SSE plc

REVIEW OF COAL-FIRED GENERATION ASSETS

SSE plc has completed the assessment of the longevity of its remaining coal-fired generation capacity that it announced in March 2015 and concluded that it should:

·     close all of the remaining capacity (1,014MW) at Ferrybridge, Yorkshire by 31 March 2016; and

·     enter all of the remaining capacity (1,995MW) at Fiddler's Ferry, Lancashire into the auction for electricity generation capacity at the end of 2015 (for delivery in 2019/20).

The outcome of the review is consistent with SSE's long-standing objective to transition its generation assets from a portfolio weighted towards gas and coal towards a portfolio more weighted towards gas and renewable sources of energy; and with the wider commitment to operational and financial discipline set out in March 2014.

Factors

In recent years a number of factors have been weighing heavily on the long-term viability of coal-fired generation assets.  These include:

·     the age and economic viability of the stations - both SSE's coal-fired  stations are approaching 50 years old and require increasing levels of capital expenditure to maintain safe and reliable operation while having to compete with more efficient modern gas plant;

·     constraints imposed by the Industrial Emissions Directive - the requirement to fit expensive emissions abatement equipment to comply with EU directives has increased costs and/or reduced the ability of stations to operate;

·     the decarbonisation of the electricity sector - government in the UK has long signalled that unabated coal has a time-limited role in the electricity mix because of the need to meet legally binding carbon reduction targets and this position has broad cross-party support;

·     the cost to coal-fired generation of the Carbon Price Support and EU Emissions Allowances -coal-fired generation is impacted to a greater extent by the costs associated with producing carbon than is gas-fired generation, due to its higher carbon content, and this helps to make coal less competitive relative to gas;

·     changes to commodity prices - the long-term trend  points to gas enjoying a comparative advantage over coal, leading in turn to a greater use of gas-fired plant in the electricity mix.

The combination of all of these factors results in reduced 'load factors', and therefore income, which does not cover the inherent high costs of maintaining and operating aging coal-fired generation plant. As a result they are challenged in economic terms.

Outcome

SSE's review examined a number of factors including current and future economic viability; compliance with emissions regulations; the existing and likely future policy framework; SSE's own long-term decarbonisation and business objectives; and the impact on SSE's employees and the local communities within which the assets are based.

Based on the conclusions of this review SSE has, regrettably, made the difficult decision to cease coal-fired electricity generation at Ferrybridge by 31 March 2016. 

The emissions abatement equipment on one of the two units at the station, Unit 4, was badly damaged during a serious fire at the site in 2014. SSE has been pursuing options to reinstate this equipment, but this activity will now stop, although the work to demolish the damaged equipment will continue.  As a result, Unit 4 will be removed from service with immediate effect.  Unit 3 will return to service in August 2015 following successful completion of the planned outage which began in April 2015. SSE will examine the feasibility of tendering Unit 3 for any 2016/17 Supplemental Balancing Reserve (SBR) contracts, should these be available.

SSE currently employs 172 people at its coal-fired operations at Ferrybridge.  It is expected that some of these people will be redeployed elsewhere in the SSE group, including at Keadby power station, which is being brought out of 'deep mothball' or will have a continuing role beyond March 2016 in managing the closure and decommissioning of the plant.  SSE will also offer employees voluntary release on enhanced terms, and seek to avoid compulsory redundancies.

SSE remains committed to the Ferrybridge site, and the local community in which it sits. The £300m Ferrybridge Multifuel 1 project is due to fully commission in the second half 2015, and will provide 50 full-time jobs at the site, with more created in the supply chain. It supported over 500 jobs at the peak of construction, and involved around 30 local companies. The Ferrybridge Multifuel 2 project currently being developed at the site would create similar benefits if it is granted planning consent (a planning decision is due in 2015). 

While the factors described above apply equally to coal-fired operations at both Ferrybridge and Fiddler's Ferry, this announcement does not impact on existing operations at Fiddler's Ferry.  It has a derogation under the Transitional National Plan which allows it to remain open within specific environmental and operating constraints; and a contract for the station to provide 1,294MW of de-rated capacity for one year from October 2018 was secured in the Capacity Market Auction in  December 2014.  The retention of some coal-fired capacity contributes to the diversity of SSE's generation portfolio and maintains Fiddler's Ferry's contribution to the security of electricity supplies.  The capacity at the station will, therefore, be entered into the next Capacity Market Auction, at the end of 2015, for delivery in 2019/20.

Paul Smith, Managing Director, Generation, at SSE said:

"We know that the decision to end coal-fired generation at Ferrybridge will have an impact on the local community and it has not been taken lightly; but while this was a difficult decision to take, it was the right one.  Financially, the station is currently loss-making and is anticipated to lose another £100m over the next five years; and environmentally coal is a major emitter of CO2, which means it has a time-limited role in the UK's electricity mix. Unfortunately, this means retaining coal-fired operations at Ferrybridge beyond the end of the current financial year is not sustainable.

"Our top priorities will be to keep the site operating safely and effectively for the remainder of its life, and as it moves into decommissioning; and to ensure that employees have a range of options available to them for the future. The team at Ferrybridge is highly skilled, dedicated, and with a strong track record of performance. SSE is therefore keen to ensure, where possible, that staff are redeployed across other parts of the SSE group - for example at the nearby Keadby power station; or across the range of other businesses in which SSE is involved. SSE will also offer employees voluntary release on enhanced terms."