The conservative UK government boosted its climate credentials last year with its promise that all coal plants will be shut down by 2025. However, notes Mike Parr of consultancy PWR, this ignores certain inconvenient facts that will make delivery of this promise unlikely.
In November 2015 Amber Rudd, energy secretary, said that all British coal plants would be shut by 2025. Unfortunately, George Osborne (the UK’s Finance minister, Rudd’s boss and the person that defines UK energy policy) failed to consider that the companies owning the coal plants might be unwilling to close them. So it has proved.
The majority of UK coal plants have refused to sign up to the Rudd/Osborne scheme that would have seen them close automatically. Instead, 7 fossil stations will conform to the Industrial Emissions Directive (IED) – and thus run for as long as they want – rather than apply for an opt-out. The opt-out would allow them to ignore the IED targets but they would then close by 2023.
The UK has the highest wholesale electricity prices in Europe. This makes the coal stations extremely profitable
A related issue with respect to the decision of the stations’ owners to keep running is the fact that the UK has the highest wholesale electricity prices in Europe (circa €53/MWh in the second quarter of 2016 compared to e.g. €27 in Germany; source: Platts). This makes the coal stations extremely profitable, given that coal prices are also very low. In such a situation, companies owning coal stations want them to continue running, for as long as possible.
In October 2015, the Ecologist magazine profiled the takeover of energy policy by the UK Treasury department (run by Osborne). It was noted that this department lacks understanding of the power industry. This leads to the elementary policy mistakes, such as the one above.
The UK’s fossil stations are also the most highly emitting in Europe, which causes further problems for the Tory government which likes to claim that it is on-track to meeting its 2020 commitments (in the case of renewables, it is not). Although the stations are large emitters, they also account for around 25% of total generation (down from 31% in 2014). In an article I wrote for Energy Post in Janury 2015 I profiled in detail the failure of the Tory government to “encourage” the construction of any sort of new generation (apart from nuclear) through its capacity market mechanism. Renewables, apart from off-shore wind, are likewise dead in the UK. This rather closes off options for the Tory government.
On the one hand the Tory government wants coal stations to close, on the other it is trying to extend their lifetime
In terms of the coal stations, the Tory government could introduce primary legislation to force a shut down. However, this sits rather badly with Tory party ideology which is predicated on “let markets decide”.
Furthermore, some power stations, for example Drax, are moving towards wood pellets. Drax is converting three of its six units to burning wood pellets. EDF (part of the French government) has secured UK government money to help refurbish two of its coal plants to help them comply with the IED. Thus on the one hand the Tory government wants coal stations to close, on the other it is trying to extend their lifetime. Not so much a policy mistake as perhaps more “one hand of government not knowing what the other is doing”?
Rudd will begin a consultation in 2016 with respect to the closure of the coal stations. Owners of these stations include Eon and RWE. The latter has extensive experience of another government (Germany) trying to force closure of profitable (old lignite) stations. RWE (with Vattenfall) was able to force the German government to compensate them for these forced closures. It is thus possible that something similar may happen in the UK.
A complicating factor is that the European Commission (DG Competition) will have the last word as to whether such “compensation” (in Germany and possibly in the UK) is state aid, or not. Assuming DG Competition is politically sensitive enough to wait until after the Brexit vote, it might be that the pair of amateurs (Rudd and Osborne) that are in charge of UK energy policy will have to “go back to the drawing board” with respect to the evolution of UK generation.
Mike Parr is Director of energy consultancy PWR which undertakes research in the area of climate change and renewables for clients which include a G7 country and global corporations. See his author archive on Energy Post.