Coal plant capacity to halve by April as more plants shut down

Back in 2015, the Government announced plans to phase out all unabated coal-fired power stations in the UK by 2025. However, our forecasts as part of our Long-Term Forecast Report shows the UK will have just one coal plant left to close. 4.5GW of coal plant capacity is now scheduled to close by March 2020, with the loss of the Cottam, Fiddlers Ferry and Aberthaw power stations.

EDF Energy announced earlier this year it would close its Cottam coal plant by 30 September 2019. SSE is to close its last three coal units at Fiddlers Ferry after the winter season in March 2020, with one unit at the plant already closed. German utility giant RWE was the latest to announce a closure, with the Aberthaw B plant in Wales also closing in March 2020 after 50 years of generation.

The closures will see the UK’s remaining coal plant capacity drop by nearly 50% in less than a year, falling from 11GW to under 6GW. Back in January 2016, ten coal plants provided a capacity of 18GW and three years before that the UK electricity network had over 25GW of capacity from coal-fired plants.

coal plant decline

The coal industry has been heavily impacted by various economic and legislative pressure over the last 5-10 years. Enhanced and ambitious Government targets for renewable energy and carbon emission reduction has seen coal plants come under intense scrutiny. Government legislation will remove all coal from the fuel mix by 2025. The intention is to replace coal generation with renewable capacity, cleaner CCGT gas-fired and new nuclear power plant. However, as we predicted at the time, the rate of coal plant closures has accelerated, with expectations that just one coal plant – Ratcliffe – will still be operational by the 2025 deadline.

 

Impact of EU regulations

The Industrial Emissions Directive (IED) came into force in January 2011. This set out a range of criteria related to carbon emissions which coal plant were required to opt in to by the end of 2016. The Ratcliffe coal plant is already compliant with the EU’s Large Combustion Plant Directive (LCPD), which the IED is designed to replace. It intends to adhere to the new IED laws and has already undergone upgrades to its systems to reduce carbon emissions.

 

Carbon Price Floor (CPF)

The Carbon Price Floor (CPF) was introduced in 2013 as a means to reduce greenhouse gas emissions from electricity generation. Acting as a minimum price for carbon emissions, the CPF acts as a top-up tax on the EU emissions trading scheme. It was originally £16/per tonne emitted and is now frozen at £18/tonne until 2020. It runs alongside the EU emissions trading scheme, where generators purchase permits to emit greenhouse gases.

The CPF’s introduction provided a strong disincentive to high carbon electricity generation, most notably coal-fired power plant.

However, the ongoing use of fossil-fuels in the generation mix meant that it also increased the price of wholesale power, as the cost for generation began to include the value of the CPF.


Coal plant closures

Faced with rising carbon costs, and thin profit lines on top of the substantial emissions regulations, coal plant have reassessed their continued operation. Closures at Lynemouth, Longannet, Ferrybridge and Rugeley all took place by Summer 2016. Uskmouth and Eggborough followed in 2017 and 2018. After the recent announcements, just four UK coal plants will remain open beyond March 2020. The aforementioned Ratcliffe power station, West Burton, two units at the Drax power station and the small-scale Northern Irish plant at Kilroot. Given a one-year reprieve from a planned closure in May 2018, the Kilroot plant has since been sold to new operators and its future is uncertain. However, the power station will not be subject to the Westminster’s 2025 shutdown, as Northern Ireland operates its own energy policy. The remaining coal units at West Burton are only contracted until September 2021 and the future beyond that date is unclear. Drax has already converted four of its six coal units to biomass and the company has confirmed plans to replace the remaining two coal units with gas turbines ahead of the 2025 deadline.

coal plant list
Coal’s power struggle with gas

The resultant loss of available coal-fired capacity has led to a switch to gas-fired plant for baseload generation. Increased renewable capacity and a stronger use of imports from overseas have also greatly reduced the use of coal-fired generation in the fuel mix.

Over the last five years coal-fired generation has gone from leading the UK electricity mix to record stretches of electricity generation without any coal use whatsoever. In Winter 2017/18 coal burn averaged just 2GW, with generation from wind farms over 6GW a day over the same period. By May 2019, as electricity demand fell through the summer, average coal use was just 28MW. National Grid recorded its first week of coal-free generation since the Industrial Revolution that month. A record which was persistently broken during the summer season, reaching a record stretch of 18 straight coal-free days.

Coal plant monthly generation

There is still a place for coal in the short-term, during points of system stress. However, this will become even more limited, with longer periods of entirely coal-free generation expected. There is currently no push to invest in abated coal-fired plant instead through Carbon Capture and Storage.

With the UK being the first country to commit to net zero carbon emissions by 2050 the focus for long-term electricity generation will be on low carbon and renewable sources. With the removal of coal likely ahead of the 2025 deadline, new build power stations, providing baseload generation will need to be almost entirely gas-fired. In nuclear, only Hinkley Point C power station is under construction, as three other new nuclear plants have been recently shelved. This will likely result in increased gas demand in the UK, and more so globally, as major European and Asian economies switch consumers away from coal to less carbon intensive fuels.

