Policy experts are claiming that the UK Government’s efforts to shift from coal-fired power plants to gas-fired power plants could be undermined by the current Government policy.
The Government increased carbon tax in April 2015, and the falling gas prices in the market have played a role in reducing the profit margins of coal-fired power plants when compared to gas power plants. As a result, coal-powered plants are gradually shutting shop. This was evident earlier in May when there was no power output from coal-fired plants for several hours.
However, the construction of new gas-powered plants could be adversely affected as the Government adopts measures that are more favourable to coal plants.
Tony Lodge, an energy research fellow at the Centre for Policy Studies, stated that the Government has been quite liberal with its incentives for coal plants. He believes this has affected the capacity market price of gas. Lodge said that if the Government wanted to ensure a higher-capacity market price for gas, it should desist from favouring coal plants.
The Government appears to be concerned about supply, and this has prompted the country to bring forward its capacity remuneration with the hopes of enticing coal-fired power plants to stay open.
In the last few months, the National Grid has awarded contracts to coal plants to overcome scarcity in power. Drax was awarded a contract for ancillary services to supply power from its remaining coal-fired plants until April 2017. This step was taken even though in November 2015, Energy Secretary Amber Rudd committed to ending coal-fired power generation by the end of 2025.
While this is sending out mixed signals, it is good news for UK coal mining contractors, as coal-fired power plants will be seeking more coal to stay open and receive capacity remuneration.
E3G Director Jonathan Gaventa stated that Rudd’s commitment may have prompted some coal plants to shut down, while others receiving capacity payments will continue operating. However, Gaventa does not believe that coal plants will be running for longer hours.