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U.K. Risks Power Brownouts If Dec. Capacity Auction Delayed

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March 26 (Bloomberg) -- A delay of more than a few months to the U.K.’s planned auction of back-up power capacity may hold up construction of new power plants and trigger brownouts, according to National Grid Plc.

Britain needs to hold the auction as scheduled in December to build new plants by 2018 as part of a program that will pay utilities to provide power during peak periods, Mark Ripley, the project director for electricity market reform at National Grid, said in London yesterday. The capacity mechanism still needs European Union approval under the bloc’s competition rules.

“It takes about four years to build a combined cycle gas turbine,” Ripley told delegates at a conference. “If the auction is delayed to January or February, that’s OK, but if we get to April or May, then you will lose the build season in summer and that becomes difficult for 2018-19.”

About 25 percent of total generation fleet will shut by 2020, increasing the risk of brownouts or lights dimming, according to National Grid. EU rules starting in January 2016 oblige utilities to equip plants with technology to cut non-greenhouse emissions, or close them by 2023 or when they have run for 17,500 hours.

In the December auction, utilities will bid to get National Grid payments for standing ready to provide power in peak demand periods from 2018. Having the auction in advance is meant to give certainty for future investment in new plants, according to the U.K.’s Department of Energy and Climate Change.

EU Approval

The capacity mechanism needs to get EU approval to ensure the payments don’t violate the bloc’s rules on state aid, according to DECC. The European Commission is investigating the payments Britain pledged to Electricite de France SA to build the U.K.’s first nuclear plant in 25 years.

Capacity margins are expected to drop to below 2 percent in 2016 and 2018 from 18 percent in 2010, according to data from electricity regulator Ofgem.

“Our concern is how to get to 2018,” Ravi Baga, head of upstream policy and regulation at EDF Energy, said at the conference. “Since 2013 it has been difficult to see the sustainable spreads needed to keep plant running. The capacity mechanism should be about keeping capacity running to 2018, not just getting new plant built.”

The clean-spark spread for next winter, a measure of profitability for gas-fed plants, is 1.17 pounds ($1.93) a megawatt-hour at 10:13 a.m. London time, according to data compiled by Bloomberg. That compares to a clean-dark spread for coal plants of 19.15 pounds, the data show.

The penalties for unreliable capacity in the back-up power mechanism will be capped at 200 percent of a provider’s monthly income and 100 percent of their annual income, Ofgem said on March 19.

“We have heard some concerns over the penalties which are seen as too strict,” National Grid’s Ripley said.

To contact the reporter on this story: Rachel Morison in London at rmorison@bloomberg.net

To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Sharon Lindores, Andrew Reierson

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