 

STAY INFORMED WITH EIC INSIGHTS

Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the timeliest updates you can find us on Twitter and LinkedIn.

Click here to find out more about our Long-Term Forecast report and how changing market drivers over the next 5 to 15 years could impact your forecasted energy budgets.

 

Energy Policy Dates for 2019

As we look ahead to 2019, we’ve outlined key energy industry changes and dates to take action by.

EU ETS – Market Stability Reserve (MSR)

1 January – MSR Implementation

The European Commission is introducing a solution to the oversupply of allowances in the carbon market, which will take effect in January.

EU carbon allowances, or European Allowances (EUAs) serve as the unit of compliance under the European Emissions Trading Scheme (EU ETS). In response to a build-up of these allowances, following the 2008 global financial crisis, the European Commission has introduced a long-term solution known as the Market Stability Reserve (MSR). With Brexit looming, there’s uncertainty as to whether these changes will affect the UK.

 

Energy Price Cap

1 January – Price Cap implementation

Price protection for 11 million customers on poor value default tariffs will come into force on 1 January 2019. Ofgem has set the final level of the price cap at £1,136 per year for a typical dual fuel customer paying by direct debit.

When the price cap comes into force suppliers will have to cut the price of their default tariffs, including standard variable tariffs, to the level of or below the cap, forcing them to scrap excess charges. The cap will save customers who use a typical amount of gas and electricity around £76 per year on average, with customers on the most expensive tariffs saving about £120. In total, it is estimated that the price cap will save consumers in Great Britain around £1 billion. Read more here.

 

Ofgem’s Targeted Charging Review (TCR) – the end of Triad season?

4 February – Consultation conclusion

Ofgem has launched a consultation, due to conclude on 4 February 2019, into how the costs of transporting electricity to homes, public organisations, and businesses are recovered. Proposed changes could remove the incentive for Triad avoidance.

Costs for transporting electricity are currently recouped through two types of charges:

  • Forward-looking charges, which send signals to how costs will change with network usage
  • Residual charges, which recover the remainder of the costs

In order to ensure that these costs are shared fairly amongst all users of the electricity network, Ofgem are undertaking a review of the residual network charges, as well as some of the remaining Embedded Benefits, through the Targeted Charging Review (TCR). Ofgem are exploring the removal of the Embedded Benefit relating to charging suppliers for balancing services on the basis of gross demand at the relevant grid supply point. This is important as it would eliminate the incentive of Triad avoidance.

 

Brexit

29 March – Scheduled date to leave the EU

Whilst not a specific energy policy announcement, the UK’s departure from the EU is a significant event that has raised a lot of questions concerning UK energy security.

We put together a Q&A on how Brexit may impact the UK energy industry and climate change targets. Read more here.

 

Closure of the Feed-in Tariff (FiT) scheme

31 March – Scheme Closes

The Government has confirmed plans to remove the export tariff for solar power, which currently provides owners of solar PV panels revenue for excess energy that they generate. This will coincide with the closure of the Feed-in Tariff (FiT) scheme.

The FiT scheme was introduced in April 2010 in order to incentivise the development of small scale renewable generation from decentralised energy solutions such as solar photovoltaics (PV), wind, hydro, anaerobic digestion and micro Combined Heat and Power (CHP). Generators were paid a fixed rate determined by the Government, which varied by technology and scale.

The scheme will close in full to new applications from 31 March 2019, subject to the time-limited extensions and grace period.

 

Streamlined Energy and Carbon Reporting (SECR)

1 April – SECR implementation

Streamlined Energy and Carbon Reporting (SECR) is on the way, due to come in to effect from 1 April 2019. The introduction of this new carbon compliance scheme aims to reduce some of the administrative burden of overlapping schemes and improve the visibility of energy and carbon emissions when the CRC scheme ends.

EIC can help you achieve compliance. Read more about SECR in our blog, or visit our website.

 

UK Capacity Market

Early 2019

The UK Capacity Market is currently undergoing a temporary suspension, issued by the European Court of Justice (ECJ), on the back of a legal challenge that the auction was biased towards fossil fuel generators.

The ECJ’s decision means that payments made under the Capacity Market (CM) scheme will be frozen until the UK Government can obtain permission from the European Commission to continue. In addition, the UK will not be allowed to conduct any further CM auctions for energy firms to bid on new contracts.

The UK government has since iterated that it hopes to start the Capacity Market as soon as possible and intends to run a T-1 top-up auction next summer, for delivery in winter. This is dependent on the success of a formal investigation to be undertaken by the European Commission early in the New Year.

 

Spring Statement and Autumn Budget

The UK Government’s biannual financial updates are always worth looking out for.

