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Capacity market keeps coal alive in the UK

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World Coal,

A new capacity market will prolong the life of UK coal-fired power plants, according to Bloomberg New Energy Finance (BNEF), and not provide support for new gas-fired power plants as some had hoped.

The capacity market is designed to support power plants that can be switched on at short notice at periods of high demand, such as winter cold snaps, to avoid power shortages. The market will take the form of auctions with winning bids receiving state funds to keep capacity available in case of need. The first auction will be held in December and will cover electiricty supply in 2018 – 19.

“Coal-fired generation still accounts for 40% of the UK’s electricity. Those plants already exist, their construction costs are sunk, and so they will be able to underbid developers of gas-fired power stations that have yet to be built,” explained Monne Depraetere, power analyst at Bloomberg New Energy Finance. “Whereas the carbon price floor will drastically reduce coal plant run hours, the capacity market now anchors their role as back-up generation.”

BNEF calculations suggest that an existing coal-fired plwer plant would need a capacity payment of at most £45 per kW per year ? and in some cases significantly less ? to break even. A new gas-fired project would need at least £49 per kW per year, in addition to revenue from power sales.

However, any reprieve is only likely to be temporary as 80% of current coal-fired capacity is likely to be forced offline completely by 2024 as a result of tightening EU particulate emissions regulations, concluded BNEF. This will ultimately provide space for new-build gas-fired power plants, but due to the market design, developers are likely to opt for less efficient open-cycle facilities, rather than the more efficient combined-cycle variety.

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