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Market may need intervention to secure winter capacity, warns Platts

Unless power prices increase soon, the market may need intervention from supervisory organisations to ensure adequate capacity is secured for winter 2016/17, price reporting firm Platts has warned.

The firm has released a report following announcements in recent months that SSE will close three of the four units at its Fiddler’s Ferry coal-fired plant and that Engie will close its Rugeley coal-fired plant entirely.

Report author Steve Wilson told Utility Week: “Unless there is an increase in the price which is sufficient to signal for operators to bring plants … back for the next winter, we don’t see how the supervisory organisations [the Department of Energy and Climate Change (Decc), National Grid or Ofgem] can wait long before they have to take action. We will have to wait to see what form this action will take.”

Wilson said the clean spark spread – the difference between the wholesale power price and the cost of the coal and carbon allowances needed to produce said power – has risen by around £1/MWh since the closures of Fiddler’s Ferry and Rugeley were announced. Although he couldn’t put an exact figure on it, he said prices will need to go up by a lot more to encourage the return of mothballed plants.

The report projected that coal closures will cut wholesale market capacity to less than 50GW in the coming winter. It warned that even with the 3.5GW of capacity secured through the Supplemental Balancing Reserve (SBR) taken into account, Britain will still need a further 4.5GW of capacity in order to obtain a peak reserve margin of around 5.5 per cent – the amount which it calculates National Grid will be targeting based on previous years. 

It said even if 4.5GW of capacity does come online by then, the surplus margin (minus the SBR) will still be just 0.72 per cent, down from 1.87 per cent over the past winter. As things stand, Wilson pointed out, National Grid is only allowed to contract another 200MW of backup capacity into the SBR.