Dealing an initial blow to the 1.8 GW Trafford Power project, the UK government has provisionally withdrawn a capacity contract after Carlton Power missed crucial deadlines for obtaining debt financing for the project. Following urgent intervention by the developer, the Department of Energy and Climate Change (DECC) conceded to push back the investor deadline until mid-December.
The 15-year capacity contract, secured for the Trafford CCGT project in Greater Manchester, is worth an estimated £30 million per yearand would be paid in addition to earnings from selling electricity on the UK wholesale market.
“Carlton Power has not achieved the Financial Commitment Milestone by the initial deadline set out in the Capacity Market Rules and has received a Termination Notice from the Delivery Body,” a company spokesman told Gas to Power Journal intially.
DECC grants 5 months more time
Urgent talks were held with DECC as Trafford developers were seeking to push back the deadline to have more time for ongoing talks with prospective investors. A conciliatory gesture towards Carlton Power came by late afternoon on Tuesday:
“Amber Rudd has agreed that, in accordance with the Capacity Market Rules, the termination date has been extended to 19th December 2016 to enable the project to achieve financial close with its investors,” Carlton Power said a bit later.
“Talks with investors continue,” the spokesman added, without giving any indication as to whether financing can raised in due course.
Macquarie Capital has been advising Carlton Power on raising debt and equity for its Trafford Power project since August 2014. A financial close needs to be reached before Christmas 2016 -- without access to capacity payments, the future of the proposed 1.8 GW Trafford CCGT would be in jeopardy.
EMR fails to promote gas power projects
Auctions for capacity contracts were introduced under the UK Electricity Market Reform (EMR) in a bid to incentivise new flexible gas generating capacity. Operators who secure such contracts at auction are eligible for payments if they can ensure flexible plant dispatch as required by the grid operator.
Policies to close all unabated coal power plants in Britain by 2015, combined with plant retirement over EU emission directives, have narrowed capacity reserve margins and caused concerns over power shortages.
However, a general drop in electricity demand largely due to efficiency improvements and lower wholesale power prices make it rather difficult for independent power producers (IPPs) to secure debt financing for new power projects.