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4-Traders Homepage  >  Equities  >  London Stock Exchange  >  Drax Group Plc    DRX   GB00B1VNSX38

DRAX GROUP PLC (DRX)
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British power capacity auction fails to attract gas projects

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02/09/2018 | 03:02pm CEST

LONDON (Reuters) - Britain's latest auction for back-up electricity cleared well below expectations but without many new gas projects securing agreements which are thought to be needed to help bridge the gap when coal and nuclear plants come offline next decade.

Thursday's auction for 2021/22 supply cleared at 8.40 pounds ($11.71) per kilowatt (kW) per year, National Grid's website showed, well below the 15 to 25 pounds range which analysts had forecast.

In December 2016, a similar auction for supply four years in advance (2020/21) cleared at 22.50 pounds/kW/year.

Out of the 50.4 GW of capacity agreements awarded, 48.4 GW was existing capacity and interconnectors. Medium and large-sized new gas projects exited the auction above the clearing price.

"The auctions for the next three years will depend entirely on the government's view on how quickly and uniformly they want their targeted new gas build of 3-7.5 GW to be built to plug the gap from coal closures by 2025," said analysts at Bernstein.

Britain began capacity auctions in 2014, looking to head off future power shortages as coal plants close and as low electricity prices dissuade investors from building new capacity.

Plant owners are paid to make available back-up power at short notice.

Some 8.3 GW of existing coal capacity withdrew from the auction, National Grid data showed.

Bernstein analysts said around half of that could close down by October 2019 as the plants have no capacity market agreements after that time.

WINNERS AND LOSERS

The 470-megawatt North Killingholme gas-fired power station project being developed by C.GEN Killingholme Ltd, failed to secure an agreement, the auction results showed.

SSE (>> Scottish and Southern Energy) secured agreements for almost 3.4 GW of gas-fired and embedded power generation plants and a 806 megawatt hydro electric and pumped storage plant.

However, it did not secure agreements for a proposed new-build combined cycle gas turbine plant, Keadby 2.

It also did not get one for its coal-fired power station Fiddler's Ferry but says there is no immediate impact as three of the four units there have agreements for supply until 2019.

"SSE will consult with major stakeholders and make a final decision about the future of Fiddler’s Ferry beyond the station’s capacity contract commitments, which run to September 2019," the company said in a statement.

Drax Group (>> Drax Group Plc) said it secured capacity market agreements to provide more than 1.2 GW of capacity from its two existing coal units at its Yorkshire coal and biomass plant.

Drax said two new open-cycle gas turbine (OCGT) projects participated in the auction but exited above the clearing price.

Drax expects these projects to participate in the next auction for supply four years ahead.

EDF Energy said it got one-year agreements for 2021-2022 for nuclear power plants Dungeness B, Sizewell B, Hinkley Point B, Heysham 1, Heysham 2, Hartlepool, Torness and Hunterston B and its West Burton B CCGT plant.

A record amount of capacity, almost 10 percent, was secured by interconnectors which transport power to and from Britain and Europe.

Three existing power links, connecting Britain with France, the Netherlands and Northern Ireland won a total of around 2.4 GW.

Three links yet to be built - one connecting Britain with Belgium and two new links with France including Eurotunnel Group’s Eleclink - won contracts totalling 2.2 GW.

(Additional reporting by Swati Verma, Vijaykumar Vedala and Susanna Twidale; editing by Alexander Smith and Jason Neely)

By Nina Chestney

Stocks mentioned in the article
ChangeLast1st jan.
ELECTRICITÉ DE FRANCE 1.39% 12.425 Real-time Quote.19.24%
NATIONAL GRID PLC -0.15% 886.5 Delayed Quote.1.30%
SCOTTISH AND SOUTHERN ENERGY 0.00% 1427.5 Delayed Quote.8.14%
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