GDF Suez boss criticises short term capacity crunch action

Short term measures to keep the lights on are unnecessary and will distort the market, the head of a major UK generation company has warned.

Ofgem is consulting on plans for a “supplemental balancing reserve” to give National Grid powers to pay generators to reopen mothballed plant or keep power stations running for longer.

Steve Riley, CEO of GDF Suez Energy UK-Europe, told Utility Week that would extend the lifespan of inefficient plant while confusing the market signals to bring on new gas generation.

There are some “extreme scenarios” in which power capacity gets tight in winter 2015/16, but the lights going out is “unlikely”, he said. “We would like to see a long term solution rather than a series of short term interventions.”

He urged government to accelerate plans, which form part of the Energy Bill, to encourage investment into new gas plant through a capacity mechanism. The first auction is scheduled for late 2014, to bring on the new power stations in winter 2018/19.

Riley said: “At the moment, with Electricity Market Reform, there is a capacity mechanism being designed which is there to encourage new investment for the long term and that is absolutely fine.

“If new gas stations come on the system, they are likely to have a much lower load factor and need to recover their costs over a shorter period of time. What we would really like to see is that long term capacity market up and running sooner than is planned.

“In the short term, there may be tightness in the [power generation capacity] margin. For winter 2015/16, Ofgem and National Grid are planning another intervention for the supplemental balancing reserve.

“I am less in favour of that. I think they would do better to bring the long term capacity market in quicker.”

GDF Suez is unlikely to bring its mothballed Teesside gas-fired power station back on the system, Riley said. The 1,875MW plant was one of the first combined cycle gas turbines to be built and “there is other capacity that would be brought back ahead of Teesside”. It “makes sense” to consider the site for new developments, he added.

Meanwhile, the company is considering the conversion of its Rugely coal-fired power station to burn biomass. The conversion project got planning approval in January but “there are still a few unknowns”.

Government has yet to publish sustainability criteria for biomass, expected last month. It is also consulting on the level of support for biomass conversion through contracts for difference.

GDF Suez expects to make an investment decision by the end of the year. If the conversion does not go ahead, Rugely could run on coal until the early 2020s before rising carbon costs and aging parts are likely to make it uneconomic.