Contractors Unlimited

Scottish and Southern Energy Electricity Generation and Gas Storage Update

Scottish & Southern Energy Scottish and Southern Energy plc ("SSE") is providing an update of its operations and investment opportunities in electricity generation, and gas storage, to coincide with the official opening this week of its new development at Glendoe, the UK's first large-scale conventional hydro electric station for over 50 years.

Context
SSE owns over 10,700MW of electricity generation capacity, including its share of joint ventures and associates, making it the second largest generator across the UK and Ireland. Its capacity now comprises around:
  • 4,500MW of gas- and oil-fired capacity;
  • 4,000MW of coal-fired capacity (with biomass 'co-firing' capability); and
  • 2,200MW of renewable (hydro, wind and dedicated biomass) capacity.
Electricity generation in the UK and Ireland will be influenced by three key requirements in the period to 2020:
  • the closure of power stations which do not comply with the Emission Limit Value for sulphur dioxide by 31 December 2015, having opted out of the Large Combustion Plant Directive (LCPD);
  • the closure of Magnox and Advanced Gas Cooled nuclear power stations, built from the 1960s, as they reach the end of their working lives; and
  • the need for EU Member States to comply with the legally-binding target in the Renewable Energy Directive, which specifies the proportion of all energy consumption that must be met from renewable sources by 2020.
Against this background, SSE's objective is to maintain a diverse portfolio of power stations, with the flexibility to respond to customer demand and market conditions while:
  • reducing the amount of carbon dioxide per kilowatt hour of electricity generated at plant in which it has an ownership or contractual interest by 50%, over the period from 2006 to 2020; and
  • increasing the amount of renewable energy capacity that it owns and operates in the UK and Ireland to 4,000MW by the end of 2013.
Thermal - Medway
SSE's Medway power station returned to service last month following the resolution of a prolonged outage.

Thermal - Abernedd
SSE completed the acquisition of the Abernedd Power Company in May 2009. Abernedd has applied for consent to construct and operate a new combined cycle gas turbine (CCGT) power station with a capacity of over 800MW on a brownfield site at Baglan Bay in South Wales, where there is already in place electricity transmission, gas and water infrastructure for the first phase of the power station. In line with that, and subject to timely planning consent being secured, SSE expects to construct the new power station in two phases to maximise flexibility in the timing and nature of the development. It expects to take a final investment decision on the first phase - a unit with a capacity of over 400MW - by the end of this financial year.

Thermal - Keadby
SSE has identified a series of options for other CCGT plant. These include the potential development of new capacity at Keadby power station and in April 2009 it secured an agreement to connect a new power plant to the electricity transmission network from 2016. Following that, in June 2009, the Department of Energy and Climate Change confirmed that SSE has consent to develop a power station with a capacity of up to 710MW and is, therefore, in the position to take a commercial decision to recommence pre-development work on a power station with capacity of around 470MW. As with Abernedd, this will maximise SSE's options for the long-term development of the site.

Thermal - Marchwood
In the meantime, work on the construction of Marchwood Power Ltd's new 840MW CCGT plant in Southampton remains scheduled for completion in the autumn of 2009. Marchwood Power Ltd is a 50:50 joint venture between SSE and ESB International, and with a net thermal efficiency in excess of 58%, it will be one of the most efficient in the UK. All of the station's output is contracted to SSE.

Thermal - Carbon Capture and Storage (CCS)
SSE supports the objective of the UK Government for CCS to be developed and demonstrated to be a viable low carbon option for deployment after 2020, and recognises the potential of CCS as a tool in the battle against climate change. The UK government's Framework for the Development of Clean Coal consultation, published in June 2009, raises the possibility of a mandatory retrofit of CCS to new coal plant. SSE believes that new coal-fired power station developments are unlikely to proceed in the UK until CCS at sufficient scale has become technically and commercially viable without specific demonstration support.

This emphasises the importance of CCGT technology, not least to maintain a diverse energy mix as the amount of energy produced from renewable sources increases. While coal-fired generation remains the focus of CCS policy, SSE is mindful of the fact that it is a technology that may, in the long term, be applied to all fossil fuels and it is active in the ongoing public policy debate and in a number of research and development initiatives designed to enhance understanding of its potential. This includes possible participation in EU and UK plans to facilitate the construction and operation of a set of CCS demonstration projects by 2015.

Hydro and Wind - Glendoe
The 100MW Glendoe hydro electric scheme was officially opened by Her Majesty The Queen on 29 June 2009. Electricity was first generated at Glendoe in December 2008, two months ahead of schedule, and in its first six months output totalled over 100GWh.

Hydro and Wind - Pumped Storage
SSE is seeking to develop two new large scale pumped storage hydro electric schemes in the Great Glen.

It is now seeking from the Scottish Government its formal opinion on the scope of the environmental impact statement that would accompany planning applications for the schemes, currently scheduled to be submitted during 2011. They would be the first pumped storage schemes to be developed in Great Britain since work on the Dinorwig scheme began in 1974.

SSE already owns and operates a 300MW (megawatt) pumped storage scheme at Foyers, on the south side of Loch Ness, which produces 300GWh of electricity in a typical year to help meet peak demand. It has also submitted to Scottish Ministers an application for consent to develop a 60MW pumped storage scheme at its existing Sloy hydro electric power station at Loch Lomond, allowing it to produce an additional 100GWh (gigawatt hours) of electricity in a typical year to help meet peak demand.

