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| Sun, 5th Feb 2023 16:43:00 |
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Billionaire investor K?etínský and trader Vitol eye fortune in British power plant subsidies |
Exclusive: Looming auction to earmark £1.5bn to put power generators on standby and keep the lights on
The billionaire West Ham United investor Daniel K?etínský and Swiss commodities giant Vitol are among bidders hoping to land hundreds of millions of pounds in subsidies to keep the lights on in Great Britain.
National Grid’s electricity system operator is preparing to announce successful bidders in a “capacity market” auction this month for 2026.
The annual auction will set a subsidy price to pay owners of power stations and battery storage facilities to cover the cost of being on standby in case of any rapid need for extra electricity. The costs are covered through consumer bills.
Existing plants are awarded one-year deals, with new-builds given 15-year contracts to guarantee covering investment costs.
Analysis of the public register before the auction shows that 69 new-build gas-fired plants have been proposed for 15-year contracts.
Gas accounted for 38% of generation last year – a three-year high as the single largest source of power. The prospect of more fossil-fuel-powered plants may anger green campaigners and those urging the government to move faster in supporting renewables projects.
The auction comes as the energy regulator Ofgem draws up proposals to prevent backup generators from raking in “excessive” profits as part of their licence conditions.
Energy industry profits are under intense scrutiny amid high consumer bills. Shell caused outrage after unveiling record profits last week, while BP is expected to post fourth-quarter underlying profits of about $5bn on Tuesday.
K?etínský, known as the Czech Sphinx for his aversion to publicity, has come to prominence in Britain after taking stakes in Royal Mail, West Ham United FC and the supermarket chain Sainsbury’s.
The tycoon’s UK energy assets include the Langage and South Humber Bank gas plants and Lynemouth biomass plant in Northumberland.
K?etínský’s EP UK Investments is bidding for 15-year contracts to guarantee supply from three new-build gas units at Eggborough. The North Yorkshire project’s backers argue there is an “urgent need” to replace electricity generation lost from retiring coal and nuclear plants in the UK.
EP UK also hopes to land one-year contracts at Langage and South Humber Bank.
VPI – owned by Vitol, which has posted rising profits during the energy crisis – wants to secure 15-year contracts to let it build two new gas-fired units at Damhead Creek in Kent.
VPI is also bidding for one-year contracts for plants at Immingham in north Lincolnshire, Damhead Creek in Kent, Shoreham outside Brighton, and Rye House in Hertfordshire.
Rye House drew scrutiny after it submitted the 20 highest winter bids for power on 12 December, setting new records as National Grid paid out £27m to keep the lights on during cold, still conditions.
InterGen, which received an estimated £12.6m on 12 December, is also bidding, for one-year contracts for its sites at Spalding, Rocksavage and Coryton.
EP UK’s proposed new-build units at Eggborough could be worth more than £840m in subsidy payments over 15 years while VPI’s plans at Damhead Creek could bring in more than £750m, according to Aurora Energy Research.
EP UK’s existing units are expected to be worth more than £64m a year, while Vitol’s trio of plants may account for more than £54m, based on last year’s prices – and prices are expected to rise in this month’s auction, in part due to inflation.
Other applications include a Drax project in south Wales and a series of projects in the south-east proposed by Statera Energy.
Marlon Dey, head of research for UK and Ireland at Aurora, said: “Gas remains essential for security of supply today, and keeping the lights on during a period of low wind and solar power. There is still a long way to go in order to scale up renewable power to reduce our dependency on gas further.
“If gas-fired peaking plants are used sparingly, they will have an important role to play and are not necessarily incompatible with net zero – depending how much they are used.”
The government hopes to secure 42GW to 45GW of capacity in the auction on 21 February. Existing plant owners plan to submit bids for 39 gigawatts worth of power, meaning new-build plants must provide 3-6GW – enough to power 2.5m to 5m homes.
Last year’s auction set a price of £30.59 per kW hour to secure 42GW of power, at a cost of £2.1bn over 15 years.
Separately, National Grid said on Sunday it had asked owner Uniper to put a unit at its coal-fired power plant at Ratcliffe-on-Soar in Nottinghamshire on standby in case it is needed on Tuesday during a period of low wind.
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