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Coal generators are expected to be paid up to £420 million to remain available over the coming winter in case fuel supplies to gas generators are disrupted, National Grid Electricity System Operator (ESO) has revealed.
In response to Russia’s invasion of Ukraine and the resulting gas crisis, the ESO has so far agreed contingency contracts with four coal units stay open beyond their previously scheduled closure this autumn, and is still in discussions to secure a fifth unit.
The contracted generators comprise two 400MW units at EDF’s West Burton A plant in Nottinghamshire and two 570MW units at the Drax power station in North Yorkshire.
The units will be paid to remain available for dispatch by the ESO between the beginning of October and the end of March 2023, but will not be available on the open market.
The ESO said they will be paid on an “open-book basis,” whereby generators will be reimbursed for costs such as maintenance, staffing and coal procurement, although not carbon credits, plus an agreed profit margin. At the end of the contracts, any remaining coal stocks will be sold on the open market.
National Grid said it expects the upfront cost of the contracts to be in the region of £220 million to £420 million, with the two main variables determining where costs fall within this range being whether a fifth unit is secured and the volume of coal procurement.
The cost of the contracts will be recovered through Balancing Services Use of System (BSUoS) charges between 1 October 2022 and 31 March 2023 and spread equally across these days. Any costs recovered through the sale of unused coal will be returned to payers of BSUoS charges upon final reconciliation.
The ESO said it will publish an updated BSUoS forecast that includes the expected cost these contracts. It reiterated that the units are only intended to be called upon once it has exhausted all commercial options in the Balancing Mechanism.
Earlier this month, the ESO revealed it is also considering creating a demand flexibility service for this winter to help cover any potential shortfalls in gas generation.
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