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Generation – Great Britain (thermal)
Market developments with an impact on SSE
In line with its responsibilities for security of supply, National Grid published its Winter Outlook
Report in October 2016 and stated that it expects there to be sufficient generation and
interconnector imports to meet demand throughout winter 2016/17. It also stated that it is
confident it has the right tools in place to help it balance the system.
Equally, Ofgem has consistently maintained that during the period to 2018/19 it expects electricity
generation capacity margins to be lower than they have been historically due to weak market
economics and the closure of older plant.
The UK Government, together with Ofgem and National Grid (as the System Operator), has decided
to address the issue of capacity margins in two ways:
in the longer term, through the implementation of the Capacity Market. SSE supports the UK
Government’s plans, announced earlier this year, to incrementally strengthen the Capacity
Market, including the supplementary capacity auction planned for winter 2017/2018; and
in the intervening period, through the Supplemental Balancing Reserve (SBR) which will close
after winter 2016/17.
The design and operation of both the Capacity Market and SBR mechanisms is set by the UK’s
Department of Business, Energy and Industrial Strategy (DBEIS) and National Grid. They determine
how much capacity is required to ensure security of supply under each mechanism. Once this
volume has been determined they procure the necessary capacity through a competitive
auction/tender process.
In October 2016 the UK Government revised the previously published parameters for the next round
of Capacity Market auctions to:
53.6GW in the supplementary auction for delivery in 2017/18; and
51.7GW in the auction for delivery in 2020/21 (with an additional 600MW in the associated yearahead
auction). In line with the Government’s announced intention to procure more capacity,
this target is higher than for last year’s equivalent auction.
SSE has prequalified 5,898MW and 7,025MW respectively of its generation portfolio for the
upcoming auctions. This includes all of its thermal power stations.
Making the case for the Carbon Price Floor
SSE believes that putting a price on carbon emissions, through the UK’s Carbon Price Floor, is a
critical part of the UK’s energy policy and is one of the most important policy tools the government
has to help industry continue to deliver reliable and lower carbon electricity cost-effectively. The
Carbon Price Floor arrangements are in place until April 2021. SSE has publicly supported the
extension of the Carbon Price Floor beyond that.
Operating SSE’s thermal power stations
SSE’s power generation assets operate in complex markets. They derive revenue from a number of
sources, including a variety of contracts, and operate in the context of wider energy portfolio
management decisions. Amongst other things, this means changes in ‘spark’ or ‘dark spreads’ may
not always be reflected in the financial performance of generation plant. In addition, and as in any
other market, the revenue they are able to earn is influenced by the extent and timing of the
demand for their core product of electricity, the output of electricity from a range of sources,
including renewables, and the position of other market participants and the operation of their plant.
Market conditions for thermal generation continued to be challenging during the first six months of
2016/17. The continued expansion of renewable sources of renewable and reducing customer
demand has impacted the profitability of all thermal assets. The closure of older coal-fired power
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