Coal plant closures likely before Government’s 2025 deadline

Coal plant closures likely before Government’s 2025 deadline

The Government’s plan to phase out coal generation is on course to meet the 2025 target. But what impact will this really have on UK capacity?

A year ago, the Government announced plans to phase out all unabated coal-fired power stations in the UK by 2025. The intention was, and remains, to replace aging generation with renewable capacity, cleaner CCGT gas-fired and new nuclear power plant. However, this may be somewhat unnecessary. The coal industry is already being impacted by economic and legislative pressures which could leave just one coal plant – Ratcliffe – still operational by the 2025 deadline. For all the attention being paid to this announcement, the coal phase-out may ultimately impact only 2GW of UK capacity.

Impact of EU regulations

The Industrial Emissions Directive (IED) came into force in January 2011. This set out a range of criteria related to carbon emissions which coal plant were required to opt in to by the end of 2016. The Ratcliffe coal plant is already compliant with the EU’s Large Combustion Plant Directive (LCPD), which the IED is designed to replace. It intends to adhere to the new IED laws. It has already undergone upgrades to its systems to reduce carbon emissions.

The EU directives have contributed to current coal plant capacity sitting at just over 8GW. This is from just five power stations, compared to 18GW from ten power stations last winter. A maximum of 5.5GW of additional capacity is potentially available during the winter season, dependent on the use of backup schemes. By April 2017 this backup supply could drop to just 1.5GW if the plant at Fiddlers Ferry and Eggborough fail to win a contract in the next Capacity Market auction. As well as the pressure from EU directives, their operation is expected to be further influenced by developments with the UK’s Carbon Price Floor.

Carbon Price Floor (CPF)

The Carbon Price Floor (CPF) was introduced in 2013 as a means to reduce greenhouse gas emissions from electricity generation. Acting as a minimum price for carbon emissions, the CPF acts as a top-up tax on the EU emissions trading scheme. It was originally £16/per tonne emitted and is now frozen at £18/tonne until 2020. It is run alongside the EU emissions trading scheme, where generators purchase permits to emit greenhouse gases. The CPF’s introduction provided a strong disincentive to high carbon electricity generation, most notably coal-fired power plant. However, the ongoing use of fossil-fuels in the generation mix meant that it also increased the price of wholesale power, as the cost for generation began to include the value of the CPF.

It has been speculated the future of the CPF will possibly be announced in the upcoming Autumn Statement. There are suggestions it will either be scrapped immediately or removed from 2020, when the current freeze comes to an end. As a result, this has led to wholesale prices falling.

Coal plant closures

Faced with rising carbon costs, and thin profit lines on top of the substantial emissions regulations, coal plant have reassessed their continued operation. Closures at Lynemouth, Longannet, Ferrybridge and Rugeley all took place by summer 2016. Eggborough announced plans to close in April 2016, but was given a reprieve with part of the station entering the Supplemental Balancing Reserve (SBR). It would instead provide back-up power during the current 2016/17 winter season. The 2GW Fiddlers Ferry coal plant underwent a similar delay in closure, with one unit entering the SBR and another securing a contract from National Grid for “ancillary services”. However, the future of the two plant remain unclear beyond March 2017, with little to suggest the stations will still be operational in nine years’ time.

Coal plant status

PlantCapacity (MW)StatusSchemeFuturePlanned Closure
Ratcliffe2,000OperationalCompliant with the EU Industrial Emissions Directive.No plans to close.2025 in line with government policy.
Drax units

4-6

1,935OperationalEntered Transitional National Plan delaying compliance until June 2020.Plans to convert more units to biomass.Future uncertain, likely before 2025.
Cottam2,000OperationalEntered Transitional National Plan delaying compliance until June 2020.No clear signs of compliance with IED.Future uncertain, likely before 2025.
West Burton2,000OperationalEntered Transitional National Plan delaying compliance until June 2020.No clear signs of compliance with IED.Future uncertain, likely before 2025.
Aberthaw B1,500Operational only when needed

