1st Oct 2007 07:02
Scottish & Southern Energy PLC01 October 2007 STATEMENT ON GENERATION PLANS AND NOTIFICATION OF CLOSE PERIOD Scottish and Southern Energy plc ("SSE") has completed a review of its plans andinvestment opportunities in electricity generation following its adoption of atarget to reduce by 20% over 10 years the amount of carbon dioxide per kilowatthour of electricity produced at power stations in which it has an ownership orcontractual interest. Key Points • Investment plan for Ferrybridge power station to focus on a new 800MW Supercritical and carbon capture-ready plant; • Review of carbon capture options to include Fiddler's Ferry, as well as Peterhead and Ferrybridge; • Options to be developed for a new CCGT plant, with a view to development after the commissioning of the Marchwood plant currently under construction; • Proposal to complete the re-powering of Peterhead power station, with the installation of 340MW of new CCGT plant; • Possible development of up to 1,000MW of wind farm capacity in deep water in the Moray Firth; • Expansion of the purchase of Carbon Emissions Reduction Certificates through planned support for hydro refurbishments in Brazil; and • Creation of market-leading tidal and wave energy company, through merger of SSE's Renewable Technology Ventures Ltd and Aquamarine Power Ltd. Context SSE owns just over 10,000MW of electricity generation capacity, including itsshare of joint ventures. This comprises almost 4,400MW of gas-fired capacity,4,000MW of coal-fired capacity (with biomass 'co-firing' capability), over1,500MW of hydro and wind capacity and 150MW of oil-fired capacity. This givesSSE diversity in fuels and, as a result, greater optionality in the overallmanagement of its power stations. As the Energy White Paper pointed out, the UK will need substantial investmentin new generation capacity over the next two decades. It also pointed out thatthe UK's diverse generation mix avoids exposure to the risks associated withheavy dependency on a single fuel or technology type, helps to maintain securesupplies of energy and provides the country's electricity system with theflexibility to accommodate variations in demand and responses to changes infossil fuel prices. The same points apply to SSE's portfolio. Its key objectives in generation,therefore, continue to be to ensure that it has a diverse portfolio of powerstations, available to generate electricity, with the maximum possibleefficiency, in response to customer demand and market conditions, whilecomplying fully with all safety standards and environmental regulations. Coal and Biomass SSE has opted in to the Large Combustion Plan Directive all of the capacity atFiddler's Ferry and half of the capacity at Ferrybridge and as a result isinstalling Flue Gas Desulphurisation (FGD) equipment in an investment expectedto total around £225m. The installation of FGD will allow a total of 3,000MW ofcapacity at the two stations to remain open after 2015 and is currently expectedto be complete in time for them to begin generating electricity through a'de-sulphurised' process next year. In May 2006, SSE established a partnership with Doosan Babcock Energy, Siemensand UK Coal with a view to the possible installation at Ferrybridge of a 500MWSupercritical Boiler and Steam Turbine, while re-employing existing coalhandling facilities and other major infrastructure. As stated in SSE'sPreliminary Results in May 2007, however, costs across the power equipmentsector have risen and the required level of investment for this project hasproved to be significantly greater than originally expected. Against thisbackground, SSE will not proceed with this project. At the same time, SSE has concluded that there is still likely to be a need toreplace that capacity at Ferrybridge which is scheduled to close in 2015. It hasdecided to examine the options for doing this, focusing on an 800MW unit usingthe Supercritical Boiler technology. This would secure a significant improvementin the thermal efficiency, from around 37% for the existing plant to around 45%,and deliver a significant reduction in the amount of CO2 per kilowatt hour ofelectricity produced. Any plant would also be made 'capture ready', enabling itto be fitted with carbon capture and storage (CCS) technology. Key issues inconsidering the options will include the price of carbon emissions allowancesand the availability of turbines. As a result, any new coal plant is unlikely tobe commissioned before 2014, with a decision to be made around the turn of thedecade. SSE will now focus on gaining consent for this unit. Carbon Capture and Storage (CCS) The Energy White Paper confirmed that the UK government would later this yearlaunch a competition to develop the UK's first full-scale demonstration of CCS.The timetable for the competition was not compatible with the requirements ofall of the participants in the proposal to develop a 475MW carbon capture plantat SSE's power station at Peterhead and it became clear in May 2007 that thatparticular project could not proceed. Similarly, the 'retro-fitting' conceptoriginally envisaged for Ferrybridge featured