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Bid to fire up power stations to ease energy crisis 'strangled with red tape'

·5-min read
Sutton Bridge power station
Sutton Bridge power station

The backers of two mothballed power stations have accused the Government of thwarting an effort to restart them, which it is claimed could cut more than £2bn from energy prices this winter.

A row erupted after Severn Power station in South Wales and Sutton Bridge in Lincolnshire failed to win official support to re-open within weeks despite financial backing from a Texas billionaire.

Their directors have told ministers that the two gas-fired plants would help tackle the cost of living crisis by bringing down record-high household energy bills.

They have accused the government of “strangling the market with red tape”, adding that their power stations would help avoid blackouts while emitting less carbon than other active gas and coal-fired plants.

However, Whitehall sources hit back by saying there was “nothing to stop” the plants competing in the electricity market and that striking a special deal with them risked encouraging other generators to “try to hold the Government over a barrel”.

The row comes amid a global crunch on gas supplies which has pushed wholesale gas and electricity prices to record levels, heaping pressure on households and businesses and causing the collapse of more than 20 retail energy suppliers. Power is currently trading at above £200 per megawatt hour, four times the average.

Both power stations were mothballed when then-owners Calon Energy went into administration in August 2020. However in March the plants secured financial backing to allow them to operate again from Beal Bank, a US bank founded by Andrew Beal, a Texas billionaire who advised Donald Trump on economic policy during his presidency.

When the power stations went into administration they automatically lost their contracts to supply the capacity market, under which generators are paid to be on standby as an insurance policy against blackouts, and were barred from qualifying for March's auction for this winter.

During a meeting with Department for Business (BEIS) officials on October 21, the directors made clear that they were ready to fire up the plants within weeks but were told they were “too late”. Contracts are awarded under a fixed timetable.

The directors pushed BEIS and National Grid for "a solution that would underpin a minimum level of stable returns” for the plants and later said officials' "failure to engage" meant they had to suspend their plans to restart.

One source close to the discussions said: "The whole thing is a complete s--show.

"This country is facing the worst energy crisis in decades. These plants could help cut prices and keep the lights on during winter. But firms are being completely shut out of the process because the market has been strangled by red tape.

"Energy customers will end up paying the price for these poorly-designed rules."

Gas-fired power stations remain the largest single source of UK power, accounting for 36pc in 2020, even as more wind and solar power plants are brought online.

In October National Grid ESO, which balances electricity supply and demand, said that Britain faces a greater risk of blackouts this winter than last given the availability of supplies.

It has forecast a capacity margin - the buffer of spare electricity supply - of 6.6pc, the lowest since 2016.

The dormant power stations’ backers argue that restarting them could provide an extra source of electricity to help meet demand.

They claim they could also help cool prices: first, by dampening the scarcity effect where suppliers capitalise on demand by putting up their prices.

Secondly, they say the plants' size means that Severn in particular could end up setting prices in the market instead of less efficient equivalents currently doing so.

Directors argue that this effect could help shave £2.1bn off wholesale power prices during the first three months of the year, which would likely lead to lower household bills. Whitehall sources said they did not recognise this figure.

In a report for the directors, energy market analysts Cornwall Insight forecasts average wholesale prices of £209.99 per megawatt hour during the first quarter of 2022 if the stations are in the market. The forecast is £10.35 per megawatt hour lower than a base forecast of £220.33 without them.

Tom Edwards, senior modeller at Cornwall Insight, said: “If you bought these plants back, especially Severn because it's more efficient, I think the [wholesale] price would fall. By how much it falls will depend on behavior, wind speeds, and what happens on the continent.”

Cornwall estimates total notional profits, known as the spark spread, of £96.7m for the plants during the first quarter of 2022.

The directors have also argued that generators should be able to get greater certainty over revenues in the electricity market, and should be given stricter penalties if they do not fulfil commitments.

A Whitehall source insisted there was nothing to stop the owners re-starting the plants outside of the capacity market, adding that “if the stations are as competitive as they maintain, they could enter the market without government support.”

The source added: "A bespoke arrangement would undermine the existing legal and regulatory framework. In future, we might expect market participants to stop entering the capacity market and wait until the winter and then try to hold Government over a barrel – thereby undermining the whole process we have for providing security of supply.”

A BEIS spokesman said: “We have sufficient capacity to meet demand this winter. It is neither necessary nor appropriate for Government to enter into bespoke contractual arrangements for the return of Severn and Sutton Bridge, or any other generators, to provide electricity capacity this winter.”

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