RWE confirms disposal an option for UK gas power plants

04 Apr 14 – RWE’s [ETR:RWE] UK combined cycle gas turbine power plants, Pembroke and Staythrope, may be divested, a company spokesperson confirmed.

“In the UK we are trying to operate the assets as well as we can. It must be said that the gas-fired assets are not performing to where we would have liked to see them,” the spokesperson added, speaking at the International Utility Conference. “We are open for those discussions. For conventional generation it will depend on what are our internal views of asset and the auction value of asset.”

This news service reported in January that RWE had been in talks with potential acquirers about selling the plants. At the time, sector bankers suggested that Vitol, Gazprom, and Macquarie’s infrastructure fund as potential buyers for the assets.

The power plants, Pembroke and Staythorpe, have low profit margins due to continuing low spark spreads – the cost difference between wholesale power prices and the cost of the gas used to produce the power. This means that they are only switched-on during times of high peak power prices. 

Pembroke, a GBP 1bn investment, began generating power in 2012. Staythorpe cost GBP 680m to construct and formally opened in 2011.

The spokesperson added, however, that the CCGT plants could play an important role in a low-carbon energy mix, as a back-up to intermittent wind power generation. 

“Coal, at some point, will be phased out as part of the 2030 CO2 target. We have a great belief that back-up capacity will be needed and that will have to be gas,” she said. “You can’t mothball coal for a summer and then you bring it back on the grid, you just don’t have the flexibility.”

A capacity mechanism – where power plants are paid fees to be on stand-by for times of power constraint – could provide the incentive needed for RWE to retain the plants, she said. 

“The question is: how quickly can we get to a market design that keeps those assets in the market? Because clearly we cannot mothball them forever either,” she added. “We do need to see a solution if the government wants to keep those assets on the market.”

The UK’s government’s Department of Energy and Climate Change (DECC) plans to introduce a capacity market this year for power delivered in 2018. Several utilities, however, have argued for it to be brought forward as CCGT power plants could remain loss-making until then. And questions still remain over the size of payments and volumes of power implicated in the capacity market.

RWE has a market cap of EUR 16.82bn. It reported a net loss of EUR 2.8bn for 2013.

by Katie McQue

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