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Email PageRegional Review - North America
profit from operations
in north america
increased 35% over 2006
Profit from operations in North America was up at £136 million compared to £101 million last year, reflecting the introduction of the Forward Capacity Market (FCM) in New England and a full year of ownership of Coleto Creek, which was acquired in July 2006. New dust emission control equipment was installed at Coleto Creek during the year which, together with planned maintenance work, meant the plant contributed for ten months of the year. Our contracted assets, namely EcoEléctrica, Hartwell and Oyster Creek all performed well delivering a good financial performance.
A mild summer in Texas led to a decrease in demand compared to 2006, resulting in a flat spark spread at Midlothian of $14/MWh at a reduced load factor of 55%. The spark spread at Hays fell from $14/MWh in 2006 to $10/MWh and the load factor also decreased from 55% to 45%, following outages to repair defective welds on high pressure steam pipes. All four units at Hays are now fully operational, following the conclusion of remedial work which was completed in the first quarter of 2008.
In New England, spark spreads increased from $12/MWh in 2006 to $16/MWh, at a constant load factor of 60%, and our assets in the region benefited from the introduction of the FCM. In February 2008, the New England Independent System Operator conducted the first auction for additional capacity for the period June 2010-May 2011. The auction attracted a significant response from both generation and demand side management projects, resulting in a capacity income of $4.25 per kW-month for our New England plants for this period.
For 2008 we have forward contracted 70% of our expected merchant CCGT output in Texas, 90% in New England and 95% of our expected output at Coleto Creek.
| Results – North America | ||
| Year ended 31 December 2007 £m |
Year ended 31 December 2006 £m |
|
|---|---|---|
| Profit from operations | 115 | 111 |
| Exceptional items and specific IAS 39 mark to market movements - (losses)/profits | 21 | (10) |
| PFO (excluding exceptional items and specific IAS 39 mark to market movements) | 136 | 101 |
In January 2008, International Power in partnership with South Texas Electric Cooperative (STEC) (International Power 51%, STEC 49%) commenced the process to permit a 650 MW second coal fired unit at Coleto Creek. The new unit, to be operated by International Power, will provide additional capacity and increased fuel diversity in the region when it enters service, which is expected in the 2013-2014 timeframe. In line with the ownership structure STEC will take 49% of this new capacity.
Market environment and growth prospects
In North America, the markets in Texas and New England have been experiencing steady growth in power demand and will be in need of new generation capacity in the near future.
In Texas subject to new capacity coming online as planned, the reserve margin
is currently forecast to fall below minimum levels needed for reliability from
2010/2011. Even including likely new capacity, the reserve margin is currently
forecast to remain below the minimum desirable level and could fall to as low
as 6% by 2013. This presents us with opportunities for organic growth in Texas
such as the potential expansion of our Coleto Creek coal fired power plant
in Texas.
Similarly, demand in New England (NEPOOL) has been growing just under 2% per annum and is expected to continue to grow at close to that pace. Given current demand
levels, if no major new-build occurred, New England could fall below the target
reserve level in the short-term. However, the system operator in New England
has introduced the FCM to ensure that sufficient reserve margin is maintained
in the system.
The FCM incentivises existing generators to achieve high levels of availability and encourages demand-side management and the construction of required new power plants in supply deficient areas. Overall, the FCM provides a market environment that encourages and rewards the right amount of new capacity that will be required to meet future demand, and provides earnings security for our existing, efficient plant together with creating further expansion opportunities for us in New England.
In addition to organic growth, there are multiple opportunities for further growth via acquisitions in the region in both existing and selected new markets.
- Total installed capacity: 72 GW
- Market type: liberalised – merchant market
- Forecast demand growth: 2.1%
- Peak reserve margin: 13.9% in 2007
- Peak demand season: summer
- International Power’s current installed capacity in the market 3,223 MW (net)
– 2,556 MW gas CCGT, 667 MW coal
- Total installed capacity: 31 GW
- Market type: liberalised – merchant market
- Forecast demand growth: 1.7%
- Peak reserve margin: 13.8% in 2007
- Peak demand season: summer
- International Power’s current installed capacity in the market 1,187 MW (net)
– 1,187 MW gas CCGT
BY FUEL TYPE (MW)
Massachusetts
BY FUEL TYPE (MW)
