Utility Week

UTILITY Week 21st October 2016

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28 | 21ST - 27TH OCTOBER 2016 | UTILITY WEEK Markets & Trading Analysis C oal has almost been confined to the history books in terms of electricity generation. Recent statistics show that coal's share of electricity generation dropped to a record low of just 5.8 per cent in the three months to the end of June 2016, with a number of days over the summer having no coal-generated power on the system for the first time in more than a century. The volume of coal-fired power on the system fell by 71 per cent when compared with the previous year, down to 4.6TWh. However, as coal drops off the system, and cleaner renewables come online, what is the short-term future for coal as tempera- tures begin to tumble? The decline in coal-fired generation is largely due the closure of the Ferrybridge C and Longannet plants and the conversion of one of Drax's units to run on biomass, according to the Department for Business, Energy and Industrial Strategy. Gas generation took up much of the slack, rising by more than a half to 35.4TWh. Its share of the generation mix grew by around 15 percentage points to more than 45 per cent. Overall demand for gas jumped by 16.4 per cent as a result. This all fits with the ambitions of the European Union and the UK to cut carbon emissions. Coal-fired generation typically emits more than 800gCO2/MWh, more than double the average emmissions for gas plant. Sandbag's carbon and power analyst Dave Jones says the major factor in coal dropping off the system is cost driven by environmental policies and market forces. In particular, the carbon price floor has had an impact in making coal less economical than other generation sources. "Coal is being pushed to the margins and, as long as the carbon price floor stays as it is, it will con- tinue to be." Phil Hewitt, director of EnAppSys, agrees. He says: "The rapid decline in the levels of coal-fired generation are unprecedented for a market that has traditionally been dominated by coal power stations since its inception. "This drop in coal generation reflects how plants have struggled to justify adequate run hours and economic utilisation rates in the face of the disadvantages of the carbon price support and continuing low gas prices. "With legislation continuing to act against coal-fired power stations, those that remain do so mainly to provide reserve to the system or for 'black start' contracts where they are used to restart the grid in case of a loss of supply." Since the introduction of the carbon price floor coal has largely been run as peaking plant, augmenting other forms of generation at periods of high demand. This is the role it is expected to play this winter, as National Grid sets out in its winter outlook for 2016/17. However, chancellor Phillip Hammond is said to have a space in his autumn statement of 23 November set aside for the carbon price floor. The details of what will be said are unclear, but they will be significant for the short-term future and profitability of coal – and the UK's carbon emissions. Cold comfort for coal For a long time coal was the mainstay of generation in the UK, but its decline has been rapid, with heavy environmental taxes pushing it to the fringes as peaking plant. Mathew Beech reports. Key points In 2015 UK coal production fell to an all-time low of 9 million tonnes. UK imports also fell and were 24 million tonnes, a decrease of 43 per cent on 2014. This was due to lower demand for coal, which fell by 23 per cent compared with 2014 as demand for coal for electricity generation fell. 8GW of coal-fired electricity generation capacity has closed since December 2012 due to the Large Combustion Plant Directive (LCPD), with further closures anticipated by the end of 2023 under the Industrial Emissions Directive (IED). GENERATION BY FUEL (TWH) Source: EnAppSys INSTALLED COAL-FIRED CAPACITY OF UK TRANSMISSION NETWORK 2011-15 (GW) Source: BEIS 100 90 80 70 60 50 40 30 20 10 0 30 25 20 15 10 5 0 Nuclear Renewables Imports Gas Coal Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 2011 2012 2013 2014 2015

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