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Britain Forced to Subsidise Gas Power Plants To Keep Lights On

Emily Gosden, The Sunday Telegraph

As a result of Britain’s energy policies, building new gas-fired power plants is no longer economic. Now, the Government has to subsidise gas investors to keep the lights on.

Four years ago this week, the Government unveiled plans for a bold new dash for gas.

New gas-fired power stations, then-energy secretary Ed Davey said, would be required to “provide crucial capacity to keep the lights on”.

A new Gas Generation Strategy backed “significant investment” in up to 26 gigawatts (GW) of new plants by 2030.

Since then, energy ministers have come and gone, support for solar and onshore wind has been scrapped and the drive for new nuclear has faced security and cost worries. But support for gas had been unwavering.

Relatively cheap and quick to build, much cleaner than coal, and able to generate even when the wind doesn’t blow or the sun doesn’t shine, gas plants tick all the Government’s boxes.

“In the next 10 years, it’s imperative that we get new gas-fired power stations built,” Amber Rudd, Davey’s successor, declared last year.

There’s just one problem: pretty much no one’s building them.

Only one new station, at Carrington in Manchester, has been completed since 2013 as investment has dried up.

This week, though, that could be about to change. A subsidy scheme designed to keep the lights on could, analysts believe, secure construction of several big new gas plants.

Few could dispute that the UK needs new power plants.

“An awful lot of capacity has either closed or is closing,” explains Richard Howard, of Policy Exchange. The think-tank calculates that some 23GW of conventional thermal power plant capacity has been closed or mothballed since 2010.

“That’s more than a third of peak demand,” says Howard. “And a further 24GW of coal and nuclear is expected to close between now and 2025. We need to build some new capacity – otherwise the lights will go out.”

The problem is, the UK electricity market has changed so much – due in large part to the growth of subsidised renewables – investors say they can no longer justify building new plants based solely on their likely returns from selling power in the market. “Essentially no new capacity is being built without some form of government-backed contract,” Howard says.

The Government has attempted to tackle this problem by introducing the “capacity market” subsidy scheme. It’s a simple idea: ministers decide how much reliable power plant capacity they need to keep the lights on in future winters; power plant owners or developers compete in a reverse auction for subsidies to provide that capacity at the lowest possible cost.

The first auction, held in December 2014, awarded £1bn of subsidies to plants to guarantee they would be available in winter 2018-19 – a cost of about £10 per household.

It also appeared to secure a big new gas plant, with developers signing up to build one at Trafford in Manchester.

Two years on, however, that plant is yet to start construction, with the subsidy price of £19.40 per kilowatt – equating to about £35m a year – so far insufficient to lure investors.

Last December’s auction, for winter 2019-20, resulted in an even lower price, and no big new gas plants.

Instead, the big winners both times were existing coal, gas and nuclear plants – as well as an unexpected boom in new small diesel and gas engines.

But as the Government prepares to open the auction for winter 2020-21 capacity on Tuesday, analysts say this time it could be different.

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