The Spring Statement will be delivered in March and the more substantial Autumn Budget is scheduled for October. The 2018 budget had a very heavy focus on Brexit, with very little to say concerning energy policy. It is likely this will be the case for the Spring Statement and potentially going forward.

 

Energy Savings Opportunity Scheme (ESOS)

5 December – ESOS Phase 2 compliance deadline

ESOS provides a real chance to improve the energy efficiency of your business, on a continual basis, to make significant cost savings.

In Phase 1 of ESOS we identified 2,829 individual energy efficiency opportunities, equivalent to 461GWh or £43.9m of annual savings across 1,148 individual audits. Our team also helped over 300 ESOS Phase 1 clients avoid combined maximum penalties of over £48million.

With EIC you can achieve timely compliance and make the most of any recommendations identified in your ESOS report.

To find out how we can help, contact us on 01527 511 757, email esos@eic.co.uk, or visit our website.

 

Stay informed with EIC insights

Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the most timely updates you can find us on Twitter and LinkedIn Follow us today.

Visit our website to find out more about EIC Market Intelligence and how we keep our clients informed at a frequency to suit them.

EU temporarily suspend UK carbon permit processes

EU temporarily suspend UK carbon permit processes

The European Commission has implemented a “no-deal” Contingency Action Plan across specific sectors to help mitigate the continued uncertainty in the UK surrounding the ratification of the Withdrawal Agreement.

The main talking point, regarding energy policy, is the Commission’s plans for the UK’s access to the EU Emissions Trading Scheme (EU ETS).

EU carbon allowances, or European Allowances (EUAs) serve as the unit of compliance under the EU ETS. EUAs are auctioned for use by energy-intensive industries that fall under the scheme, namely power generators, oil refiners, and steel companies, entitling them to emit one tonne of CO2.

How this affects the EU ETS in the UK

The Commission has adopted a number of actions in the area of EU climate legislation to “ensure that a “no-deal” scenario does not affect the smooth functioning and the environmental integrity of the Emissions Trading System.”

This involves a decision to temporarily suspend the free allocation of emissions allowances, auctioning, and the exchange of international credits for the UK effective from 1 January 2019.

The Commission has also elected to allow an appropriate annual quota allocation to UK companies for accessing the EU27 market, until 31 December 2020. This will be supplemented through regulation to ensure that the reporting by companies differentiates between the EU market and the UK market to allow a correct allocation of quotas in the future.

The full Contingency Action Plan can be read here.

Stay informed with EIC insights

Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the most timely updates you can find us on Twitter and LinkedIn Follow us today.

Visit our website to find out more about EIC Market Intelligence and how we keep our clients informed at a frequency to suit them.

Update on EU ETS

The Government has directed the Environment Agency (EA) to proceed with preparations for the next phase of emissions trading which will operate from 2021 – 2030. Due to ongoing Brexit negotiations the full detail of the future scheme is not yet known. However, one thing we do know is that NIMs will take effect from January.

In preparation for future reporting, the EA has notified participants in EU Emissions Trading Scheme (ETS) Phase 3 that the data collection exercise, National Implementation Measures (NIMs), will take place between January 2019 and September 2019.

 

What is the EU ETS?

The European Union Emissions Trading Scheme started in 2005 and is the world’s largest carbon-trading scheme. It was introduced to help the EU meet its targets under the Kyoto Protocol which stipulates an 8% reduction in greenhouse gas emissions from 1990 levels. Organisations that meet the qualification criteria – typically large combustion sector and manufacturing processes – are obligated to take part.

The scheme works on a ‘cap and trade’ basis, so there is a ‘cap’ or limit set on the total greenhouse gas emissions allowed by all participants. This cap is converted into tradable emission allowances and provides an incentive for installations to reduce their carbon emissions, giving them the opportunity to sell their surplus allowances.

Participants in the carbon market are allocated traded emissions allowances via a mixture of free allocation and auctions. For each one allowance, the holder has the right to emit one tonne of CO2 (or its equivalent). Those covered by the EU ETS must monitor and report their emissions each year and surrender enough allowances to cover their annual emissions.

 

What are NIMs?

There is a requirement to benchmark participants in the ETS to ensure a fair and equitable distribution of free carbon allowances. The NIMs is a method of benchmarking the emissions of participating installations.

The NIMs data collection requires gathering energy or production data over four years (2014 – 2018), which must be collated, verified by an approved body, and submitted by 31 May 2019.

 

EIC is here to help

We’re experienced in managing EU ETS compliance across a broad range of sites and industries. We’ve also worked with the Environment Agency in the delivery of legislative compliance across all carbon schemes and systems, including ESOS.

We can assist with your EU ETS and NIMs requirements; we’ll review the data held on record and complete the necessary submission to your appointed verifier and the verified data to the Environment Agency. We would also deal with any correspondence between the verifier, Environment Agency, and your organisation.

To find out more about NIMS, download our factsheet here or email info@eic.co.uk.