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Bloomberg: capacity market will boost coal power

The UK capacity market, which received the green light from Europe yesterday, will prolong the lives of some of the country’s oldest coal power stations, according to analysis from Bloomberg New Energy Finance.

Bloomberg claims the policy will do little to encourage investment in new gas-fired plants, or demand-side response in the short or medium term.

Seb Henbest, head of Europe, Middle East and Africa at Bloomberg New Energy Finance, said: “This message from our analysis will disappoint those who have been hoping that the capacity market would immediately pave the way for new gas-fired capacity in the UK, and also those who have been calling for the rapid retirement of coal-fired power plants.”

Bloomberg’s analysis predicts that 56.2GW of eligible legacy capacity will enter the first capacity auction in December – more than enough to meet the government’s target of 53.3GW, meaning there would be no need for new gas-fired capacity to be built.

Monne Depraetere, power analyst at Bloomberg New Energy Finance, said: “Coal-fired generation still accounts for 40% of the UK’s electricity. Those plants already exist, their construction costs are sunk, and so they will be able to under-bid developers of gas-fired power stations that have yet to be built. Whereas the carbon price floor will drastically reduce coal plant run hours, the capacity market now anchors their role as back-up generation.”

Bloomberg New Energy Finance calculations suggest that an existing coal plant would need a capacity payment of at most £45 per kW per year – and in some cases significantly less – to break even. A new gas-fired project would need a subsidy of at least £49 per kW per year.

However, in the longer term, Bloomberg predicted 80% of current coal capacity was likely to be forced offline completely by 2024 as a result of tightening EU emissions regulations.