Coal Is Still King
It’s relatively cheap and plentiful with huge reserves in some regions of the globe. It’s also the most widely used fuel used in modern power generation accounting for 40% of global electricity production. And it’s dirty, difficult to handle and gives out large quantities of harmful emissions. Nevertheless, it still has an important role to play even in the UK and Europe with its high social stance on environment and low carbon future.
Europe Directives have ordained that older inefficient coal fired plant that cannot adhere to current emissions regulations must limit its operation and cease working completely by 31st December 2015. In the UK this amounts to over 11,000MW of plant, around 14% of current total generating capacity. The thought projection seven years ago or so was that new nuclear plant to replace an ageing UK fleet would be close to commissioning, advanced carbon capture and storage systems would be in place and high efficiency gas combined cycle stations would provide flexible load following. Also, we would have significant offshore wind power installed and more advanced marine based renewables would be making an impact.
Right now we are not even close to this idealistic picture. Nuclear is still alive, albeit kept so by the guarantee of taxpayer money masquerading as a state subsidy. Renewables have suffered from construction and operation cost risk and to be honest, less than robust government support, particularly in light of Big Six price hikes. Security of gas supply is fragile, global demand is upward and this is reflected in wholesale costs. Any future impacts of shale gas through fracking in the UK are at least a decade away and there is no certainty that domestic gas prices will reduce as in the US experience. Developers are involved in a global industry and have little loyalty to price control in the home market.
It is crucial to reduce energy consumption and thus demand. Although fitting insulation to domestic dwellings is important, it is not the solve-all and I personally am rather tired of our senior politicians banging on this drum time after time. It shows a genuine lack of understanding of the UK energy position. The public needs a structured and expertly delivered message. Prior to this, government must have certain delivery partners in place. Smart Grid ability and Demand Side Reduction policies are key drivers. One can understand the reluctance of the private sector to invest or put their heads above the comfort parapet. This is where “we the people” (government, state and public) must become stakeholders in our own energy future. This will be subject of further blogs but please place this concept in your minds.
Over the last few winters and indeed whole years, the return on investment from gas fired power plant has been paltry and many operators have either introduced split-shift working or mothballed plant completely. The “spread” index gives a measure of fuel use profitability. In early November 2013 with the spark spread (gas) at £5/MWh and the dark spread (coal) at £25/MWh any positive investment signals have been truly sunk. Centrica declared a loss of £64 million on its gas fired operations in the first half of this financial year.
The Energy Bill due next year will impose new reforms into the power generating sector. A Capacity Payment mechanism is set to encourage investment in new gas plant by rewarding operators who can deliver at peak times. A carbon floor price and further tightening emissions legislation aims to discourage coal based options. Contracts for Differences are expected to reduce longer term risks for investors by smoothing revenue streams around a fixed strike price per MWh. However there are growing concerns around the new reforms. There is an undeniable element of scepticism from the informed public who fear the lobbying strength of the main operators. Also some feel that the number and complexity of the reforms is too great and beyond DECC’s control. There are also genuine worries about rising energy costs from the general public.
Everything is happening reactively and far too slowly. Our capacity margin (available installed capacity versus maximum expected demand) has become very tight; older nuclear plant retiring, the withdrawal of older coal plant and little upcoming new-build plant at any significant level are not good omens. It will only take a few high pressure cold spells over the winter months during 2016/17 to tip the balance and cause political mayhem. At least for the next few years we are blessed with our old coal fired power stations. Let’s hope that gods of the central heating cupboard look favourably on us this Christmas and please, raise a toast to King Coal.
prg-energy 
Comments on: "Coal Is Still King" (1)
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