SSE has an ownership interest in two major gas storage facilities in East Yorkshire:
- Hornsea (Atwick), which currently accounts for around 5% of the total gas storage capacity in the UK and 10% of deliverability; and
- Aldbrough, which is owned by SSE (66.7%) and Statoil (UK) Ltd (33.3%) and operated by SSE, with SSE’s share accounting for around a further 3% of UK storage capacity and around 13% of the UK’s storage deliverability.
Operationally both sites have continued to operate to meet the needs of its customers through 2014/15:
- Hornsea again met 100% of customer nominations with the site 85% available except in instances of planned maintenance;
- Aldbrough met 100% of customer nominations and was 87% available overall except in instances of planned maintenance.
However, in recent years the economic environment for gas storage facilities has been challenging – as illustrated by the significant reduction in operating profit reported by SSE’s gas storage business in 2013/14 - and this trend has continued in 2014/15, with SSE reporting a further reduction in operating profit for the HY 2014/15. Operators have been faced with low operating returns due to unfavourable market conditions, combined with an increasing cost base as a result of the decision by the Valuation Office Agency during the period to effectively double business rates for most gas storage facilities in the UK.
In the light of these challenges, alongside the requirements to continue to invest to ensure the highest standards of asset management are maintained, SSE has been reviewing its gas storage business on an ongoing basis in order to ensure that it continues to provide valuable flexibility and hedging services to its customers, while being as well positioned as possible to take advantage of future market developments.
SSE has, as a result, identified that the costs of operating, maintaining and upgrading the older withdrawal plant at its Hornsea facility are not currently supported by market returns and, as such, it has decided to mothball 33% of the withdrawal capacity of the site (6mcm/d) with effect from 01 May 2015. This change to the site’s capability will alter the shape of the storage service it can offer, creating a greater value product for SSE’s gas storage customers.
Furthermore, a business-wide review, including the implications of this decision, will result in a reduction in Gas Storage staff numbers of around 12. SSE will seek to achieve this reduction through voluntary means where possible, working with the employees affected to identify redeployment opportunities across the rest of the SSE Group.