW Trafford power station being developed by Carlton Power – was awarded a 15-year contract in the first auction. However, according to reports the plant may not be able to meet its 2018 delivery date because of a struggle to secure financing.

In March this year the government proposed an overhaul of the capacity market auctions to try and ensure more new build gas plants are able secure contracts. Eight of the proposed plants on ICIS’ list applied for capacity contracts in at least one of the first two auctions but failed to win one in either.