Scott Wright
Group business correspondent
SCOTTISH Power owner Iberdrola has again cast doubt on the long-term future
of its Longannet power station in Fife because of high transmission costs.
longannet: In spite of improvements to its output the plant remains under
threat because of its location. Picture: Getty Images
The fresh warning came as the utility giant said the performance of the
plant had “ironically” improved thanks to multi-million pound investments
in recent years, which helped it reduce losses across the company’s UK
power generation business in the first nine months of the year.
Those losses fell as net profit at Iberdrola’s UK generation and supply
division increased to €85.1 million in the first nine months of this year,
compared with €17.9 million last year.
Iberdrola said the improved group generation performance in the first nine
months of the year featured better margins from its UK generation fleet,
notably Longannet, where investment of more than £200 million has been made
in recent years. Investment in the region of £20 million to £30 million was
made in boiler upgrades at the plant last summer.
However, in spite of the improved performance of Longannet, with greater
availability at key times and fewer “outages,” the issue of high
transmission charges means its future is “open to question”.
Iberdrola pays £40 million a year to link Scotland’s biggest power station
to the National Grid because of its distance from the main centres of
electricity demand and generation.
Under the Transmission Charging mechanism, the tariff increases the further
away a power station is from the UK’s most densely populated areas. By
contrast, plants closer to major population centres such as London receive
a fee.
A spokesman said: “We’ve got this issue over transmission charges in
Scotland which affects not just our plant, but others, and it makes it
quite difficult for Scottish plants to compete nationally.
“It’s a structure that has evolved largely because National Grid are trying
to encourage generation in the areas you have got the most people. But it
does have the effect of causing potential supply security issues in
Scotland, where the financial situation is very different.”
As a result of the charges, Iberdrola has ruled that it would be
“uneconomic” to bid the plant in UK capacity auctions due to take place in
December. Plant owners are being invited by the government to submit bids
to make their plant available at a certain price, to ensure it has
sufficient generation at peak times. The system is scheduled to come into
effect in 2018.
The spokesman added: “We felt it is not economic to bid Longannet into that
auction, because the transmission charges just make it uneconomic to do so.
It disadvantages our plant versus some of the other plants that will be
bidding in.
“We have decided we would rather try and negotiate a separate agreement
with National Grid and Ofgem that would allow us to continue operating for
as long as possible outside that framework.”
Iberdrola is calling for the Transmission Charging mechanism to be changed
to ensure that Longannet, which employs 260 full-time staff, will remain
open in the years to come. It has not been specific about how much it would
like to see the price lowered, but emphasised the current framework had to
change.
The update came as Iberdrola posted a 19 per cent fall in net profit to
€1.831 billion, compared with €2.274 billion reported in the third quarter
of last year.
It put the fall down to continuing regulatory challenges in Spain, where
government caps on prices have limited utility companies’ ability to recoup
the cost of generating renewable power, and drought in Brazil. Those
factors were only partially offset by a better performance in generation
and renewable energy, including in the UK.
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