 

Not complying with IED. Entered Limited Life Derogation.Will run reduced hours from April 2017.Will close after 17,500 hours of operation or by 2023.
Eggborough1,960Part operational for Winter 2016/17Delayed planned closure to provide partial back-up power this winter.No plans to comply with IED.Possible closure April 2017 if no further support agreed.
Fiddlers Ferry2000Part operational for Winter 2016-17Delayed planned closure to provide partial back-up power this winter.Possible closure April 2017 – no plans to comply with IED.Possible closure April 2017 if no further support agreed.
Uskmouth240Operational at low levelsNew owner plans to convert to biomass.Not clear.Plans to convert to biomass.
Rugeley1,000ClosedClosed June 2016.Closed.Closed June 2016.
Lynemouth420ClosedClosed December 2015.Planning to convert to biomass.Closed December 2015.
Longannet2,400ClosedClosed March 2016.Closed.Closed March 2016.
Ferrybridge C980ClosedClosed March 2016.Closed.Closed March 2016.

Transitional National Plan

The Aberthaw coal plant opted out of complying with the IED regulation and instead entered the Limited Life Derogation. This will reduce the plant’s total output to 17,500 hours from 1 January 2016 or until the end of 2023. Aberthaw announced that from April 2017 it will only generate electricity when required, for example during the highest demand winter months.

The three remaining coal plant – Drax, Cottam and West Burton – have opted into the new Transitional National Plan. This supersedes the existing LCPD and allows plant to operate largely unrestricted until June 2020. At this point the plant will need to comply with the EU pollution rules. The Drax plant has already converted three coal units to biomass, with plans to convert more in the coming years. Meanwhile, EDF Energy reported substantial losses this year of their two coal plant at Cottam and West Burton.

Coal’s power struggle with gas

The resultant loss of available coal-fired capacity has led to a switch to gas-fired plant for baseload generation. Coal-fired generation consequently saw a sharp drop in April 2016. The UK’s use of coal in the power mix fell 20% year-on-year to a record low during Q2 2016. The increased dependence on gas-fired generation has been joined by stronger use of renewable supplies and imports from overseas. This has increased the UK’s exposure to price volatility from weather conditions or international geopolitical developments.

Currently, we are six weeks into the winter season and the UK wholesale power market is seeing the effects of tight supply margins, following coal plant closures, as well as problems with French nuclear plant availability. With National Grid forecasting negative supply margins, Day-ahead power prices have seen frequent spikes already. The prompt market has surged past £100/MWh at many points in the last few months, as prices responded to the threat of a supply shortfall. Tight margins are currently forecast to continue throughout November and into the New Year.

Coal Plant to close pre-2025

Last week the Government announced a consultation into its approach to close all unabated coal by 2025. BEIS (the department for Business, Energy & Industrial Strategy) argue that setting out plans will provide certainty to the market. However, as already outlined, it appears likely that the Government’s plans will relate to just one coal plant. Even with the possible removal of the CPF, which would improve the economics of using coal-fired plant, this is likely to come too late to save existing sites from coal plant closures.

If speculation that the CPF will be revoked after the current freeze in 2020 is correct there would be little change to the economic drivers for the coal-fired plant. As such, with plants under the Transitional National Plan needing to decide on their compliance with the IED by 2020, and the government shutting down the plant regardless by 2025, it is likely that the coal plant will close several years earlier regardless of the impact of Brexit on any of the EU directives.

With all this in mind, the much-trumpeted shutdown of the coal-fired industry is forecast to remove just 4% of UK coal capacity at the 2025 deadline, as the seven other coal plant closures are likely to have occurred years earlier.

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Ross Moffat

Posted by on Tuesday, the 22. November at 12.50

Ross Moffat has been a part of the Market Intelligence team at Utilitywise since early 2014. His responsibilities include delivering Market Intelligence reports to clients and managing the Utility Insights Twitter account.Ross has a first class Honours degree in Business and Marketing from the University of Stirling.