Interview: S&P Global Platts
15 February 2019
London—The potential to stack revenues, improve operational performance and cooperate with Chinese co-partners on technology supported Sev.en Energy’s decision to buy into InterGen, Executive Director Alan Svoboda told S&P Global Platts in an interview Thursday.
On February 1 the Czech lignite miner/generator announced it was buying Ontario Teachers’ 50% stake in InterGen, which owns three combined cycle gas plants in the UK and has stakes in two coal plants in Australia, for a combined capacity of 4 GW.
“The UK offers multiple sources of revenue, be it for the electricity, system services, capacity markets or redispatch given constraints in the grid,” Svoboda said.
“Positioning the plants and their market deployment to benefit from all four revenue streams is where we think we can help support the business,” he said.
InterGen is also building a 300 MW open cycle gas turbine at its Spalding site in Lincolnshire, England.
The GBP100 million ($128 million) project secured a 15-year Capacity Market agreement in the December 2016 auction. The unit is expected to be completed this year, Svoboda said.
“We believe that conventional energy will remain a significant pillar in the energy mix of these markets, and we see great potential for further development of InterGen’s production base in Europe and globally,” he said.
Division of skills
The other half of InterGen is owned by China Huaneng Group and Guangdong Yudean Group of China, huge state generators with a combined 170 GW installed, mostly coal-fired.
“We recognize our partners’ technical skills and bring to them further expertise in trading and operational asset management driven by market opportunities,” Svoboda said.
“First, are the assets as reliable and efficient as they could be? Second, let’s look at how they are deployed on the different markets.” UK gas assets had been a key target for Se.ven, Svoboda said.
“Gas is here to stay as a key enabler of increasing the share of renewables. The more wind you put in the mix the more you need gas plants to complement and act as back-up,” he said.
While InterGen’s CCGTs were between 14 and 21 years old, “if you do proper maintenance this is not a short-term asset – we take a 35-40- year operational lifetime outlook,” he said.
UK CCGT plans
Beyond the Spalding OCGT, InterGen has two consented UK CCGT projects awaiting final investment decisions at Spalding Energy Expansion (620 MW) and Gateway Energy Centre (1,250 MW).
“These were prepared in light of a functioning capacity market, so now we have to wait until it is back in place,” Svoboda said, in reference to the current suspension of the CM.
When and if restored, the projects would be revisited.
“I’m not saying we should invest immediately, we need the right moment and the right price in the auctions. But with phase-out of coal and some nuclear, and a likely shortage of new nuclear development, we’re anticipating a shortage of capacity in the UK. The supply/demand balance is going to get tighter,” Svoboda said.
Over time Sev.en is keen to look at innovation that feeds off conventional generation’s market presence and physical site location. That could mean co-locating batteries on existing sites “or something different—batteries have only limited capacity and discharge time, the volumes can only last for a few hours, certainly not days or weeks,” Svoboda said.
For longer-term storage, “you need transformation from power to something, then back to power, be it a chemical reaction, or using pressure, or other thermo-chemical or physical transformations— making hydrogen via electrolysis being an obvious example,” he said.
Intergen: uk gas capacity dominates portfolio
|Plant||Technology||Capacity (MW)||Operation start||Turbine|
|Rocksavage, Cheshire, UK||CCGT||810||1998||Alstom GT 26|
|Coryton, Essex, UK||CCGT||800||2002||Alstom GT 26|
|Spalding, Lincolnshire, UK||CCGT||880||2004||GE 9FA|
|Callide C, Queensland, Australia (Intergen 25%)||Supercritical coal||920||2001||Toshiba|
|Millmerran, Queensland, Australia (Intergen 29%)||Supercritical coal||850||2003||Ansaldo|
|Spalding, Lincs, England||OCGT||300||In construction||Siemens F class|
|Spalding Energy Expansion, Lincs, UK||CCGT||945||Consented||N/A|
|Gateway Energy Centre, Essex, UK||CCGT||1,250||Consented||N/A|
Further afield—and with an eye to possible coal plant acquisitions—Sev.en is interested to learn from its new InterGen co-owners about gasification.
“We’ve visited the Chinese who are pioneering IGCC [integrated gasification combined cycle] technology—conversion from coal to gas, and from gas to power or hydrogen in a very clean way with carbon capture and storage,” Svoboda said.
“This is something we definitely want to explore: whether gasification could be the future not just for us, but for the overall objectives of countries in central/eastern Europe that depend heavily on coal,” he said. The industry was rich in ideas and concepts, with the jury out on which technologies would achieve viability.
“I say R&D into sustainable conventional technologies is equally important to supporting the currently main-stream concepts such as green power combined with storage. In countries heavily dependent on coal, it makes sense to combine approaches and not just walk away from conventional power,” Svoboda said.
German coal opportunity retreats
Sev.en had been looking at thermal assets in Germany, but following the recent phase-out proposal from the governmentappointed coal commission, the operators would now likely hang on to their plants in expectation of generous compensation, Svoboda said.
The ex-CEZ manager said a German coal phase out would lead to higher power prices for consumers throughout Central and Eastern Europe.
“We’re taking a big chunk of capacity out of the market. It proves Germany is willing to throw a lot of money at the transformation—not just for premature closures and regional redevelopment, but also at the negative side effects requiring further investments, like OCGTs in the south of Germany, and rising redispatch costs. Germany seems ready and willing to fund all the systemic corrections needed to make the transformation happen,” Svoboda said.
Unloved mining assets
This still left Sev.en with more acquisition opportunities than it could ever take on, Svoboda noting further generation deals were already in the pipeline.
“And we’ve realized that our corporate profile is also compatible with the mining industry—thermal coal or base metals,” Svoboda said. Mining has to some degree similar features to conventional generation, unloved assets with an asymmetry between investors and buyers.
“These businesses are considered to have insufficiently positive PR for investors, even though they are robust and established,” he said.
“We can select carefully the right deals and not overpay.”
— Henry Edwardes-Evans
Gabriela Sáričková Benešová
mluvčí skupiny Sev.en Energy