National Grid to recoup 95 million pounds of power contract costs

LONDON (Reuters) - Britain's National Grid will be able to recoup 95 million pounds of the 113 million it has awarded to two companies to provide back-up emergency power for winter 2016/17, regulator Ofgem said on Tuesday.

The so-called "black start" contracts pay power companies to keep plants ready to come back online without start-up power from the grid if there is a national power outage.

Britain's electricity production fell to its lowest level in more than 20 years in 2015, with several loss-making coal plants closing in recent years.

National Grid has a range of measures to incentive plants to be available during times of high demand and regulator Ofgem sets how much National Grid can spend on these.

On Tuesday Ofgem said the 54 million pound contract awarded to SSE’s Fiddler’s Ferry coal plant this year met its criteria and could be recovered.

Following the contract win SSE said it would keep the coal-fired power station near Manchester open until at least March 31, 2017.

A 59 million pound contract was awarded to coal-fired generator Drax to remain available over winter 2016/17 after it had warned it might mothball some of its coal-fired capacity.

Ofgem said National Grid could have foreseen this event and therefore the company could not recover all of the money for this contract.

"National Grid will bear up to 17.7 million pounds in costs itself, which is 30 percent of the costs," Ofgem said.

Overall, it said National Grid would "recover at least 95.3 million pounds via balancing charges on suppliers and generators".

National Grid said it was disappointed with Ofgem's decision regarding the Drax contract as it believes the costs could not have been reasonably foreseen.

(Reporting by Susanna Twidale; editing by Jason Neely)