2009 was a transformational year for our upstream UK business
on Centrica Energy is available at www.centricaenergy.com
The acquisitions of Venture and a 20% equity stake in British Energy, combined with the significant progress made in developing our existing asset portfolio, have considerably strengthened Centrica’s integrated business model. Having undertaken these material changes we are now well placed to deliver sustainable and attractive returns over the long term.
In 2009 UK wholesale month-ahead gas and power prices fell by around 45%, resulting in a very challenging environment for Centrica Energy. Despite this reduction in commodity prices a strong operational performance and the optimisation of our portfolio, including the benefits of forward hedging, enabled us to deliver a good result. Overall the operating profit* for the division was £525 million (2008: £881 million).
Our power generation business performed strongly in 2009. In November we successfully completed an improved deal with EDF to acquire a 20% equity interest in British Energy, the operator of eight existing nuclear power stations in the UK, for £2.3 billion. This was funded in part by the sale of Centrica’s 51% equity stake in the Belgian business SPE to EDF for £1.2 billion. This joint venture with EDF provides us with access to 20% of the uncontracted power from the existing nuclear fleet, an additional 18 terawatt hours (TWh) of power from EDF over five years from 2011 and the right to participate in EDF’s UK New Nuclear Build (NNB) programme.
We have further strengthened our position as one of the leaders in offshore wind. In October we announced that the 270MW Lincs offshore wind development project had received final investment approval with construction expected to commence in 2010. The anticipated costs of construction, excluding offshore transmission assets, are expected to be around £750 million and first power should be generated towards the end of 2012. In line with the UK Government Renewables Obligation Certificate (ROC) regime, the project will attract two ROCs per megawatt hour (MWh) generated, a critical component supporting the economics of the project. In December we subsequently announced the sale of a 50% equity stake in the Lincs project to Siemens Project Ventures and Dong Energy, a deal which completed in February 2010. This agreement enables the project to benefit from Siemens’ latest turbines, which are expected to achieve higher load factors, therefore improving the project economics further.
The decision to proceed with Lincs was announced at the same time as the equity sell down and agreed project financing for the Lynn, Inner Dowsing and Glens of Foudland wind farms. Under this agreement we sold a 50% equity stake in these wind farms to Trust Company of the West (TCW) for a cash consideration of £84 million and entered into agreements to raise approximately £340 million of non-recourse project finance facilities from a consortium of banks. This agreement has established an effective structure for recycling capital and mobilising third-party funds efficiently. Centrica also entered into 15-year Power Purchase Agreements (PPA) to off-take all of the electricity production and 50% of the ROCs generated by the three refinanced wind farms.
In January 2010 we welcomed the news that Centrica had been successful in The Crown Estate’s Round 3 offshore wind tendering process, having been awarded exclusive rights to develop up to 4.2GW in the Irish Sea zone. This announcement further increases our portfolio of wind development opportunities and provides valuable geographic diversity in a region where we have operating experience. Development projects are unlikely to begin until at least 2016, subject to final investment decisions.
Our new 885MW Langage CCGT station, with a thermal efficiency of 53%, is now operational following successful plant performance tests and is now in final handover testing. During the year we also continued to make efficiency improvements to our existing CCGT fleet.
Overall the power generation segment delivered a strong financial and operational result with an operating profit* of £147 million in 2009 (2008: £11 million) reflecting a strong contribution from our CCGT fleet, a full-year’s contribution from the Lynn and Inner Dowsing wind farms and one month’s output from the British Energy fleet.
Our CCGT fleet benefited from the fall in gas prices particularly during the second half of 2009, which resulted in our gas-fired power stations displacing coal generators on the merit order. Strong CCGT fleet reliability of 97% (2008: 94%) combined with a sound hedging strategy provided us with greater exposure to higher second half clean spark spreads. Overall the average load factor across the CCGT fleet increased to 69% (2008: 67%). Total volumes, including the wind fleet and one month’s share of output from British Energy, increased to 25.2TWh (2008: 23.4TWh).
The progress made in 2009 supports the strategic direction of our power generation business as we aim to increase the level of asset cover to our downstream businesses, diversify the generation mix with a focus towards lower carbon intensity and build on our leading position in renewable generation.
* including joint ventures and associates stated gross of interest and taxation, and before other costs and depreciation of fair value uplifts to property, plant and equipment from Strategic Investments and exceptional items and certain re-measurements
After £400 million investment and five years in development, Langage powers into action
Centrica Energy has developed into a multi-asset growth business across gas and power
Langage, in North Devon, is the first power station we have built from initial design through to completion. It has a thermal efficiency of 53%, and is now operational following successful plant performance tests.
We are investing in power generation and gas assets to safeguard future supply and provide more of our customers’ energy from our own resources. And having acquired LNG import capacity at the Isle of Grain terminal, we took delivery of 15 cargoes during 2009 from destinations including Qatar, Trinidad, Norway and Australia.