SSE Urges U.K. to Hasten Power-Plant Payments to Keep Lights On

The U.K. must accelerate plans to pay power-station operators to guarantee generation capacity or risk stymieing investments, utility SSE Plc said.

Payments should be made from the tax year starting next April, Chief Executive Officer Alistair Phillips-Davies said in an e-mail. They’re currently scheduled to start in 2018.

The planned payments, included in a draft U.K. energy law, would give utilities a catalyst to keep unprofitable gas-fired plants open and add new generators to ensure sufficient supply. The regulator has said shutdowns could put Britain at risk of a major power shortage about once every 12 years from 2015, compared with once in 47 years now.

SSE decided in March to mothball a plant at Keadby, citing the “very poor” economics of gas-fed power stations. Phillips-Davies said incentives are needed to spur industry spending.

“We need to get on with building new plants and we need to keep existing plants open,” the CEO said. “Market forces are putting generators under pressure to do the opposite.”

Electricity prices have dropped as the economic slowdown curbs demand. The U.K. next-month spark-spread, a measure of the profitability of gas-fired plants, has been negative since the end of May.

The government is trying to attract 110 billion pounds ($170 billion) of investment in new power stations and upgrades to the grid with a new energy bill currently being debated in parliament. The draft legislation includes plans for capacity auctions, which determine payments for power-plant owners to make units available for specific periods.

Capacity Mechanism

“The proposed Capacity Mechanism is a good solution, but unfortunately it won’t do anything to tackle the short-term problem if the first payments aren’t made until 2018,” Phillips-Davies said. “Major investment decisions cannot be made unless a stable, proven and predictable underlying policy framework is in place.”

The CEO follows Iberdrola SA Chairman Ignacio Galan in calling on the U.K. government to speed up the start of capacity payments. Galan said in February that Britain risks blackouts this decade without progress on the issue.

The Department for Energy and Climate Change didn’t immediately respond to a request for comment.

The government said in June that it plans to award 15-year capacity contracts for new plants, one-year deals for existing stations and contracts as long as three years for those that need refurbishment.

SSE placed the 735-megawatt Keadby plant into “deep mothball,” whereby it would take about a year to bring it back into operation. Centrica Plc and GDF Suez SA also have suspended plants, according to network operator National Grid Plc, which said in July that other aging gas-fired generators may be mothballed this year because of “marginal economics.”