Coal is king no more

David Blackman looks at how the government will phase out coal by 2025.

Just five years ago, coal plants still supplied around half of the UK’s electricity generation. Last April saw the first day when coal made no contribution to the energy mix across a 24-hour period. To underline that this figure was no one-off blip, coal supplied just 2 per cent of the UK’s total electricity requirement last summer.

The coup de grace for coal came last week with an announcement from the Department for Business, Energy and Industrial Strategy (BEIS), which spelled out how unabated coal will be phased out from the UK’s energy mix after 2025.

Source: BEIS

The paper, published on the Department’s website, outlines how prime minister Theresa May’s pledge to phase out unabated coal from the middle of next decade will be implemented. The mechanism for killing off the fuel is to bar unabated coal plants – those which have not been fitted with measures to cut CO2 emissions – from the capacity market after 2025.

Unabated coal units will be unable to bid as soon as late 2021 when the four-year ahead auction for 2025/26 and beyond is scheduled to take place. By October 2025 – which the government has set as the cut-off date for unabated coal – the paper forecasts that there will be just 1.5GW of capacity left, compared with 13GW now.

Around 5.5GW of new build capacity will be needed by 2026 to compensate for the coal plants which have been shut down, according to the government’s impact assessment of the phase-out, also published last week. It calculates that the policy will boost generation costs by £450 million and predicts a “small increase” in the cost of balancing the network due to the more frequent use of costly peaking plants.

Set against this though, it forecasts that getting rid of unabated coal will prevent around 15 million tonnes of carbon from being emitted. In addition, the policy should boost confidence about investing in gas plants.

Emissions cap

Overall, Alastair Martin, chief strategy officer at demand response aggregator Flexitricity, believes that the phase-out plan is a good deal because the government doesn’t have to pay to shut coal plants down. “We’re going to get it for free and we won’t be burning coal which is where we should be going,” he says.

The existence of established grid connections is a powerful argument for not abandoning the site of existing coal plants though, Richard Howard, head of research at Aurora Energy says: “The grid connection itself is quite valuable so people will be thinking how they can best use different parts of the asset.”

It will be possible for coal to remain open after 2025 but only if emissions are abated. The government has set a cap on the emissions, which solid fuel burning plants will be required to comply with in order to remain open after 2025. This is set at an intensity limit of 450g of CO2/kWh of electricity generated, which is in line with unabated gas generators and the existing Emissions Performance Standard for new build fossil fuel plants. This emissions intensity limit will be applied from October 2025 to all 300MW-plus plants that burn solid fuel, such as coal and lignite.

Jonathan Marshall, energy analyst at the Energy and Climate Intelligence Unit, says the emissions intensity limit is a good mechanism for implementing the phase out. “A coal plant is not going to get anywhere near that so it’s a good way of retrofitting it off the system.”

Expensive CCS

In order to abate emissions, the government rules out forcing the surviving coal plants from having to fit carbon capture and storage (CCS) technology.

Frank Gordon, policy manager at the Renewable Energy Association says that the decision not to pursue CCS recognises the state of play on the technology. “It’s quite expensive and the technology is not there,” he says.

Instead coal will have to be combined with another lower emitting fuel, like biomass. Gordon calculates that up to 70 per cent of the fuel burnt in converted units would have to be biomass in order to comply with the emissions limit.

Converting coal plants to biomass makes sense and can cut emissions by 90 per cent, says Gordon: “We’ve got all this big plant coming off-stream. This infrastructure has already been built which can be cost effectively transferred to biomass.”

It’s not a cheap option though, says Marshall, pointing out that the electricity generated by converted plants has cost more than £100/MWH. And there is little subsidy support available through the CfD (Contracts for Difference) system.

Cost hurdles

The only support currently available is for biomass-fired combined heat and power plants in the pot 2 auctions. But there is a 150 MW cap on the size of plants which are eligible for support through this mechanism.

Given these cost hurdles and the fact that many coal plants are aging, it might make more sense to exploit grid connections by building a new power station rather than refurbishing existing assets, suggests Aurora’s Howard.

The government expresses confidence that security of supply will not be an issue. Its impact assessment says any shortfall in generation capacity will be covered by a mix of new and existing gas plants remaining online, which would otherwise have been retired on economic grounds.

Flexitricity’s Martin agrees that the rapid evolution of the energy system over the last five years means that the UK can survive without its surviving coal plants. While the government’s energy security standard assumes that there will be three hours of “brown-outs” per annum, the UK hasn’t experienced such an event for six years, he says: “If you pushed coal off the network you would be miles off breaching the government’s security standard.”

There is an excess of suppliers willing to provide capacity, says Howard: “There is no shortage of people interested in providing capacity. It doesn’t look like it will be a problem. We can be pretty confident and just have to make sure there is a plan. “If there is sufficient lead you can build a mix of things that will mean security of supply is not compromised.”

Missed opportunity

For some, the rapid dwindling of coal’s contribution to the energy mix means that the government could have been even bolder about phasing it out.

Marshall argues that last week’s announcement was a missed opportunity to bring forward the end of coal. He says the green light for coal to compete in capacity market auctions until 2025 means companies will have fewer incentives to bring forward gas capacity.

This is because, he suggests, the coal plants will create a bigger buffer in the wholesale market that will minimise price spikes, which is when the operators of spare capacity make the juicy returns that justify their investment. Marshall says: “If those hours are less expensive the finances behind building these will be less attractive.”

And the survival of coal capacity will undermine the case for investing in gas plants, which look set to play an increasingly curtailed role as emissions reduction targets are ratcheted up from the end of the next decade onwards.

“It would have been easy to knock it forwards by a couple of years,” Marshall suggests, “or to phase the last tiny bits of coal out of the capacity market.”