July 19, 2016 / 10:15 AM / 3 years ago

British power back up plan a money spinner for generators – Moody's

(Reuters) - Britain’s power generators will earn 1-2 billion pounds a year over the next few years from the country’s scheme to secure back-up power, helping to offset low market prices, ratings agency Moody’s said on Tuesday.

A sign is seen outside Hinkley Point B Power Station in Bridgwater, southwest England in this file photograph dated December 13, 2012. REUTERS/Suzanne Plunkett/Files

Britain launched a capacity market scheme to prevent possible electricity shortages over the next few winters and pay power plant owners will be paid to keep back-up electricity available at short notice.

The first capacity auction, held in December 2014 for power for 2018/19, cleared at 19.40 pounds per kilowatt, costing a total of 1 billion pounds.

Moody’s said the price could rise to 2 billion a year as the government seeks to secure more capacity and as depressed power prices mean the costs of incentivizing plants to remain operational rises.

“We expect the capacity market… to provide material revenues to generators from October 2017, offsetting current weak generation market dynamics for coal and gas,” Moody’s said.

A capacity auction, for Winter 2017/18, will be held later this year.

Moody’s said contracts awarded for 2018/19 were worth 209 million pounds to EDF, 156 million pounds to RWE and 109 million to EON, three of the country’s big six power companies.

The analysts said power prices in Britain are likely to remain low, at 36-41 pounds per megawatt hour (MWh) in the five years to 2021.

In a separate note published on Tuesday Moody’s said French wholesale power prices were likely to trade in a range of 30-35 euros/ MWh.

France is considering a capacity auction, similar to the one in Britain, and has also proposed plans to set a minimum price for carbon dioxide emissions which could also boost power prices.

“Capacity payments and a carbon price floor… would benefit EDF, the dominant power generator and supplier in France, given the fixed-cost and low-carbon nature of its domestic generation capacity,” Moody’s said.

Most of EDF’s French and British power generation comes from low-carbon nuclear power plants.

Reporting By Susanna Twidale, editing by William Hardy

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