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Things are looking up for investment in gas-fired power stations but Brussels could still throw a spanner in the works, industry figures have warned.
The Department of Energy and Climate Change (Decc) last week published final designs for a Capacity Market, with the first auctions to be held in December for delivery in winter 2018. The mechanism is intended to address a looming capacity shortfall by paying generators to be available to back up intermittent renewables.
Developers of new gas plant will be eligible for 15-year contracts, extended from 10 years in earlier proposals. Decc also capped penalties for non-delivery.
Irish utility ESB is one of the few companies actively developing gas generation at the moment, with an 800MW plant under construction at Carrington.
Paddy Hayes, executive director for generation and wholesale markets at ESB told delegates at Marketforce’s Future of Utilities conference in London “government has been listening”.
He added: “It is a much more positive and bankable market mechanism than it was when it was first floated. We are hopeful that those moves signal an end to the uncertainty.”
However, the timing is subject to the government’s Electricity Market Reform (EMR) package getting state aid approval from the European Commission. The Commission has already raised substantial doubts about one element of EMR: subsidy for Hinkley Point C new nuclear plant.
Keith Anderson, chief operating officer at Scottish Power said the Commission’s reaction to Hinkley showed state aid clearance “is going to be a long and tortuous process”.
The Capacity Market design “is starting to fall into place” but it is “critical” not to let the timetable slip, he added.
According to Ofgem, the capacity margin is going to tighten over the next few years as old coal and nuclear stations retire before new generation comes online. Delays to the capacity auction would exacerbate the situation.
Decc’s gas strategy, published in December 2012, called for up to 26GW of gas generation capacity by 2030, to help bridge the transition from coal to low carbon energy sources. There has been little investment in recent years, however, as a result of political uncertainty and high gas prices.
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