CCGT renaissance will be short-lived, say analysts

The recent resurgence of gas-fired power generation within UK energy mix will prove short-lived, market analysts have warned, with strong coal-fired power expected to return within the next four months.

Historically low wholesale gas prices have bolstered the use of gas-fired power generation over the past month, allowing CCGT (combined cycle gas turbine) use to trump the typically cheaper coal-fired plants in terms of economics. 

This comes in stark contrast to previous years when the UK has relied on coal-fired power for around 40 per cent of its total power generation, while gas-fired power has been limited to around 25 per cent by the strong price of wholesale gas in a competitive global market.

But over the coming months market analysts at Thomson Reuters Point Carbon predict a return to form. The steadily falling price of coal for delivery later this year and into 2015 will see coal-burn return to its position as dominant UK generation source, the analysts predict.

“The renaissance in gas-fired power generation will be short-lived,” Point Carbon gas analyst Oliver Sanderson confirmed.

“In gas prices we’ve seen a typical summer price slump, which has been hastened and intensified by low Q1 consumption. As a result storage levels will be re-filled far quicker than normal, reaching 100 per cent by September by which time consumption should rise again as the weather cools,” he said.

The same fundamentals which have depressed prices on the UK’s wholesale gas market – a mild winter and low demand – have also taken a toll on coal prices, Sanderson added.

Utilities’ coal stocks remain high, as do stock levels at European ports.

Although the economics of coal- versus gas-burn currently favour switching to the latter, gas prices are expected to recover while the coal market shows the price for coal delivered next year is at its lowest level for half a decade.

In addition, May and June are typically when the majority of coal-fired plant maintenance is scheduled, which has offered further opportunity for gas-fired power generation.

As the full fleet returns to operation by the end of summer, coal generators may find they are once again the economic favourite.

On Tuesday afternoon, National Grid data showed CCGT use at 37.9 per cent of the energy mix, while coal-fired power was at just 15 per cent.