SSE ‘review’ power station’s future after Peterhead misses out in UK capacity market auction

Peterhead power station
Peterhead power station

Perth-based utility giant SSE has provisionally secured agreements to provide a total of 4,451MW (megawatts) of de-rated electricity generation capacity from October 2017 to September 2018 in the GB Capacity Market Auction.

The auction cleared at a price of £6.95/kW (kilowatt) – a price subject to confirmation by the British energy minister.

The SSE capacity which has provisionally secured an agreement in the auction comprises:

  • 840 MW of hydro electric and pumped storage plant; and
  • 3,611 MW of coal, gas-fired and embedded power generating plant.

To secure the £30.9 million revenue arising from the Capacity Market, SSE must produce electricity when the system requires it in 2017-18; failure to do so will result in penalties being levied.

However, SSE’s Peterhead power station (1,034MW de-rated capacity) did not secure an agreement.

The station’s location means it is required to pay significantly higher Transmission Entry Capacity  costs than other power stations on the electricity system.

This puts it at a disadvantage in the Capacity Market auction – the same factor which contributed to Scottish Power’s decision to close its Longannet coal-fired power station 10 months ago in Fife.

An SSE spokesman added: “ In light of these provisional auction results, the fact that Peterhead has failed to secure a contract in any of the three previous Capacity Market auctions, and other economic considerations, we will be reviewing future options for the station over the coming months and will engage with all stakeholders during this review.”

The review will not impact current operations at the station.

One unit at SSE’s Fiddler’s Ferry power station (423MW de-rated capacity), which is not fitted with Flue Gas Desulphurisation plant, also failed to secure an agreement.

As part of its ongoing dialogue SSE will engage with the UK Government about the results of the auction, and the potential implications for the design of future Capacity Market auctions.

Overall, fossil-fuel power stations were among the winners of contracts worth £378 million to ensure adequate supplies of UK electricity next winter.

Gas-fired stations secured the biggest share of contracts — almost 40% — in the capacity auction held by National Grid.

Coal and biomass plants won a further fifth of the contracts, which pay power companies to be available during peak demand on winter evenings.

Last week’s auction closed at a lower-than-expected price of £6.95 per kilowatt, implying plentiful supply and raising questions over whether the auction was needed at all.

Dr Alastair Martin, chief strategy officer at Edinburgh-based Flexitricty, commented: “Prices like that will delight Government.

“The consumer is getting supply security for only a modest hit on bills.  The lesson is that auctions discover prices, and Dutch auctions discover low prices.  Government made a shrewd pick of auction format for the capacity market.”

Meanwhile, the SNP launched a party-political attack on the Tories after the operator of the Peterhead power station confirmed its future is ‘under review’.

Local MSP Stewart Stevenson, said: “It is grossly unfair that Peterhead was disadvantaged in the UK government’s Capacity Market auction purely because of its location in the North East of Scotland.

“Whacking higher transmission fees on Scotland’s only gas-fired power station because it isn’t next door to London is both ludicrous and discriminatory.
“The Tories previously axed their commitment to invest £1 billion in CCS technology that was earmarked for Peterhead – and this latest revelation is just another example of the Tories managing a decline in investment and damaging the local economy, jobs, and the future capacity of Peterhead as an energy provider.
“Scotland is an active contributor to the UK’s energy market however developing capacity will be impossible if we cannot compete on a level playing field.  

“The Tories can’t justify stifling investment and development in Peterhead whilst building new power stations elsewhere in the country. Strategically, economically and ethically, it doesn’t make sense.”

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