SSE plc

FIDDLER'S FERRY COAL-FIRED POWER STATION

SSE plc has reviewed its options for the future operation of its power generating plant that followed the result of the Capacity Market Auction in December 2015.  It has determined that it should consult with employees and other stakeholders in the coming weeks on the proposal to bring commercial operations to an end at its coal-fired power station at Fiddler's Ferry, Cheshire.  Although a final decision has not yet been taken, SSE's expectation is that (subject to consultation) it is likely to close three of the four units from 1 April 2016 and it is informing the market accordingly.

The station

Fiddler's Ferry is a four-unit power station with a total capacity of 1,995MW (megawatts) that was opened in 1971.  In January 2016, SSE entered into a contract with National Grid for 422MW of de-rated capacity at the station, equivalent to one unit, to provide Supplemental Balancing Reserve to the electricity system for the winter of 2016/17.

From 1 April 2016, the station is due to have Transmission Entry Capacity (TEC) of 1,455MW, which is equivalent to the capacity of the remaining three units.  This is the subject of a capacity obligation agreement for delivery in 2018/19.  Under the current Capacity Market Rules and Regulations, SSE would be liable make a payment of around £33m if it decides to cease commercial operations and terminate this TEC before the end of the capacity obligation agreement.

The end of commercial operations at Fiddler's Ferry would be 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. 

Since the start of this winter, SSE has returned its 735MW gas-fired power station at Keadby from 'deep mothball' to full commercial operation and completed investment to enable 400MW of capacity at its gas-fired Peterhead power station to operate commercially - a total of 1,135MW.

As announced in May 2015, the remaining 524MW of coal-fired generation capacity at SSE's Ferrybridge Power Station in Yorkshire will cease operations and close by 31 March 2016.

The issues                       

All of the units at Fiddler's Ferry failed to secure a capacity obligation agreement for delivery in the 2019/20 Capacity Market Auction that took place in December 2015 and this raised further questions about their viability, which has been challenged fundamentally by:

·     The changing generation mix: coal stations are being displaced within the generation mix by cheaper alternatives, namely low carbon and gas-fired generation. They are therefore generating less electricity, and receiving less income, than they have historically. The long-term market trend, which continues to point to gas prices enjoying a comparative advantage over coal prices and for increasing volumes of low carbon generation to come forward, is for this to continue.

·     The age of the station: as an aging asset, built in the 1960s, the station requires significant levels of expenditure to maintain safe operations and adequate levels of reliability.

Whilst costs at the station have been reduced in recent years they are not currently covered by the income the station receives from generating electricity and providing services to National Grid. Fiddler's Ferry has been loss-making over the last two financial years and cash outflow in respect of the station is expected to exceed cash inflow in all of the financial years through to March 2020.

In addition in November 2015, the Secretary of State for Energy and Climate Change announced that the UK Government would consult on proposals to completely end electricity generation from coal-fired power stations by 2025, with operations substantially reduced from 2023. This clearly signalled policy intention is unlikely to be reversed.

The people

During the forthcoming consultation period, SSE will consult with all stakeholders who will be concerned about the impact of the proposed end of commercial operations at the station, with a view to exploring all possible options for the site.

SSE currently employs 213 people at Fiddler's Ferry.  Subject to the outcome of discussions about the future of three of the four units at the station SSE will discuss with each employee any options for future employment within the SSE group, including any potential decommissioning work at the site, with a view to avoiding or reducing the number of any potential redundancies. In the event that redundancies should be unavoidable, enhanced terms will be discussed during the consultation process.  SSE will actively seek to avoid, but cannot rule out, some compulsory redundancies if an ongoing role for the three units at the station cannot be identified. 

SSE will set out its response to the consultations that are now taking place around the end of March 2016.

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

"We said in December that following the completion of the Capacity Market Auction we would consider the options for the future operation of our power generating plant, including Fiddler's Ferry.  This has, unfortunately, led us to conclude that commercial operations at Fiddler's Ferry may have to come to an end, subject to the consultations that will now take place.

"Fiddler's Ferry power station has made an important contribution to the UK's energy supplies for over 45 years. Over that time the station has been maintained and operated by professional and committed teams of people, and we are very aware of the impact that the closure of three of the station's units would have on our colleagues, their families, and the local community.  These facts alone have made it very difficult for us to decide to start consulting with our employees and their representatives on the future of the station.

"The reality is, however, that the plant at the station is aging, its method of generating electricity is being rendered out of date and it has been, and is expected, to continue to be loss-making. 

"The fact it makes more sense for SSE to contemplate making a substantial payment in lieu of the capacity agreement relating to Fiddler's Ferry in 2018/19 demonstrates just how economically challenged Fiddler's Ferry has become. 

"Sustaining uneconomic power stations for too long would undermine SSE's ability to invest in modern generation plant in the UK.  Our commitment to the UK is strong: this winter we have restored 1,135MW of gas-fired generation capacity to commercial operations and since April 2008 we have invested around £1bn in thermal electricity generation plant in this country and want to invest more in the future.

"In the coming weeks, our key priorities will be to keep the units at Fiddler's Ferry operating safely and reliably; and to consult with our employees and other stakeholders.  We expect that consultation to be completed around the end of March."  ENDS