Economics and financing of mid-merit power plants

The opportunity for the development of mid-merit power plants has arisen due to the privatisation of the UK electricity industry and the subsequent displacement of older small and medium sized coal fired power plant down the merit order. This saw a consequent increase in mid-merit electricity prices and created the pricing margin to encourage the construction of new mid-merit power plant. The parallel liberalisation of the UK electricity and gas markets saw the emergence of integrated energy suppliers looking for additional mechanisms to mitigate market risks. Flexible mid-merit power plant provide this mechanism and allow an energy supplier to arbitrage between the gas and electricity markets. The economics of the mid-merit power plant are driven by the differential pricing in the gas and electricity markets and require low capital and operational cost equipment that is capable of repeated, reliable starts. Financing mid-merit projects is determined by the credit worthiness of the counter parties to the long-term agreements, the technical risk associated with the equipment used and the cash cover within the project for the senior debt service