the deployment of post-combustioncarbon capture equipment alongside the Supercritical Boiler, and so it will notfeature in the competition. CCS, including the related transportation systems, faces significant technicaland regulatory challenges before it will become a viable contributor to the goalof lower carbon energy production. Nevertheless, the potential opportunities aresignificant. SSE has been very active in this field since it embarked on thefirst project at Peterhead and alternative CCS options exist there, atFerrybridge and at Fiddler's Ferry. These options, which include the potentialuse of depleted oil and gas fields and offshore aquifers, are being activelyexplored. SSE hopes to be able to submit a project for inclusion in theforthcoming competition. In addition, SSE is participating in several researchprojects, some of which are supported by the Department for Business, Enterpriseand Regulatory Reform, focusing on CCS technologies related to coal pulverisedfuel plant. Gas Work on the construction of Marchwood Power Ltd's new 840MW combined cycle gasturbine (CCGT) plant in Southampton is now well under way, and the UK EnergyMinister visited the development on 27 September 2007. Marchwood Power Ltd is a50:50 joint venture between SSE and ESB International. The plant is on course tobe completed and in commercial operation in time for the winter of 2009/10. Witha net thermal efficiency in excess of 58%, it will be one of the most efficientin the UK. In addition, Barking Power Ltd, in which SSE has a 30.4% stake, hassubmitted a Section 36 application for consent to develop a new 400MW CCGTwhich, if consented, would effectively add around 120MW to the portfolio ofgeneration assets owned by SSE. CCGT technology is likely to remain the benchmark technology for some years tocome and SSE has concluded that it should identify an option for an additionalCCGT plant, either at one of its existing power station sites or an alternative'brown-field' site. In addition, SSE has identified the potential to replace theexisting conventional boiler at Peterhead power station with a newstate-of-the-art gas turbine. This would increase the modern CCGT capacity atPeterhead from 1,180MW to the station's effective electricity grid limit of1,520MW, delivering a higher thermal efficiency and annual savings of around350,000 tonnes of CO2. The FEED (front end engineering design) study is nowgetting under way and a decision on whether to proceed with the investment, inwhich transmission charges will be an important factor, will be made next year. Hydro and Wind SSE is still aiming to have by the end of this decade around 1,000MW of hydroand wind generation capacity qualifying for Renewable Obligation Certificates(ROCs), although the achievement of this will be subject to the progress of itsvarious developments through the planning process. It already has in place, orhas secured consent to develop, 742MW of capacity. This includes the construction of SSE's new 100MW hydro electric station, atGlendoe near Loch Ness, which is progressing well. This development requiresinvestment of over £140m and it remains on course for electricity to begenerated from the winter of 2008/09. SSE believes there may be potential todevelop other large hydro electric schemes in the Highlands. Their developmentwould, however, require a planning and policy framework more attuned to thecritical need to maximise production of energy from renewable sources and reformof the current regime for charging generators for the use of the electricitynetworks. It also includes the 236MW of wind farm capacity in operation, underconstruction or with consent for development. SSE has eight other wind farmproposals at various stages in the formal planning process, with a totalcapacity of 708MW: Achany (40MW), which has been the subject of a Public LocalInquiry which has now been completed; Blackcraig (69MW), which will be thesubject of a Public Local Inquiry scheduled for February 2008; Harrow's Law(70MW), which will be the subject of a Public Local Inquiry on a date yet to beagreed; Gordonbush (87MW), for which support (subject to conditions) has beensecured from The Highland Council in advance of the forthcoming decision byScottish Ministers; Fairburn (35MW); Waterhead Moor (132MW), Strathy North(70MW); and Pairc (205MW). The proposed wind farm at Calliacher (62MW), which SSE has an option to acquiresubject to planning consent being secured, has recently been refused consent byScottish Ministers, although a scheme at this site with a capacity below 50MWcould still be pursued via a planning application to the local authority. Therefusal of the 62MW proposal demonstrates that the process for considering windfarm applications continues to be arduous and prolonged and there can be nocertainty as to if or when any particular development will receive consent. The construction phase of the SSE/Talisman Energy UK Beatrice Wind FarmDemonstrator Project in the Moray Firth is complete. Two 5MW turbines have beensuccessfully installed and the operational phase of the project is about tocommence. A review of the project has indicated that