Coal news and updates

A giant blue crane with a supersized rotating bucket wheel attached to its arm crawls past tall piles of coal, scooping it up to deposit on a green conveyor belt. Brown railway wagons roll forward to collect their load before heading west to Britain’s power stations. Welcome to Immingham, the UK’s busiest port.

Immingham, owned by Associated British Ports, handles about 50m tonnes of cargo every year, from coal to forest products to steel. But it is coal that has become the biggest revenue generator for the port. This year, it expects to import between 13m and 13.5m tonnes of coal, the bulk of it destined for power stations.High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/f5229092-4ae5-11e3-ac3d-00144feabdc0.html#ixzz2kyDQNF6l

 

At a time when government policy is focused on reducing carbon emissions and promoting investment into low-carbon sources of generation, coal is enjoying an unexpected renaissance in the UK.

In the middle of the first week of November, coal supplied 39 per cent of Britain’s electricity generation – far ahead of combined cycle gas turbine plants at 28 per cent, nuclear at 17 per cent and wind at 8 per cent.

“People don’t realise where around half of the generation comes from today, nor the difference in price,” says Simon Brett, deputy port manager at Immingham.

Fuel costs for generating electricity from coal are around half those for natural gas, according to an analysis by Coal Imp, the association of UK coal importers.

With wholesale coal prices down due to an abundance of supply on the market – US coal producers are also exporting cargoes to the UK as utilities there have switched to burning cheap shale gas – generators in Britain have responded by running their coal stations hard.

“At the moment, the clean spark spread, or the profitability of burning gas, for November 13 is around £5/MWh, compared to clean dark spread of around £25/MWh for coal,” says Andrew Horstead from the consultancy Utilyx.

At Scottish Power, owned by Spain’s Iberdrola, coal accounted for 45.6 per cent of its total generation mix in the first nine months of the year, compared with 40.8 per cent from gas. Fellow utility SSE said in May that its 4,370MW of coal-fired power stations located at Fiddlers Ferry, Ferrybridge and Uskmouth, generated 20.6TWh of electricity during 2012-13, up from 16.8TWh during the previous year.

The poor returns from investment into gas-fired power have led to several power generators mothballing plants in recent months. GDF Suez, the French energy group, announced in August that it would mothball the remaining 45MW of capacity at its gas plant at Teesside, in addition to the 1.83GW previously announced.

SSE is mothballing or reducing the capacity of several power stations this year. It has deep-mothballed a gas-fired power station at Keadby in Lincolnshire. Centrica, owner of British Gas, declared a loss on its gas-fired power generation of £64m in the first half of the year.

While coal-fired power may be relatively cheap, the action of running the plants hard while not investing in new gas-fired generation capacity could have a critical impact on Britain’s energy market and exacerbate a potential supply crunch looming in 2015-16.

“The conundrum in the UK is that we want to see more investment going into gas plant but the market signals are the opposite. They are telling you to run coal and mothball gas plants,” says Keith Anderson, chief corporate officer at Scottish Power.

The result is that Britain’s coal plants could stop operating sooner than expected as many burn through their remaining hours allowed under environmental legislation – if their owners decide not to invest in equipment to control emissions.

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According to Mr Horstead, it is this “dynamic” that is “a contributory factor to warnings of tighter supply margins”. He points out that of the 11.5GW of coal and oil plants restricted in how they run by the EU’s Large Combustion Plant Directive, 7.3GW had already closed by mid-2013, with SSE’s 980MW Ferrybridge plant the next to go before the end of winter.

“The situation could be exacerbated if more gas-fired plants are mothballed due to economic pressures. The real concern is the period after 2015. With only one gas station under construction which won’t be ready in 2016, we are unlikely to see any more announcements until details of the capacity mechanism [to incentivise gas plants] are finalised,” he adds.

Industry says what is needed is faster progress on the government’s plans under the energy bill to incentivise new gas plants by creating a market for gas-fired power. This involves auctions for power capacity that oblige winners to deliver energy at times of peak demand.

It is hoped that capacity payments will provide the kind of reliable income stream energy companies need to make investments. However, although the first auction is due to take place next year any capacity will not come online until 2018 – too late, according to many executives, if the UK wants to avoid a supply crunch.

For coal, with the introduction of the carbon price floor – to encourage generators to burn less carbon – and additional and tighter emission limits to be introduced under the Industrial Emissions Directive from 2016, its days as Britain’s key electricity source are numbered unless there is a change in policy.

“Unilateral UK action, such as the steep rise in the carbon price floor, continues to pose a threat to competitiveness,” says Nigel Yaxley, managing director of Coal Imp.

While some generators, such as Drax, are moving to burn biomass instead of coal, most industry executives expect coal generation in the UK to come off the system by 2023. Coal should enjoy its renaissance, “while it lasts”, says Mr Horstead.

 

 

Source: ft.com