TIDMSSE
RNS Number : 0007O
SSE PLC
03 February 2016
SSE plc
FIDDLER'S FERRY COAL-FIRED POWER STATION
SSE plc has reviewed its options for the future operation of its
power generating plant that followed the result of the Capacity
Market Auction in December 2015. It has determined that it should
consult with employees and other stakeholders in the coming weeks
on the proposal to bring commercial operations to an end at its
coal-fired power station at Fiddler's Ferry, Cheshire. Although a
final decision has not yet been taken, SSE's expectation is that
(subject to consultation) it is likely to close three of the four
units from 1 April 2016 and it is informing the market
accordingly.
The station
Fiddler's Ferry is a four-unit power station with a total
capacity of 1,995MW (megawatts) that was opened in 1971. In January
2016, SSE entered into a contract with National Grid for 422MW of
de-rated capacity at the station, equivalent to one unit, to
provide Supplemental Balancing Reserve to the electricity system
for the winter of 2016/17.
From 1 April 2016, the station is due to have Transmission Entry
Capacity (TEC) of 1,455MW, which is equivalent to the capacity of
the remaining three units. This is the subject of a capacity
obligation agreement for delivery in 2018/19. Under the current
Capacity Market Rules and Regulations, SSE would be liable make a
payment of around GBP33m if it decides to cease commercial
operations and terminate this TEC before the end of the capacity
obligation agreement.
The end of commercial operations at Fiddler's Ferry would be
consistent with SSE's long-standing objective to transition its
generation assets from a portfolio weighted towards gas and coal
towards a portfolio more weighted towards gas and renewable sources
of energy.
Since the start of this winter, SSE has returned its 735MW
gas-fired power station at Keadby from 'deep mothball' to full
commercial operation and completed investment to enable 400MW of
capacity at its gas-fired Peterhead power station to operate
commercially - a total of 1,135MW.
As announced in May 2015, the remaining 524MW of coal-fired
generation capacity at SSE's Ferrybridge Power Station in Yorkshire
will cease operations and close by 31 March 2016.
The issues
All of the units at Fiddler's Ferry failed to secure a capacity
obligation agreement for delivery in the 2019/20 Capacity Market
Auction that took place in December 2015 and this raised further
questions about their viability, which has been challenged
fundamentally by:
-- The changing generation mix: coal stations are being
displaced within the generation mix by cheaper alternatives, namely
low carbon and gas-fired generation. They are therefore generating
less electricity, and receiving less income, than they have
historically. The long-term market trend, which continues to point
to gas prices enjoying a comparative advantage over coal prices and
for increasing volumes of low carbon generation to come forward, is
for this to continue.
-- The age of the station: as an aging asset, built in the
1960s, the station requires significant levels of expenditure to
maintain safe operations and adequate levels of reliability.
Whilst costs at the station have been reduced in recent years
they are not currently covered by the income the station receives
from generating electricity and providing services to National
Grid. Fiddler's Ferry has been loss-making over the last two
financial years and cash outflow in respect of the station is
expected to exceed cash inflow in all of the financial years
through to March 2020.
In addition in November 2015, the Secretary of State for Energy
and Climate Change announced that the UK Government would consult
on proposals to completely end electricity generation from
coal-fired power stations by 2025, with operations substantially
reduced from 2023. This clearly signalled policy intention is
unlikely to be reversed.
The people
During the forthcoming consultation period, SSE will consult
with all stakeholders who will be concerned about the impact of the
proposed end of commercial operations at the station, with a view
to exploring all possible options for the site.
SSE currently employs 213 people at Fiddler's Ferry. Subject to
the outcome of discussions about the future of three of the four
units at the station SSE will discuss with each employee any
options for future employment within the SSE group, including any
potential decommissioning work at the site, with a view to avoiding
or reducing the number of any potential redundancies. In the event
that redundancies should be unavoidable, enhanced terms will be
discussed during the consultation process. SSE will actively seek
to avoid, but cannot rule out, some compulsory redundancies if an
ongoing role for the three units at the station cannot be
identified.
SSE will set out its response to the consultations that are now
taking place around the end of March 2016.
Paul Smith, Managing Director, Generation, at SSE said:
"We said in December that following the completion of the
Capacity Market Auction we would consider the options for the
future operation of our power generating plant, including Fiddler's
Ferry. This has, unfortunately, led us to conclude that commercial
operations at Fiddler's Ferry may have to come to an end, subject
to the consultations that will now take place.
"Fiddler's Ferry power station has made an important
contribution to the UK's energy supplies for over 45 years. Over
that time the station has been maintained and operated by
professional and committed teams of people, and we are very aware
of the impact that the closure of three of the station's units
would have on our colleagues, their families, and the local
community. These facts alone have made it very difficult for us to
decide to start consulting with our employees and their
representatives on the future of the station.
"The reality is, however, that the plant at the station is
aging, its method of generating electricity is being rendered out
of date and it has been, and is expected, to continue to be
loss-making.
"The fact it makes more sense for SSE to contemplate making a
substantial payment in lieu of the capacity agreement relating to
Fiddler's Ferry in 2018/19 demonstrates just how economically
challenged Fiddler's Ferry has become.
"Sustaining uneconomic power stations for too long would
undermine SSE's ability to invest in modern generation plant in the
UK. Our commitment to the UK is strong: this winter we have
restored 1,135MW of gas-fired generation capacity to commercial
operations and since April 2008 we have invested around GBP1bn in
thermal electricity generation plant in this country and want to
invest more in the future.
"In the coming weeks, our key priorities will be to keep the
units at Fiddler's Ferry operating safely and reliably; and to
consult with our employees and other stakeholders. We expect that
consultation to be completed around the end of March." ENDS
This information is provided by RNS
The company news service from the London Stock Exchange
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