Sunday 15 December 2019

Viridian generating auction result rated 'credit negative' by Moody's

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John Mulligan

John Mulligan

Ratings agency Moody's has said the outcome of the electricity-generating capacity auction in Ireland is credit negative for Viridian and neutral for the ESB.

Viridian said this week that it plans to close its gas-fired Huntstown plants - which generate up to 747MW of electricity - after one of the plants failed to secure a capacity contract following an auction under the new Integrated Single Electricity Market (ISEM).

The ISEM is a new wholesale electricity market arrangement for Ireland and Northern Ireland. The new market arrangements are designed to integrate the all-island electricity market with European electricity markets, enabling the free flow of energy across borders.

In order to ensure the demand for electricity is always met, generators receive a payment for being ready to generate electricity - called the capacity remuneration mechanism.

An auction last month determined the capacity remuneration payable between May this year and September 2019.

The result of the auction means that Viridian will only receive remuneration for 46pc of its wholly-owned generating capacity. The ESB will receive remuneration for 91pc of its capacity.

But electricity producers are also receiving less this year from such payments, a move designed to weed out uneconomical power generating assets.

Moody's noted in a research report that both of Viridian's Huntstown plants derive the "vast majority" of their gross profits from capacity payments.

The plants run most days to ensure system stability in the greater Dublin area.

Viridian has warned that if the plants go offline that Dublin's power supply will be jeopardised. EirGrid, which operates the national grid, has rejected that claim.

Moody's said the extend of the decline in earnings before interest, tax, depreciation and amortisation at Viridian from next year onwards will be dependent on a number of factors, including whether or not the company is successful in a judicial review of the ISEM market arrangements.

About 40 staff at the Viridian plants have been placed on protective notice.

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