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In the UK, coal faces its biggest challenge yet

Published by
World Coal,

Paul Verrill, EnAppSys, UK, looks at the future of coal-fired power in the UK.

For 65 years, coal-fired power plants have been the primary source of electricity generation in the UK, providing more than three times as much power as gas-fired and nuclear plants, over six times as much as oil-fired plants and nearly twenty times as much as renewable power sources.

Fast-forward to 2013/14 and coal remains the dominant fuel type in the UK, providing 36% of total power generation in the year to March 2014. Each unit of capacity at a coal-fired power plant provided almost 60% more electricity than the same unit of capacity at a gas-fired plant.

In the last 65 years, coal has faced competition from a variety of power sources. Back in 1998, gas had overtaken coal as the UK’s largest source of electricity following the dash-for-gas boom, which started in 1990. Since then, installed capacity at combined cycle gas turbine (CCGT) plants have risen to more than 30 GW. Coal has also survived the rise of the nuclear industry, which began with the opening of Calder Hall in Cumbria in 1956.

In the year to March 2014, the share of generation from the various fuel mixes was: 36% coal, 26% gas, 20% nuclear, 9% wind, 5% biomass and 4% other.

There are several reasons why coal has returned to its position as the most dominant UK fuel, even though its share of the power generation mix has declined in recent years:

  • The rise of shale gas in the US, which has resulted in low US gas prices and a switch from coal to gas generation. This in turn has diverted more US coal to the global market.
  • The Fukushima disaster, which triggered a rethink of nuclear power in countries such as Germany and an immediate switch from nuclear to gas-fired power generation in Japan. This drove up world gas prices, making gas generation less economically viable.
  • Failed emissions markets, due to the global downturn, which triggered a glut of permits in Europe.

These events meant that coal saw a lower decline in usage in the UK and Europe than may have been envisaged five years ago and certainly a lower decline than environmental campaigners would have liked.

The key events that will influence the coal generation market in the future are:

  • The move from higher polluting coal in China and developing countries as local air pollution problems in some locations become acute.
  • Tax incentives for shale gas development in the UK and Western Europe to mitigate security of supply concerns and the cost of gas imports.
  • A reduction/stabilisation of global gas prices caused by US, Australia and other global LNG projects coming online in the next ten years.
  • The switch from conventional coal plants to biomass in response to environmental incentives and, in some cases, policies driven by investors to move to cleaner generation.
  • The Industrial Emissions Directive in Europe, the US Clean Air Act and other similar legislation coming into force around 2020. This requires existing plants to undertake another round of significant investment in ageing assets.

There is high potential for coal generation to decline dramatically in the UK and Europe – and on a global basis, if the slow rate of development of clean coal technologies continues. With the technology available today, the UK is unable to use existing fossil fuel reserves without breaching climate change targets. While this is a problem for gas, it is more acute for coal, making it more likely that reserves are not recovered. Although it has never provided less than 28% of total UK power generation in the last 65 years, coal now faces its greatest challenge as it seeks to accommodate itself within a new climate-conscious era.

Generally speaking, the UK market arguably does not need coal-fired power plants. The spare capacity at CCGT plants is ample, with the CCGT fleet seeing average load factors of around 30% for the past two years and with several units sitting mothballed and waiting for better market conditions. Moreover, at utilisation rates of 30%, CCGT plants only saw marginally higher load factors than the wind fleet, which saw average load factors of 26% of installed capacity over the same period.

While coal plants currently play a key role in keeping the lights on in the UK, the government is already planning for the closure of the increasingly ageing coal and nuclear fleet by introducing market incentives to build nuclear plants, supporting the growth of renewables through guaranteeing sale prices and promoting the build of lower cost gas-fired peaking plants through the capacity mechanism.

If a decade from now the coal fleet is fully offline, the lights will not go out and the electricity market will continue to function much as it did before – but the UK will arguably be in a worse position. Coal adds diversity to the UK’s fuel mix and reduces the country’s reliance on gas and nuclear generation. It is an effective and efficient form of global power generation with many suppliers, extensive reserves and the ability to be more easily stored and stockpiled than gas.

On the down side, the future of coal is threatened by its high emissions of pollutants and greenhouse gases, as well as the slow development of carbon capture and storage technologies that would reduce or eliminate these emissions. While the UK supports demonstration plants and a competition to support a new large-scale build (with EU support also), no other UK clean coal projects are planned and the incentive mechanisms introduced in the UK will discourage late entrants to the market who may have to compete without these incentives.

The key challenge for the future of coal generation is this: how can the industry fund the acceleration of new technologies in a timescale that prevents it from missing the boat while the world sails on?

Written by Paul Verrill. Edited . This article first appeared in the November 2014 issue of World Coal.

About the author: Paul Verrill is a director of EnAppSys, an energy information business providing energy data analysis and consultancy to both government departments, traders and operators active in the UK and European energy markets. Paul is a chartered engineer and has held senior posts in asset management and development with Enron and, more recently, px ltd.

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