Queue grows for UK gas plant applications

Queue grows for UK gas plant applications

London (Platts)--25May2006

The queue to obtain Section 36 consents from the UK government for new
gas-fired power stations has dramatically increased in size over the last few
months, according to Power UK's latest power plant tracker. There are now at
least nine large gas-fired projects awaiting consent -- equating to more than
7-GW of capacity.
Over the last few months, a number of companies have applied for consents
-- Carlton Power, EDF and E.ON. This month Carron Energy became the latest
company to adds its name to the list of applicants. Carron is looking to build
a 800-MW combined cycle gas turbine (CCGT) power plant on the River Usk, near
Newport in South Wales -- adjacent to its existing Uskmouth station. Mott
MacDonald has been appointed as owner-engineer. The plant is to be
single-shaft and use dry low NOx technology. An environmental assessment has
been completed. Although no offtaker has yet been found for the project Carron
does not rule out setting up a gas-tolling deal to finance the plant.
A new CCGT will need a gas connection -- either to the LDZ or the
National Transmission System -- which has yet to be finalized. There is high
pressure gas in the local gas network which may mean a direct NTS connection
is unnecessary. Planning permission will be needed to extend the substation.
Electricity transmission charges in the area are currently negative -- which
should provide a small boost to the project's economics. However, a number of
other gas-fired plant are planned for the area which could mean that charges
could become positive within five years.
As well as projects planned for Milford Haven, a couple of others are
planned for locations closer to the Uskmouth site. For instance, Suncoke has
applied for consent to build a 130-MW combined heat and power plant at site in
Port Talbot. Developer Acorn Power has also earmarked the Port Talbot area for
a gas-fired project. Acorn has begun an environmental impact study for a
1,200-MW plant. It has agreed the lease option on the land but has yet to
apply for consent.

UNCERTAINTY AND ANTICIPATION
The total capacity of the new applications more than replaces that of
planned capacity whose consents lapsed at the end of last year for plant.
These included projects planned by TXU, Enron, ABB and GE.
If all of the applications were given consent and went ahead soon the new
projects could help address the UK's falling plant margin. According to
National Grid (January Seven Year Statement), the UK's plant margin will fall
to around 12% by 2011/12 if no new plant gets built.
However, it seems unlikely that many will go ahead in the short-term --
instead companies are merely getting a toe in the door until economic and
regulatory conditions are more favorable.
A number of uncertainties face new developers at the moment -- the main
one being that of price. Gas prices have been at record levels (around
80p/therm) in recent months but they are set to fall as import facilities come
on-line.Platts reports that winter 08 prices are currently trading at
68p/therm.
The difference between electricity and gas prices (the spark spread)
increases along the curve too. Platts estimates that by summer 07 the spread
is around ?9.2/MWh. However, this is still not high enough to trigger new
build. Clean spark spreads of between ?10-12/MWh are seen to be needed for new
build.
New entrant economics can be boosted by emissions trading. Under the EU
Emissions Trading Scheme (ETS), new plant are elligible for a full allocation
of carbon allowances (EUAs). This could reduce the spark-spread needed for a
new project (if it received all of them between 2007 and 2012). However, there
is much uncertainty surrounding the ETS and the size of any de facto capital
subsidy. Prices in the ETS have been very volatile in recent weeks (see other
stories) and there is no sign that this volatility will diminish. Predicting
prices for the second phase is virtually impossible at the moment because the
size of the cuts in emissions needed have not yet been agreed. There is also
uncertainty surrounding just how many of the allowances will be auctioned. In
addition, there are questions whether there will even be a third phase post
2012.

The full version of this article appears in Platts Power UK. For more
information on this and on Power UK's power plant tracker, visit
http://www.platts.com/Request%20More%20Information/

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