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Regulator warns on Belgian CCGT tender plan

09 May 2013 16:29 (+01:00 GMT)
Regulator warns on Belgian CCGT tender plan

London, 9 May (Argus) — Belgian energy regulator Creg has heavily criticised the government's plan to introduce a tender for new combined-cycle gas turbine (CCGT) power plants, urging the government to consider cheaper and more effective alternatives.

Belgium was structurally dependent on imports even before the possibility of the permanent closure of two of its seven nuclear units, Doel 3 and Tihange 2, this summer. Concerns over supply adequacy prompted the government to commit to the launch of the tender, expected in 2015. CCGTs tendered under the process would receive subsidies of €87.682/MWh until 2022, for CCGTs expected to come on line in 2016-17.

If Doel 3 and Tihange 2 remain off line in the winter of 2013-14, generation adequacy in the country will be stressed, according to European system operators association Entso-E. Whether or not the units can return to power remains uncertain. In this case, urgent measures would be needed to address adequacy of supply.

But new CCGTs awarded subsidies under the tender are not expected to come into operation until 2017. It is uncertain whether the new generation capacity will be necessary at this stage, as no reliable studies have been conducted to assess whether Belgium will continue to face a supply shortfall from 2017. Several developments are likely to ease pressure on supply beyond 2017, including improved interconnector capacity with Germany and the UK, the development of demand-side management measures, the French capacity mechanism and improved internal grid operation in Germany.

The tender would constitute heavy-handed state intervention in the market, with a long-lasting negative impact on the competitiveness of the Belgian market, the regulator warns. The tender would block market solutions to improve supply adequacy and would signal a return to central government organisation of investments.

The spark spread outlook for even the highest efficiency CCGTs is not currently favourable and is unlikely to improve substantially in the medium term because of the cheapness of coal relative to gas, as demand for coal in the US has dropped substantially as a result of the shale gas production boom. Several utilities have abandoned or put on ice plans to construct new CCGTs in Belgium in recent years. The unfavourable outlook for spark spreads should dissuade the government from investing in the technology — rather than encourage it to do so, Creg said.

The regulator questions the orthodox view promoted by several utilities, including France's GDF Suez, that CCGTs are the technology best-placed to balance supply including intermittent input from renewables. Further studies should be undertaken into alternatives including maintenance work on existing plants, the development of demand-side management solutions and improved use of internal and international grid connections, it said. Intra-day, day-ahead and balancing markets should be developed as a cost-effective means of balancing renewables input and optimising existing generation capacity.

The tender, exclusively for CCGTs, would hinder investment in alternative solutions. Open-cycle gas turbines (OCGTs), despite having a lower efficiency than CCGTs, are cheaper to build and are more flexible to start and restart, and would be better placed to balance renewables input, Creg said. For these reasons utilities are opting to convert existing CCGTs to OCGTs.

The regulator points out that the level of subsidy awarded to tendered CCGTs is based on a miscalculation of forward clean spark spreads leading to an overestimation of the running hours of the units over the period. The subsidy level does not guarantee the profitability of the units post-construction as given the current outlook for clean spark-spreads, the running hours of the units are unlikely to be high enough to cover the construction and operating costs over the period.

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