Coal plants set to generate highest profits in years as cost of gas spikes
BRITAIN will rely on its dwindling fleet of ageing coal-fired power plants as it prepares to face the coldest winter weather in a decade and the cost of gas hits new highs.
The country’s seven remaining coal plants will be called on more than in previous winters because for the first time in years they are as economic to run as gas-fired power plants, even as global coal prices hit five-year highs.
The cost of gas for this winter reached 10-year highs above 81 pence a therm last week, up by more than half from the previous winter when the average price was less than 50p a therm. The average wholesale gas price last month was the biggest percentage increase for two years, according to S&P Global Platts data.
As a result the market price for electricity in the darkest months of the year climbed by more than half to over £70 per megawatt hour from less than £45.
Soaring market prices have raised fears for cash-strapped families as the extreme cold threatens to bring Britain’s coldest winter in a decade.
The rapid escalation comes as energy suppliers brace for a cap on standard household energy prices, which will make it harder to react to market changes.
Major energy providers typically buy about half their gas a year before it is used, but many smaller firms secure a tenth of their supply in advance, threatening higher bills for consumers or financial strain for providers.
However, the owners of the UK’S shrinking number of coal plants could generate the highest profits in years despite higher coal and carbon taxes. Coal plants are typically reserved for only the highest peaks in demand and are all due to close by 2025 under a government ban on the high-emission power units. Two of these ageing plants, at Eggborough and Kilroot, are due to close later this year.
In their final months the coal-fired power plants could make £5.40 per megawatt hour this winter, according to S&P Global data for standard coal plants. Meanwhile the profitability of gas plants has shrunk from £6.50/ MWH last winter to only £5.43/MWH, due to higher gas costs.
Gas prices were already higher than usual due to a string of supply glitches in Europe including the shutdown of storage facilities and lower gas production in the Netherlands.
The market has been riding high after European gas stores were depleted by the freezing temperatures brought by the “Beast from the East” weather system.
Experts have warned that shipments via super-chilled tankers of liquefied natural gas are likely to remain in short supply as sellers divert cargoes to Asia, where prices are as much as a quarter higher than in Europe.
The market surge found further fuel in the rapidly escalating price of global oil, which has climbed by a quarter in the last six weeks alone ahead of the start of US sanctions against Iran.
The restrictions on the world’s thirdlargest oil producer have raised serious oil-supply fears, which some experts believe could bring the return of prices of about $100/b before the end of the year, which could push gas prices even higher.