UPDATE 2-UK Peterhead power plant Unit 2 likely to close

Mon Mar 22, 2010 1:24pm GMT

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* 660 megawatt Peterhead Unit Two likely to close

* Peterhead transmission capacity down to 1,180 megawatts

* Nat Grid says transmission charges unlikely only reason

(Adds National Grid comment)

LONDON, March 22 (Reuters) - Unit Two of Britain's Peterhead gas-fired power station is likely to close due to the charges associated with being connected to the transmission grid, plant owner and operator Scottish and Southern Energy (SSE.L) said on Monday.

The firm said it was dropping 344 megawatts of tranmission rights and was reviewing the long-term future of the 660 mw Unit Two facility. The total transmission capacity of Peterhead was cut to 1,180 megawatts after it dropped the 344 mw of rights.

"Releasing transmission entry capacity in this way is a pragmatic step, reflecting how the station has evolved, but it nevertheless has been influenced by the shortcomings in the current transmission charging arrangements," SSE Chief Executive Ian Marchant said in a statement.

SSE said the transmission system charges power stations different fees in different parts of Britain for being connected to the grid. This penalised the Peterhead plant because it was outside of southern Britain where generators are favoured by regulators for their proximity to consumers.

National Grid sets Britain's transmission charging system within a framework organised by the government and energy regulator Ofgem, and is designed to stimulate investment in generation in areas where it is most needed, the company said.

"In the south or south-east of England, that is a positive figure, so National Grid will pay operators to provide generation to the grid," an SSE spokesman said.

"By contrast, up in Peterhead, we have to pay to access the grid. We consider this an unfavourable transmission charging regime, and costs are now too great to justify keeping the extra capacity."

AMPLE SUPPLY

But energy network operator National Grid (NG.L) said ample power supply and lower demand were also likely to figure in SSE's decision to shut Unit Two.

"It was always expected that some older generation would close in response to the margin of spare generation over peak demand having increased to its highest ever level, 36 percent this winter, and demand still being low because of the recession," a National Grid spokesman said.

"Against this background, it seems unlikely that transmission charges will have been the only factor in SSE's decision."

National Grid also cited 11,600 megawatts of new transmission agreements as an example of how charges are not a barrier to new generation being developed in Scotland.

Peterhead power plant in Aberdeenshire in Scotland comprises Block One, which has 1,180 megawatt generation capacity, and Unit Two, which as 660 megawatts of capacity. Generation capacity can exceed transmission capacity.

SSE said the review of the future of Unit Two would take months and that the closure of Unit Two would result in 50 to 70 job losses.

Block One of Peterhead is usually used as baseload generation while Unit Two is used to top up generation during peak demand periods, the company said. (Reporting by Kwok W. Wan and Victoria Bryan; editing by Keiron Henderson)