Most efficient UK coal plants set to struggle over summer 2017

Even the most efficient coal-fired power plants in the UK look unlikely to be in a position to dislodge gas-fired units from the power generation mix over the coming summer, according to latest ICIS calculations of profit margins accounting for additional costs and taxes.

Latest pricing of the forward curves of the NBP gas hub and the UK power market shows that coal-fired power plants would need an efficiency rating of 40% to come close to matching combined-cycle gas turbines (CCGTs) with a standard efficiency for reference of 49.13% in terms of economically generating baseload power over the coming summer.

The calculations account for conservative additional costs of £2.00/MWh at coal plants mainly for operation and maintenance but also for coal transport, and a relatively high £1.00/MWh additional cost estimate for CCGTs, mainly for operation and maintenance.

The clean dark spread with carbon price support for a coal-fired plant of 40% efficiency for Summer ’17 came in at £4.28/MWh using Thursday 29 December closing assessments, £0.25/MWh below the equivalent clean spark spread. The efficiencies of UK coal-fired power plants are below 40% with an average of 38%.

Dropping to coal-fired efficiency of 38% – the UK average – produces a clean dark spread a full £2.35/MWh below the spark equivalent.

This means unless a stark improvement is seen in coal-fired plant economics relative to gas in the first quarter of next year, which would most likely require a sustained drop in the price of coal imported into Europe, CCGTs will continue to dominate the power mix ahead of what coal-fired generation the UK has left on its system throughout the summer. This will in turn continue to support natural gas demand.

In Germany, which unlike the UK lacks a carbon tax on fossil-fuelled power generation, coal-fired power plants comfortably retain their long-standing status as more profitable than gas for baseload generation, margins for which remain negative, using numbers for 2017 delivery as a whole.

Only during peak delivery periods do German CCGT plants rival the positive baseload profit margins of coal-fired units, meaning gas-fired plant operators looking to hedge output on the forward market could be restricted to doing so through peaks products in a bid to turn a profit. jamie.stewart@icis.com