• Carrington Power Masthead 

     

    Approximately one fifth of the UK’s existing power generating capacity is due to come off-line over the next 10 years. This is as a result of power plants reaching their life end and the introduction of tighter environmental legislation. As a direct result the industry regulator, OFGEM, has published a report indicating an increased risk of power shortages from 2015; around the time that Carrington is due to enter commercial operation.

    With appetite for energy continuing to rise, the Government is working with Ofgem to deliver energy market reforms to ensure secure, sustainable and affordable supplies for years to come.

     

    The key hurdle will be ensuring that vital and progressive energy infrastructure projects, such as carbon capture and storage, remain lucrative for large scale investors.

     

    Given this sector uncertainty, new generation projects to replace legacy facilities remain vital in ensuring the UK’s medium-term energy security. Carrington Power Limited, is one such project.

     

    The 880 megawatt (MW) natural gas fired power plant will be constructed on the site of a decommissioned and demolished coal fired power facility in Carrington, Greater Manchester.

     

    Developing the plant 

    The new development will be a combined cycle gas turbine (CCGT) plant, which offers high operating efficiencies and low emissions.

     

    Carrington Power will function at approximately 57 per cent fuel efficiency, compared to around 30 to 35 per cent efficiency in the case of the former power station, and take up only half of the land.

     

    Construction of the facility will create around 600 jobs in the Manchester area and is expected to be complete by early 2016.

     

    Once entering commercial operation, the plant will employ up to 50 people and generate enough power to meet the electricity requirements of one million homes.

     

    Fuelling the project 

    The project is owned by a subsidiary of the Irish state-owned utilities group ESB which identifies and develops power generation investment opportunities in the UK and Irish energy markets.

     

    Construction will be undertaken on a full turnkey basis by a consortium of Alstom, a Frenchbased power generation and transport conglomerate, and Duro Felguera, a Spanish group specialising in the execution of power plants.

     

    Gas will be supplied and electricity purchased by ESB Independent Generation Trading Limited under a long term tolling agreement.

     

    Powering the financing 

    Lloyds Bank acted as Joint Mandated Lead Arranger in providing a £434 million package of senior debt funding to support the £620 million project.

     

    The team, whose debt contribution was £72 million, has worked closely with ESB since 2010 to assist in the financing plan for the development.

     

    Recognised by the sponsor as an experienced lender to the electricity sector – having financed a number of similar projects in recent years and acting as MLA in the last European gas fired power project, T-Power in Belgium – Lloyds Bank was viewed as an ideal funding partner by Carrington Power.

     

    The Infrastructure and Energy Finance team includes individuals with personal experience in the electricity sector dating back 25 years, having been involved in the majority of UK power developments during that period.

     

    Other key roles and ancillary relationships secured by the bank as part of the package included Modelling Bank, Uncovered Facility Agent, Intercreditor Agent, Account Bank and Security Trustee.

     

    Lloyds Bank was also awarded the Bank’s first ever FX Hedge Coordinator role resulting in the seamless execution and novation of 500 trades. The costs of the project in construction and operation include a combination of Sterling, Euros and US Dollars, and the team played a key role in establishing the required hedging facilities to address and alleviate the risks associated with multi-currency funding.

     

    The financing also incorporates export credit support from the Swiss Export Credit Agency, SERV.

     

    Supporting energy security 

    Carrington Power supports the Government’s aim of encouraging the development of clean, thermal power generation, and the decarbonisation of the country’s electricity sector and is the first UK gas fired project to be financed using non-recourse finance since early 2008.

     

    The project will be operational in 2016 around which time the market regulator, OFGEM, has predicted that the capacity margin in the UK will be at its lowest with the increased risk of electricity shortages.

     

    The Carrington plant is therefore a key piece of electricity infrastructure and Lloyds Bank’s involvement demonstrates the bank’s commitment to helping the UK Government meet its targets for infrastructure investment.

     

    The project represents the first in which ESB, via its subsidiaries, has undertaken full ownership and supplied a tolling agreement.

     

    It is the state-backed company’s second major gas fired project development in the UK following on from its earlier Marchwood project where it is a joint shareholder with Scottish and Southern Energy, providing it with greater access to this strategically important electricity and gas sector. It also owns the Corby power station.

     

    The UK and Ireland markets are expected to become more closely aligned over the coming years as further interconnection between the nations comes on stream, allowing ESB to seek opportunities from these markets.

     

    The project further enhances Lloyds Bank’s reputation as a leading provider of funds to the power generation sector, and illustrates that complex thermal energy project financings can be completed, despite uncertainty in the UK electricity sector and wider economic conditions.

     

    The project will also benefit the local economy through job creation and wider supply chain opportunities for regionally-based suppliers.

     

    Viewpoints 

    Alan White, Head of Energy, Infrastructure and Energy Finance, Lloyds Bank, says: “Carrington Power represents a strategically important project financing, taking into account ongoing pressures relating to the capital cost of new facilities and their operational performance, as well as future fluctuation in electricity pricing.

     

    “We have been able to effectively structure a financing package with a robust risk framework, which will enable the construction and operation of a facility that will contribute to the Government’s strategic energy targets, UK electricity requirements and the Manchester economy.

     

    Jonas Persson, Utilities Director, Lloyds Bank commented: “The deal has cemented our position as a ‘go to bank’ for the independent developers, and ESBi is one of the key sponsors in the UK energy sector given its intention to construct a 3,000 MW portfolio of assets in the country.”

     

    Suzanne Ward, Commercial Manager at ESB Energy International Limited, comments: “Theavailability of project finance has been central in the development of Carrington Power and illustrates that funding can be secured for thermal gas projects in the current market.

     

    “Lloyds Bank’s Infrastructure and Energy Finance team played a key role in preparing a financial structure which is aligned to the profile of the plant and its generation potential, and illustrates confidence in the development. The bank was particularly effective in mitigating the risks inherent in the multi-currency costs associated with the project’s construction and operation.

     

    “The plant represents a strong platform for us to plan and construct further generation assets throughout the country, and provides a boost for UK energy security.”

     

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7/18/2019 2:00:02 AM