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SSE and Centrica look set to benefit after UK spark spreads for winter 2016/17 delivery rose by 33 per cent in just one week, according to analysts at Macquarie Research.
The spark spread – the difference between gas and power prices – for delivery in winter 2016/17 reached around £7/MWh this week, an increase of £2/MWh.
As the owner of two closing coal plants, and more than 5GW of combined cycle gas turbine (CCGT) capacity, SSE is expected to be a key winner if the increased spark spread is maintained. Macquarie calculated that every £1/MWh increase in the spark spread will boost the company’s earnings per share by 1.5p, and that going coal free will add another 4p.
Centrica is also likely to do well with its predominantly gas-fuelled generation fleet. Macquarie predicted that every £1/MWh increase in the spark spread will lead to a 1.1p rise in the supplier’s earnings per share.
The report said gas prices are falling faster than power prices because the carbon price is holding up the cost of coal generation. Although the markets are “oversupplied on average”, analysts predicted coal closures at Longannet, Ferrybridge, Fiddler’s Ferry and now Rugeley over the course of this year will result in a sizeable negative reserve margin this coming winter.
However, it said, the lights will be kept on by old coal plants being contracted into the supplemental balancing reserve, which has risen from 2.5GW to 6GW currently, as happened with Eggborough this week.
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