German firm plans to close one station and reduce output at three others, leaving UK with precious little spare capacity
E.ON is to shut one gas-fired power station and expects to reduce output at three others despite continued warnings from the National Grid and others that Britain faces a capacity crunch and potential blackouts.
The German-owned gas and electricity provider said it planned to end power supplies from Stoke-on-Trent in the Midlands and scale back operations at Castleford, Sandbach and Thornhill in the north of the country.
E.ON recently closed the Kingsnorth coal-burning power station in Kent while another big six supplier, RWE, has closed Tilbury on the Thames. The huge Eggborough facility in North Yorkshire, owned by private equity firms, is also under threat of closure while Centrica, the owner of British Gas, and SSE have mothballed gas-fired stations.
Power companies argue that while coal-fired stations are being hit by tougher pollution regulations emanating from Europe, the economics of gas ones are also being hit by a combination of factors including relatively high wholesale gas prices when compared with cheap coal supplies exported from the US – where it has become surplus to requirements thanks to the country’s shale gas boom.
“Over the last five years, E.ON has invested £6bn in the UK’s infrastructure, but there is no doubt that the operational environment remains very challenging, particularly for CCGT (combined cycle gas turbine) power stations, which in many areas are continuing to fight for survival in the current market, providing increasing uncertainty around future generating capacity planning,” said Richard Pennells, a director at E.ON UK.
E.ON, like German-owned RWE, is also suffering from wider financial problems in its domestic market, which led to a prediction in November that it could be forced to close more than 11,000 megawatts of capacity around Europe.
The decision by the Berlin government to run down its country’s nuclear power stations after Japan’s Fukushima disaster has cost German utilities billions in writedowns.
The Stoke plant produces only 56 MW, but its closure and the moves at the three other plants will still shake a government that has been told by energy regulator Ofgem that power companies may have to be paid to keep old power stations on standby to meet power shortages that some have claimed could hit at any time.
But E.ON said the four power stations that are affected by its plans are all around 10 years old, are not built to be easily switched on and off, and are in need of potentially costly maintenance or refits to keep them running in the longer term.
“You don’t buy new tyres for an old car,” said one E.ON source, who added that it was important to take commercial decisions for the sake of the group and the customer who could end up paying.
The risk of blackouts – including ones this winter – has been at its highest level for almost a decade, the Grid warned two months ago.
Ofgem has also said that with old and polluting power stations closing, the spare generating capacity on the power system was likely to fall to 4% in 2015/16. The now dismantled state-owned Central Electricity Generating Board at one time used to argue that a minimum capacity to cope with peak demand should not be less than 25%.
The gas and coal power station shutdowns in Britain come just as many old nuclear plants go offline as they end their natural life. New wind farms have not been built as fast as expected either.