E.ON Says U.K. Power Prices Must Reflect Cost of Backup Plants

[phantom power]

Utilities need to keep running gas-fired plants because sources of alternative generation such as wind can fluctuate, E.ON’s Director of Regulation and Energy Policy Sara Vaughan said in a telephone interview. The battery technology that’s used to store power from wind remains in its infancy, she said.

Britain, chasing a target to get 15 percent of its energy from alternative sources by 2020, is planning $120 billion worth of offshore wind projects as well as new gas and nuclear plants, potentially pushing down power prices as capacity expands. Since production from renewables can vary, utilities must make up the difference using other generators when output falls short.

Total U.K. capacity may rise to more than 100 gigawatts, from 85 gigawatts, weighing on prices when all stations are available and making it unprofitable to keep them open, Vaughan said from Coventry, England. “You need to have that capacity there but it needs to be economic, so there is the question of whether the system will reward that capacity being there.”

Utilities are already suffering from reduced profit margins after a price slump last year. U.K. baseload electricity for day-ahead supply dropped 35 percent in 2009 as the economic slowdown eroded demand.

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