Coal plants set to gen­er­ate high­est prof­its in years as cost of gas spikes

The Sunday Telegraph - Money & Business - - Business - By Jil­lian Am­brose

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.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.