Sunday, 14 January 2018

Irish State sold profitable Power Station for 10% of it's cost

In 2010, Bord Gais Energy, then owned by the Irish State, began operation of Whitegate Power Station, a 445MW  gas powered station in Cork. It cost € 400 million to build.   

In 2014, Bord Gais and it's assets was sold off to Centrica UK. It was rumored at the time that the State took a hit of as much as €360 million on the sale of Whitegate.
As this newspaper [Irish Independent] revealed last week, the "enterprise value" paid for Bord Gais by new owners Centrica was €210m. However, this included €60m of income that would have been earned anyway if the company wasn't sold. Furthermore, the book of 680,000 Bord Gais customers could have had a value of about €110m, so this suggests a value of just €40m was put on Whitegate, which cost €400m to build.
The 2014 accounts show the power station valued at € 39 million confirming the massive loss. Somehow the power station lost 90% of it's value in four years. Did they spend too much on it's construction ? ESB built an 884MW gas powered station in the UK costing € 820m which works out at just under a million euros per MW, roughly the same cost as Whitegate.  Aghada power station, which is situated close to Whitegate, was built for slightly less at € 360m, about € 0.8m per MW. So the loss in value of € 360 million could not be attributed to over spending on construction. 

The most recent accounts shows that operating profits at Bord Gais Energy jumped from €50m to €63m during 2016.  I cannot say how much of this profit is attributable to the power station but the accounts do say that :
Whitegate benefited from good reliability and availability throughout the year.
Within the energy generation market, Whitegate remains both reliable and efficient and continues to achieve high market availability. 

The generation profile for the power station below shows that it was generating less by 2014.

Source EPA

Presumably this was a trend that government officials thought would continue into the future but in reality, we can now see that the power station did in fact return to growth and achieved high market availability. 

The constant ramping up and down to accommodate more and more wind energy would also have been another contributing factor that led to the loss of it's value. But the recovery of the power station in the energy market is a surprise considering that about 650MW of wind farms were built between 2014 and 2016, which theoretically should have displaced more gas power. 

The above graph shows that the capacity factor (actual output / maximum output) for the gas power station increased to 68% while that of wind energy dropped to 27%. Whitegate now has the second highest capacity factor for gas in Ireland (Dublin Bay CCGT has the highest at 80%)

It appears that the government officials and consultants wrongly assumed that adding wind capacity meant more wind energy and less gas power. Of course, increased demand was another factor in Whitegate's market recovery. But no matter what excuses can be made, the loss to the Irish State of € 360 million shows gross incompetence. The Irish government bet on wind, whilst the private sector bet on gas. Where idealism meets pragmatism in the business world, the latter usually wins out. 

Has wind energy distorted asset values in the energy market ? Consider that recently Greencoat Renewables paid €2.5m per megawatt for a wind farm in Co.Kerry compared to the €0.9m per megawatt it cost to build Whitegate. 

The cost of Brexit to Ireland is estimated to be €200m per year, however our own government conducted business deals long before Brexit that cost us more than that. 

As usual, the taxpayer picks up the tab.


  1. 100 Megawatts capacity of wind turbines built in year one. In year six the effective usable capacity for this wind turbine capacity is 50 megawatts. That is one of the reasons output from Whitegate has increased in recent years. It also explains some of the drop in wind turbine capacity factor in recent years. The construction costs for Whitegate seem a bit on the high side from an international perspective.

  2. To quote Cormac Lucey, "Where political consensus exists, critical scrutiny suffers and is replaced by reflexive, unthinking support for the new orthodoxy . . . spoonfed by a department which can always play the long game and hide in the thicket of complexity to delay and avoid proper accountability." One only has to look at the El Hierro fiasco to see where the policies disseminated by secure and smug department officials are inevitable going to take Ireland.