SSE Halts Plants, Delays Investment as CO2 Costs Hurt Profit

SSE Plc will halt some coal-fired power stations, cut jobs and delay investment in gas-fueled plants as soaring costs for carbon emissions weigh on profit.

The U.K.’s second-biggest energy supplier will curb thermal generation capacity by about 2,000 megawatts in the fiscal year starting April, affecting its Ferrybridge, Keadby, Peterhead, Slough and Uskmouth plants, the company said in a statement. It postponed investment in new gas plants until at least 2015.

The decision lends urgency to government plans to introduce energy-market changes. A draft law under consideration in parliament is aimed at attracting 110 billion pounds ($167 billion) of investment in new power stations and grid upgrades by 2020. Regulator Ofgem has said Britain faces a squeeze on energy supplies and higher bills as aging plants close.

“It appears the government is significantly underestimating the scale of the capacity crunch facing the U.K. in the next three years,” SSE Chief Executive Officer Ian Marchant said in today’s statement. “There is a very real risk of the lights going out as a result.”

A government plan to pay generators to make plants available during peak-demand periods should start in 2014 rather than 2018 as planned in the energy bill, Marchant said. A lack of clarity on the so-called capacity mechanism is delaying investments, according to SSE, which said no new gas-fired plants will come online until 2017 at the earliest.

Spare Capacity

The government is studying how and when the measure can best be used to ensure balance in supply and demand, Energy Minister John Hayes said in a statement, responding to SSE.

“We’re alive to the challenge facing us,” he said. “The bill before parliament will set the conditions for the investment needed to keep Britain’s lights on in the long term.” The amount of spare power currently available is “comfortable” and the government will ensure any reduction in that capacity is manageable, he said.

The U.K. is seeking to expand output of low-carbon power such as wind and nuclear by making it more costly to run fossil-fuel stations. It will demand utilities pay 18.08 pounds to emit 1 metric ton of carbon dioxide in the year through March 2016, the Treasury said in its budget yesterday. That compares with 4.94 pounds a ton when the program starts next month.

The “unexpectedly high” carbon price, combined with European Union rules requiring the most polluting power stations to close, prompted SSE’s review of its operations, it said.

Plant Shutdowns

The changes, leading to job losses, will include shutting two units at the Ferrybridge coal plant. SSE also postponed a plan to bring the Keadby gas-fed station back into operation after an upgrade, mothballing the site for at least two years. It will halt units at its Slough biomass facility and Uskmouth coal plant, and curb output at the Peterhead gas-fired station.

The utility delayed investment decisions on a 470-megawatt gas facility at Abernedd, South Wales, a second unit at Keadby and the Seabank-3 gas station in Bristol.

Centrica Plc, the U.K.’s biggest household energy supplier, said last month it was looking overseas for expansion as Britain’s stagnant economy holds back demand. The company has opted out of a plan to build nuclear reactors at two power plants in the U.K. with Electricite de France SA.

(Updates with minister’s comments from sixth paragraph.)
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