As Npower formally opens its new power station at Pembroke, chief operating officer Kevin McCullough tells Janet Wood the company is not putting all its eggs in one basket
Npower opened its new gas-fired power station at Pembroke in south Wales just 24 hours after it announced that for two older plants – Didcot A in Oxfordshire and Fawley in Hampshire – this winter would be their last. Both those older plants were on limited lifetimes because they were opted out of the Large Combustion Plant Directive (LCPD).
Chief operating officer Kevin McCullough says the new plant, and another recently opened at Staythorpe in Nottinghamshire, were part of a sustained investment programme intended to give the company “the most robust and efficient gas fleet in the UK”.
He says: “We took a look at the portfolio, and which plants were under LCPD, and decided to reinvest.” Those two major plant renewals represent investment of £1 billion at Pembroke, and £700 million at Staythorpe, but McCullough says that is just part of total UK investment of £3.5 billion over three years. Highlighting the conversion of Tilbury in Essex to biomass, and a new gas turbine at Little Barford in Bedfordshire, he says the company was “coming out of mid-decade provided with a robust fleet”, and one where the company had “not put all our eggs in one basket”.
Investment decisions
McCullough acknowledges that when investment decisions were made on the new plants, the market looked very different – and so did Npower’s own plans, as they included a large nuclear commitment to the Horizon joint venture, now up for sale. What is more, spark spreads (the difference between the cost of gas fuel and the price available for electricity produced) are unfavourable, so gas-fired stations are not such an attractive investment as they were when the investment decision was made.
McCullough says the two new plants are “not making the money we had hoped the market would reward us with… there is still opted out plant on the bars and that is helping depress the market”.
Asked whether the company had over-invested in gas, he says: “We are trying to spread our position more widely and we are not going long on any one technology.
“If we were building twice the two we have, we would probably begin to question the balance. Some other players have applications in planning – and in fact we have Willington – but at the moment that would be a foolhardy investment… spark spreads are not beneficial.”
But he insists: “Despite the very weak clean spark spread, these plants still hold their own.”
He says the company was looking at the period after 2015, and “there is a very short window and we have to look at long term gain. Early in the next decade the market will pick up.”
Uncertain market
The poor spark spreads are one reason that other companies are holding back on gas construction. Another is uncertainty over the shape of the market. Does Npower’s new-build mean it is happier with the plans for the electricity market, and specifically for a capacity mechanism? McCullough says not, because: “It’s very hard to be happy about something you don’t know anything about yet.” He says there are questions over how the capacity mechanism will work that extend to more than just providing megawatts. “We are removing a lot of plant that provide secondary services – not just capacity but, for example, frequency control,” he says. If the types of plant that provide those services are closing, the electricity market has to find a way to replace them. Npower has a broader concern about the capacity market, too: it says that for companies that have already invested, “it’s very important that the government responds to the early movers”. It can’t “pull the rug out” from them.
Talking about market reform as a whole, McCullough says his fear is the level of interference in the market. He says just “narrow corridors” of competition remain. Instead, there is “pseudo competition, forever restricting how companies can flex their position in the market.
“It’s regulation for regulation’s sake,” he concludes.
This article first appeared in Utility Week’s print edition of 5th October 2012.
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