UK coal-free power generation record indicates fuel’s days are numbered

LONDON (ICIS)–Britain smashed its record for the longest continuous period without generating electricity from coal over the Easter weekend, highlighting the near redundancy of the fuel in the electricity mix.

Data from system operator National Grid showed that British coal-fired units lay dormant for more than 90 hours until Monday afternoon – the longest coal-free spell since the industrial revolution and almost 20% more than the previous record.

ICIS Power Horizon data indicates that coal will account for a negligible proportion of UK power generation during the rest of 2019 and 2020, before falling out of the mix completely by 2021. This means that prolonged coal-free periods are set to become increasingly common, with growing renewable capacity stepping in to meet demand.

Hostile environment

The UK’s fleet of coal-fired power stations has faced increasingly difficult market conditions since the introduction of the country’s carbon price support (CPS) in 2013.

The tax, which was initially set at £16/tCO2e and later raised to £18/tCO2e, is levied on fossil fuel generators in addition to the EU emissions trading system (ETS) carbon price.

Although similar interventions have been considered in other EU countries, the UK remains the only member state with its own domestic top-up carbon tax.

The result has been to make heavily carbon-intensive coal-fired units increasingly unprofitable in the UK market, with cleaner gas plants and proliferating renewables stepping in to offset plummeting coal output.

ICIS analyst data shows that coal units will generate a total of just 68GWh of power over the course of 2019, with a similar output expected next year. This compares to more than 125TWh of gas-generated electricity and a combined 95TWh from renewable sources.

Unfavourable spreads

ICIS forward price data confirms that market conditions are set to remain hostile for coal-fired power generators over the coming months and years.

All forward clean dark spreads including an allowance for the CPS are currently valued below £0/MWh, meaning negative notional profit margins for coal plants of 35% efficiency.

The Winter ’19 baseload clean dark spread including CPS sat at -£3.19/MWh at Thursday’s close, indicating that coal generators do not stand to make a profit even during the coldest, highest-demand months of the year. On the same day in 2018, the Winter ’18 baseload dark spread was valued at £0.94/MWh.

The UK government remains committed to a legal coal phase-out deadline of 2025.