ESB’s €1bn UK power plant on hold until viable contract won

The ESB won’t proceed with the construction of a €1bn-plus power station in the UK until it can be certain of securing a viable, long-term capacity contract from the British government.

The ESB already has planning permission for the 1,600 megawatt gas-fired power station in Yorkshire, but group finance director Pat Fenlon said it will be the end of this year at the earliest before a decision can be made about when the project will proceed.

The scale of the power plant at Knottingley would probably see the ESB develop it as a joint venture, he added.

The UK government will hold its next annual capacity auction towards the end of 2017. The auctions are held to ensure that the UK has adequate power supplies during winter periods, when demand peaks.

The last auction, in 2016, was conducted by the National Grid on behalf of the UK government and was for the delivery of power from October 2020.

Mr Fenlon said that auction did not result in a power prices for operators that would make commercial sense to develop new power plants.

The price the auction set per kilowatt hour of energy was about half what analysts had anticipated.

“There’s a fair bit to go before anything will happen in terms of the development of that site,” said Mr Fenlon of Knottingley. “We are unlikely to proceed with it unless we secure a long-term capacity contract at a satisfactory price.”

At last December’s auction, Mr Fenlon said the final price achieved for power was “lower than we would happy with to invest in new plant”.

“The first thing that would have to happen would be to secure an appropriate level of capacity income,” he said.

ESB opened a €600m-plus, 885-megawatt gas-fired power station outside Manchester last September.

The Carrington facility will be officially opened on Monday, with a visit by MPs as well as Minister for Communications Denis Naughten.

Mr Fenlon also said the ESB’s planned summer retail debut in the UK is proceeding.

The UK energy market is dominated by six big suppliers, including Centrica, which owns Bord Gáis Energy in Ireland, and SSE, which owns Airtricity. But there are 50 gas and electricity suppliers to consumers.

“It’s early days, but it’s progressing well,” said Mr Fenlon. “In the long run, as part of our strategy we see it as important to develop a generating, trading and supply business of scale across Ireland and the UK.

“Both markets are interconnected and two of our biggest competitors in Ireland operate in the UK.

“To have a strong indigenous energy company, we have to look at that market in its totality. We see the retail business in the long run as being an important part of the business to balance out risk,” he added.

“It’s not essential for us to grow really quickly. We’re developing that business organically and it will develop at a reasonable pace over the next number of years.”

Mr Fenlon was speaking as ESB reported full-year results for 2016.

The company’s operating profits fell 6pc to €597m as revenue declined 3.5pc to €3.24bn. Its pre-tax profit tumbled 37pc to €194m, partly as a result of non-cash movements related to interest rate swaps.

The semi-state company also paid a €116m dividend to the Exchequer last year.


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