Britain faces a record summer for renewable energy generation, with the national energy system operator anticipating periods when wind and solar power could exceed the grid’s total demand. A sunny weekend or a bank holiday afternoon of low consumption, for instance, may see more clean electricity produced than the country can use.
The milestone underscores the rapid expansion of offshore wind and solar capacity that is reshaping the country’s power mix. Yet the announcement came just as Centrica, the owner of British Gas, spent £370 million acquiring a 16-year-old combined-cycle gas turbine plant in south Wales – a move that, on the surface, appears to run counter to the government’s clean power ambitions.
Why gas plants remain essential
The purchase of the 850MW Severn plant near Newport, commissioned in the fourth quarter of 2010 and comprising two 425MW units, reflects a less celebrated aspect of the energy transition: the enduring requirement for dispatchable generation to keep the lights on when the wind does not blow and the sun does not shine. Under the government’s Clean Power Action Plan, unabated gas is expected to account for no more than 5% of Great Britain’s electricity generation by 2030, down from approximately 31.5% today. But that small share disguises a critical role: gas plants will be called upon during concentrated, unpredictable periods – a still day in the depths of winter – and their availability must be guaranteed.
Centrica justified the acquisition on several grounds. The financials, it said, stack up: the company expects the Severn plant to deliver annual earnings before interest, tax, depreciation and amortisation of between £30 million and £60 million from 2027, implying an earnings yield of more than 10% at the midpoint of that range. A small net loss is anticipated in 2026 owing to transaction and integration costs and naturally lower summer revenues, but the acquisition is expected to be accretive to earnings per share from the first full year after completion.
Critically, gas-fired power stations earn money even when idle. The Severn plant is projected to receive average capacity market payments of £35 million a year until 2030 – fees paid simply for being available to generate. These payments are the mechanism through which the system ensures sufficient capacity to meet peak demand. Beyond 2030, the government has yet to specify how gas plants will be incentivised to remain on the system, but industry observers note that intermittent renewables will require a backstop power source that can be dispatched at short notice, making some form of financial carrot inevitable until more nuclear capacity arrives.
The Severn plant also benefits from its location and relative efficiency. Built in 2010, it is younger than much of Britain’s ageing gas fleet and may have another decade of operational life without major refurbishment – a significant advantage given that waiting times for new gas turbines now run into years and that refurbishment costs for older plants have risen sharply. Furthermore, the plant sits in a region expected to experience a surge in electricity demand from data centre developments in South Wales. The National Energy System Operator estimates that the UK data centre boom could add 71 terawatt hours of demand over the next 25 years, roughly doubling the sector’s current energy use. Being in the right place for that growth bolsters the plant’s long-term utilisation and revenue visibility.
Centrica’s chief executive, Chris O’Shea, summed up the rationale: “With the delivery of replacement capacity being impacted by grid access, rising costs and supply chain constraints, alongside the closure of ageing gas assets towards the end of the decade, the need for assets like Severn will increase.”
Centrica’s infrastructure pivot
The Severn acquisition is the latest step in Centrica’s strategic shift towards becoming an infrastructure-style business with regulated, semi-regulated and contracted revenues. Last year the company took a 15% equity stake in the Sizewell C nuclear power station, with a capped investment of £1.3 billion that is expected to deliver inflation-linked, regulated returns. It also acquired a 50% stake in the Isle of Grain liquefied natural gas import terminal for roughly £200 million, an asset crucial for energy security that provides predictable, long-term cash flows. Centrica is additionally considering a £2 billion redevelopment of the Rough gas storage facility, the UK’s largest, subject to appropriate regulatory support – a move that would further anchor its infrastructure portfolio.
The logic of this pivot was reinforced by a warning that operating profits from the company’s retail businesses, mainly British Gas, will be at the lower end of guidance this year, partly owing to challenges in residential energy bad debt collection and warmer-than-normal weather. The announcement sent Centrica’s shares down 5%. Against that backdrop, an unglamorous gas plant with a decade of capacity market payments and a foothold in a growing demand centre looks far more predictable than the volatile retail market – a reminder that even in a record-breaking summer for renewables, the old technologies still have a role to play in keeping the system stable and the corporate balance sheet steady.
