SSE steps up capacity crisis alarm with plans to close 2,000MW of generation

SSE today warned of heightened risk that the lights could go out as it announced plans to take 2,000MW of generation capacity offline in the next financial year.

It said government is “significantly underestimating” the scale of capacity crunch facing the UK and called for capacity payments to be brought forward to 2014 to avert disaster.

As well as closing coal-fired power plant to comply with European legislation, the energy company is ceasing generation at some gas and biomass plant it says have become uneconomical to run.

SSE does not expect to make investment decisions on new gas-fired plant in the pipeline until 2015 at the earliest, due to uncertainty around government support available.

Ian Marchant, chief executive of SSE, said: “Ofgem recently expressed real concern about the tightening of the UK’s generation capacity margin that will follow expected plant closures in the next few years, predicting a 1:12 chance of ‘the lights going out’.

“It is unlikely that the majority of the reductions in generation capacity and the delays to new investment we have announced today will have been included in this analysis, which highlights that the situation is likely to be even more critical than even they have predicted.

“It appears the Government is significantly underestimating the scale of the capacity crunch facing the UK in the next three years and there is a very real risk of the lights going out as a result. The Government can reduce this risk very easily, by taking swift action to provide much greater clarity on its electricity market reforms and bringing forward capacity payments for existing plant from 2018 to 2014.”

Units at Ferrybridge and Uskmouth coal-fired power stations with a combined generation capacity of 1,100MW will be shut down. SSE had considered converting Uskmouth to run on biomass, but decided the subsidies on offer were insufficient to make it worthwhile.

A biomass plant at Slough suffered from the removal of the Carbon Credits system and made a loss in 2012/2013. SSE is shutting down two units, cutting 60MW of capacity.

Keadby gas-fired power station will be “deeply mothballed” – meaning it would take a year to recommission – due to low spark spreads. That will cut 735MW of capacity.

SSE will cut back generation capacity by 780MW at Peterhead gas-fired power station due to “excessively expensive” transmission charges in northern Scotland. This will not affect its plans to run a commercial-scale carbon capture and storage trial at the site, it said.

Managing director of generation Paul Smith said: “We have made it clear that all of our power stations have to be able to operate economically over the medium term. The market conditions for some of our older generation plant have become increasingly difficult, but these changes to their operating regime should ensure they continue to contribute to the company’s performance by safely delivering target levels of availability, efficiency, cost control and ultimately profit contribution.

“These decisions have not been easy ones to take, particularly when they have been forced upon us despite the best efforts of the teams at each site to do everything possible to improve the efficiency and productivity of their generation plant.”

Some of the closures will be offset by new developments but Smith said SSE needed the right market signals and support structures to make the necessary investment decisions. “Neither of these is currently in place and the kind of decisions SSE is taking, to close existing generation plant on the one hand and delay investing in new plant on the other, is likely to be reflected across the industry in the coming months.”