Pumped storage schemes involve two bodies of water, located at different heights. During periods of low demand for power, electricity is used to pump water from the lower loch to the upper reservoir. This water is then released to create power at a time when demand is high. Amongst other things, pumped storage schemes complement the growing, but variable, amount of electricity produced by many renewable energy schemes, including wind farms.

The proposed schemes are on the north side of the Great Glen and, subject to final design and agreements, it is envisaged they would have an installed capacity of between 300MW and 600MW each and be able to produce a total of 1,000GWh of electricity in a typical year to help meet peak demand. In both cases, the upper reservoirs would be large, enabling electricity generation to continue for longer periods, without the need to pump water from the loch below, than is the case for other pumped storage schemes in Great Britain.

Hydro and Wind - Clyde
SSE secured consent from Scottish Ministers to erect 152 turbines at the Clyde wind farm project in southern Scotland in July 2008. It has now almost completed the turbine procurement process, with the identification of a preferred supplier, and now plans to install 2.3MW turbines, giving the wind farm a total capacity of 350MW. This compares with the 456MW originally envisaged. Nevertheless, the design of the turbines, and their on-site configuration, mean the annual output of the wind farm, expected to be over 1,000GWh, will be unaffected. The construction cost, however, will be reduced to around £500m.

Good progress continues to be made in meeting the conditions associated with the consent granted for Clyde. These include working with NATS (National Air Traffic Services Limited) to address radar-related issues and SSE continues to expect these to be resolved, with full construction work starting at the site later this year. The wind farm should be completed in 2012.

Hydro and Wind - Greater Gabbard
Greater Gabbard offshore wind farm is a joint venture partnership between SSE and RWE npower renewables. First offshore construction work on the 500MW wind farm, the largest currently under construction in the world, is getting under way. Offshore construction commences with the installation of the first of the 140 steel monopiles and transition pieces - the foundations of the site - in water depths of between 24 and 34 metres, approximately 25km off the Suffolk coast in the North Sea. The monopiles have arrived in Europe and are now subject to an ongoing process of quality assurance.

The erection of the first turbines, and the start of installation of the three cables to export power from the site, is currently expected to start by the end of this year. On completion, expected to be by 2012, the wind farm will produce approximately 1,900GWh of electricity per year, of which SSE will take 50%. The construction of Greater Gabbard, excluding the final connection to the electricity grid, is expected to require a total investment of around £1.3 billion.

Hydro and Wind - Construction and Output
In addition to Greater Gabbard, SSE has almost 250MW of onshore wind farm capacity under construction in the UK and Ireland, all of which should be completed within the next 15 months. Construction of a further 550MW of onshore wind farm capacity, including Clyde and the 136MW Griffin wind farm in Perthshire, is expected to get under way by the end of this financial year.

In 2008/09, SSE's renewable energy output (hydro, wind and dedicated biomass) totalled 5.18TWh. It expects this to double, to around 10TWh, by the year to March 2013.

Investment
In March 2008, SSE announced its intention to invest over £4 billion in its electricity generation portfolio in the five years to March 2013, including investment in existing assets. As stated in its Preliminary Results in May 2009, SSE is also making comprehensive plans to build on this programme of investment in the subsequent years, including building up a major offshore wind farm capability in northern Europe. Amongst other things, the progress of these plans will be dependent upon a satisfactory public policy and, where relevant, regulatory framework. SSE's Preliminary Results statement in 2010 will include an assessment of its progress against its renewable energy targets and an initial outlook for the period beyond 2013.

Gas Storage - Aldbrough
SSE and Statoil (UK) Ltd have started some commercial operations at their gas storage facility being constructed at Aldbrough in East Yorkshire.

Initially, Aldbrough will provide around 60mcm (million cubic metres) of capacity in two caverns. This will be the first new gas storage capacity in the UK for four years. Capacity in another three caverns is expected to become available by the end of 2010.

When fully commissioned, currently expected to be in 2012, Aldbrough will have the capacity to store up to 370mcm in nine underground caverns and will be the largest onshore gas storage facility in the UK. It will be able to deliver gas to the National Transmission System at a rate of 40mcm per day and have up to 30mcm of gas per day injected.

To form gas storage caverns, salt deposits around 2km under ground are leached out by seawater, which, in turn, is replaced by gas under pressure.

SSE will own two thirds of the capacity at Aldbrough and Statoil (UK) Ltd one third, and had invested £165m in the development by the end of the financial year to 31 March 2009.

SSE will publish its next Interim Management Statement on Thursday 23 July 2009, the date of its Annual General Meeting.

Ian Marchant, Chief Executive of SSE, said:
"These plans continue the development and diversification of our generation portfolio and include a variety of investment opportunities which support our long-term goal of reducing the carbon intensity of our power generation by 50%, while maintaining a balance of fuels and technologies. In particular, the pumped storage opportunities we have identified add significantly to our options for the future. With such comprehensive plans for investment in renewable energy and gas-fired generation, and with our continuing appetite for value-adding acquisitions, I expect this to increase significantly over the next five years.

"New gas storage capacity will play an increasingly important role in managing the UK's energy supplies as we become more dependent on imported gas in the coming years. While it will take three years of detailed project management and continued investment to complete Aldbrough, the facility will be of significant benefit to SSE and the UK as a whole."

Posted 01/07/09

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