large-scale wind farmdevelopments in deeper water further from the shore could eventually becommercial and a development of up to 1,000MW of capacity may be viable. Thereare, however, significant technical and commercial hurdles and there is ongoingengagement with the UK government and other interested parties in an endeavourto overcome these. Carbon Emissions Reduction Certificates SSE has signed four agreements with GD Power Development Co Ltd (a subsidiary ofChina Guodian Corporation, one of China's major energy companies) to support thedevelopment of four new wind farms in north east China. It will purchase aroundtwo million Carbon Emissions Reduction Certificates (CERs) over a period of fiveyears from the start of 2008. Under the Clean Development Mechanism (CDM) established under Article 12 of theKyoto Protocol, countries - and therefore companies - can meet their carbonemission reduction targets by purchasing CERs from CDM-approved carbon reductionprojects in the developing world. This was the first time that SSE has directlyacquired primary CERs from a project. As SSE stated when it entered into thefirst agreement with GD Power Development, the large majority of its investmentin reducing carbon emissions will continue to be in the UK. At the same time, climate change is a global challenge and supporting thedevelopment of clean sources of energy in other parts of the world is a keymeans of addressing it. SSE is looking for opportunities to expand itsactivities in this area, with a focus on technologies with which it is directlyfamiliar. In line with this, it is entering into an agreement to support therefurbishment of hydro electric stations in Brazil, with the purchase of around160,000 CERs over a period of six years. This investment in hydro and windmirrors SSE's strategy in the UK. Marine In November 2006, SSE set out its intention to identify opportunities to investin marine energy and to establish a position as a leading developer ofmarine-based electricity generation technologies, building on the work done byits subsidiary, Renewable Technology Ventures Ltd (RTVL). It has entered into an agreement to merge RTVL with Aquamarine Power Ltd, anEdinburgh-based company which specialises in marine energy conversion and itscommercial applications, to create an enlarged marine energy company which willretain the name Aquamarine. The enlarged company, in which SSE is also making an initial investment of£6.3m, and in which it will own 50% of the issued share capital, will initiallyfocus on delivering RTVL's Neptune tidal power device and Aquamarine's Oysterwave power device for comprehensive testing at the European Marine Energy Centrein Orkney. Close Period SSE is today entering its close period, prior to the publication on 14 November2007 of its interim results for the six months to 30 September 2007. It nowexpects to report results for 2007/08 as a whole which are slightly ahead of aconsensus of brokers' forecasts. The onset of the close period means that SSE will not be purchasing its ownshares. Since 7 June 2007, the Company has purchased 16,010,000 of its ownshares for cancellation at a weighted average price per share (before costs) of£14.3038 and an aggregate consideration of £229m. The purchases represented1.86% of the called-up share capital of the company. Ian Marchant, Chief Executive of SSE, said: "The development, diversification and operational flexibility of our generationportfolio has contributed significantly to the growth in profit before tax whichwe have seen in recent years, and has again contributed to the very goodfinancial and operational performance which has been delivered so far in thisfinancial year. "Between now and the end of the decade we expect to complete investments incoal, gas, hydro and wind generation developments with a total value of over£600m. This should give us almost 11,000MW of generation capacity, includingaround 1,000MW of hydro and wind capacity qualifying for Renewable ObligationCertificates. "At the same time as successfully delivering these major investments, we need tolook further ahead and make sure that we have other investment opportunitieswhich support our long-term goal of reducing the carbon intensity of our powergeneration while avoiding dependency on a single fuel or technology. We now havesuch opportunities at the likes of Ferrybridge, Peterhead and in the MorayFirth, in the emerging technologies of wave and tidal power and in the CERmarket. While considering them, we will continue to urge the UK government andother agencies to ensure there is in place a stable and durable policy frameworkto allow investment decisions to be taken. "For the long-term, investment in the development and demonstration of newtechnologies for generating electricity from renewable sources is vital, and themerger of SSE's marine energy business and Aquamarine will create a centre ofexcellence in marine energy and accelerate significantly the process of makingthese new technologies technically and commercially viable." This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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