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Forward energy prices for this winter show that coal is expected to be favoured over gas as the preferred source of fuel for power generation, according to the National Grid.
After a summer of dominant gas-fired power generation within the UK’s generation mix National Grid said in its winter outlook report that the rising cost of gas and falling coal prices mean that coal-fired power will reclaim its position as the UK’s most profitable generation type.
Gas became profitable relative to coal for the first time in years over the summer as a typical summer lull in gas prices was given further weight by a glut of storage stocks after an unusually mild winter, sending wholesale prices to multi-year lows.
National Grid said that although coal prices fell by 8 per cent for the period of October 2013 to September 2014 gas prices plummeted by 20 per cent causing many generators to opt for cheaper gas-fired power within their portfolios.
“In addition there were some outages to coal and nuclear power stations through the summer months, which may have influenced the increase in the gas used for power generation,” National Grid said.
But as gas prices recover with support from colder weather and stronger demand for gas-heating the trend is set to reverse.
“For gas and coal to be equitable the gas price for winter 2014/15 needs to fall by approximately 20p/therm (from the current forward prices) to around 40p/therm, alternatively there needs to be a further increase in the coal price by about $50/tonne,” National Grid said.
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