Utility Week

UTILITY Week 8th April 2016

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UTILITY WEEK | 8TH - 14TH APRIL 2016 | 19 Operations & Assets Analysis C oal-fired generation should be heading towards extinction in the UK. Energy secretary Amber Rudd made that very clear in her policy reset speech in November: "Unabated coal is simply not sustainable in the longer term." With that she set out the government's intention for the use of unabated coal gener- ation to be limited from 2023 and completely phased out by 2025. A number of coal-fired power stations have already closed, but something different appears to be happening now – generators are managing to keep their coal plants open and operational, such as SSE with Fiddler's Ferry. This should not be happening. With car- bon emissions around the 900g of CO2 per kWh mark, almost double that of unabated gas, the stubbornness of coal-fired genera- tion to remain a part of the energy mix is contradictory to the low-carbon direction of travel. As well as the environmental pres- sures and the government's plan to cease coal generation in the middle of the next decade, there are tough economic factors, led by a falling wholesale price, behind why coal plant should be closing down. Some have succumbed to this growing pressure. The final units at SSE's 2GW Ferrybridge plant powered down last month, and this was followed by Scottish Power switching off the final unit at its 2.4GW Longannet plant. The high carbon price – boosted in the UK by the £18 per tonne carbon price floor – has hit the profitability of coal, and this tax is set to increase in line with inflation from 2019/20. The EU has added to the pressure with the Industrial Emissions Directive (IED), which came into effect at the beginning of this year and compelled generators to: com- ply immediately with stringent limits on the emission of nitrous oxides, sulphur oxides and dust; sign up to a transitional plan to meet the limits by 2020; or agree to shut down by 2023. And yet, some coal fired plants will remain open. It's not because the market conditions have improved for coal, says Dave Jones, policy analyst at environmental campaign group Sandbag: "The amount of coal genera- tion is plummeting. Q1 coal generation this year is down 53 per cent." Instead, he says, it's the incentive to pro- vide backup capacity rather than generation that has enabled Fiddler's Ferry to carry on. SSE had already secured a contract for one of the four units to provide spare capac- ity through the supplemental balancing reserve this winter and has now announced another contract for a second unit to provide unspecified "ancillary services" to National Grid over the next year. Contracts were also secured for three of the units in the first capacity auction for the winter of 2018/19. Last month, the govern- ment announced plans to bring forward the start of the capacity mechanism to the winter of 2017/18 and hold an extra year-ahead auc- tion this winter. SSE said it plans to enter all or part of the plant into this auction as well. "I think it would be fair to speculate that there's been a complete U-turn by Fiddler's Ferry and they're now going to be open as long as 2019," says Jones. He adds that the company may be antici- pating a higher price in December's T-4 auc- tion for winter 2020/21. The closure of some coal-fired power stations should in theory push up the clearing price for the remaining plants that bid in the auction. "It may be that they end up going in to that as well." The other stations with units set to remain open beyond the end of this year are Drax, Eon's Ratcliffe-on-Soar and EDF's Cottam and West Burton, which are all eligible to bid for the same capacity payments at Fiddler's Ferry. The fact that Fiddler's Ferry came so near to closing while the rest did not sug- gests it is one of the least efficient plants of the lot, and that therefore the others should be able to struggle on as well. Coal may be on its last legs in the UK, but it's not quite dead yet. Its days as a profitable fuel purely for generation look to be over, but it is being kept alive via the life support system of capacity payments. Quite how long that will last will depend on how much com- petition it faces in future capacity auctions. Coal plants cling on Coal is not quite dead yet. Its days as a profitable fuel purely for generation look to be over, but it is being kept alive via the life support system of capacity payments. Tom Grimwood reports. 2.4GW Scottish Power's Longannet – last unit shut down 24 March 2GW SSE's Ferrybridge – last unit shut down 23 March (officially closed 31 March) 2GW EPH's Eggborough – not closed (as two units in the SBR), but taken out of the market on 31 March 1GW Engie's Rugeley – set to close over the summer subject to employee consultation Source: Ofgem COAL PL ANT CAPACIT Y LOSSES Predicted de-rated capacity margin range (excluding the SBR/DSBR for winter 2015/16) 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% De-rated capacity margin 2015/16 2016/17 2017/18 Source: Ofgem

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