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Endesa to close entire Iberian coal fleet

Highlights

Retrofitted plants at Pontes, Litoral closing early

Company cites CO2 costs as output plummets

Barcelona — Endesa plans to close all its Iberian coal-fired power stations, ending production from two of Spain's largest power stations, the 1.4 GW As Pontes and 1.1 GW Litoral de Almeria plants, it said late Friday.

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Continued operation of uncompetitive coal plants "is not foreseeable in the future" due to the change in market conditions, notably the increase in CO2 prices, the Enel-owned utility said.

"The Endesa board of directors has approved to promote the discontinuity of the production of its coal thermal power plants in the peninsula, in accordance with the legally established procedures, and to evaluate future options in these locations," the company said in a regulatory filing.

Endesa and partner Naturgy are in the process of dismantling the first unit to close -- the 347 MW Anllares plant.

It had previously announced an intention to close the 1 GW Compostilla 2 and 1.1 GW Teruel plants, rather than retrofit them with equipment to reduce pollutants.

Now, however, Endesa says it has seen "a profound change in the market conditions" arising from the international price of commodities and the effectiveness of the EU's CO2 Emissions Trading System, "which displaces the plants with the highest volume of emissions to the benefit of other technologies."

Endesa operates four plants on the Spanish mainland (excluding Anllares), one 585 MW unit at Es Murterar on the Balearic Island of Mallorca and has a 44% stake in Portugal's Pego plant, alongside France's Engie and Japan's Marubeni.

"The net book value, as of today, of all mainland coal thermal power plants amounts to approximately Eur1.3 billion ($1.4 billion), which includes the estimated amount of the provision for the dismantling of these plants," it said.

Endesa did not give a timeframe for any of the closures and declined to comment further Monday.

COAL OUTPUT COLLAPSE

Endesa's coal-fired generation has shrunk this year as Spanish generators have been lured to gas switching by a combination of high CO2 costs and bearish gas prices.

According to an estimate by investment bank RBC Europe, the company's output from coal was 0.7 TWh in May through August this year, versus 7 TWh in the same period last year.

According to a note Monday by Societe Generale analyst Jorge Alonso Suils, Endesa's long client position in electricity supply would increase by an estimated 5 TWh because the company's combined cycle gas plants would not be able to fully offset lost coal production.

Endesa would manage the shortfall as new renewables came on stream quicker, Suils said.

The utility plans to add 1.8 GW Spanish renewables by 2021 and keep adding capacity to reach 9 GW later, most of thissolar PV.

At Teruel, Endesa plans to build a 1 GW solar farm to replace the coal plant there. It is expected to update its strategy in November.

SYSTEM RELEVANCE WARNING

JP Morgan analyst Javier Garrido said the investment bank had expected As Pontes and Litoral to close nearer 2022 or 2023.

It noted the system operator may require at least some units to remain available for a couple of years to guarantee security of supply.

Spain's provisional National Climate and Energy plan foresees coal capacity dropping to 4.5 GW in 2025 from 10.5 GW in 2020, before falling to between zero and 1.3 GW by 2030.

Impending elections in Spain could also precipitate government intervention, especially in the light of public unrestcreated by the closures.

According to press report, the ministry has called a meeting with Endesa and workers from the two plants to work out a plan. A ministry spokesman was unavailable for comment Monday.

-- Henry Edwardes-Evans, henry.edwardes-evans@spglobal.com

-- Gianluca Baratti, newsdesk@spglobal.com

-- Edited by Alisdair Bowles, alisdair.bowles@spglobal.com