UK considering coal-plant life extension; expecting CfD delays

20 March 2013 10:37 Source:ICIS

The Department for Energy and Climate Change (DECC) is considering extending the life of coal-fired plants because of concerns surrounding the expected capacity squeeze in the UK.

"We are looking at keeping existing plants alive," Jonathan Brearley, director of energy strategy and futures at DECC, said at a World Energy Council (WEC) workshop for energy market reform strategy.

Brearley's statement came in response to a challenge from Ronan O'Regan, a PricewaterhouseCoopers utilities consultant, who suggested that contract for difference (CfDs) subsidy mechanisms will not be established in time for low-carbon generation to bridge the capacity deficit.

"I have reservations over whether developers will be able to get the right capital into a project early enough [to fend off the expected capacity squeeze]," O'Regan told the workshop. "There needs to be a plan B. It will be highly challenging to have to CfDs in place by mid 2014."

Brearley did not dispute the concern. "We need to go to the European Commission to get state aid approval and we cannot put a firm deadline on that," he said. "A [CfD] strategy for CHP [combined heat and power] plants still needs carving out."

Alistair Buchanan, the outgoing head of Ofgem, had previously suggested prolonging the life of coal-fired plants to the parliamentary energy and climate change committee (see EDEM 27 February 2013). This is the first time, however, that the government has revealed it is considering the option.

Some 20GW of capacity from coal-fired plants is due to come offline by 2016 unless these plants opt into the EU Industrial Emissions Directive (IED). Opting in would entail heavy investment in emissions reduction and only power plants providing a total capacity of 6GW have signed up to the IED so far. Revoking the IED could spark an investor backlash and harm the UK's international reputation.

O'Regan also expressed doubts that the 2020 decarbonisation target could be achieved under the current £7.6bn (€8.9bn) levy control framework a treasury-run model designed to keep the renewable subsidy pool in check (see EDEM 23 November 2012).

"Is £7.6bn enough to fund the roll out of the renewables needed to hit the 2020 target? Even in an optimistic scenario it is likely that there will be a shortfall," he said. "The majority of developers will not be able to access CfDs." Katie McQue

By Katie McQue