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UK coal burn under pressure for rest of quarter

30 Jan 2018 18:04 GMT
UK coal burn under pressure for rest of quarter

London, 30 January (Argus) — British coal-fired units could be pushed even further out of the mix by gas over the coming two months, based on current forward generation spreads.

Thermal generation has been much lower year on year this month, because of higher imports and wind generation and weaker demand.

But gas has been affected far less than coal. Coal-fired output has averaged 2GW so far this month, down from 6.3GW in January 2017. Gas has averaged 16.3GW, down by just 1.5GW year on year.

A combination of stronger year-on-year coal and emissions prices and weaker gas prices improved the competitiveness of gas relative to coal .

This effect has been amplified by the recent rally in European emissions allowances over the past two weeks. The prompt was assessed at €8.96/t ($11.11/t) yesterday, up by around €1.21/t over the past two weeks and €3.80/t higher year on year.

The working day-ahead clean dark spread for a coal unit with an efficiency of 38pc has been lower than the clean spark spread for efficiencies of 46pc and higher since 16 January, pushing coal even further out of the merit order. Coal-fired output has averaged just 1.4GW since then, compared with gas-fired generation of 15.8GW.

This trend looks likely to continue into February and March. The front-month clean dark spread for a 38pc efficient plant fell to £0.84/MWh ($1.19/MWh) yesterday evening, compared with a clean spark spread of around £2.32/MWh for a 46pc efficient gas plant.

In February 2017 the day-ahead clean dark spread for a coal plant with an efficiency of just 36pc averaged £2.91/MWh, higher than the clean spark spread for 46pc efficiency at £2.38/MWh. And the clean dark spread for 38pc efficiency was much higher at £5.35/MWh.

Coal-fired output averaged 5.2GW last February, while gas-fired output averaged 14GW.

Wind generation is likely to continue to be higher year on year after wind additions grew at record levels in 2017.

And imports from France could be stronger year on year. Commercial flows averaged around 600MW last February, compared with the maximum of 2GW.

The British February power contract closed at a €6.97/MWh premium to the French front month yesterday, compared with a €4.23/MWh discount at the same time last year.

The outlook for coal burn is even worse for March. Clean dark spreads fell below zero for 38pc efficient plants yesterday, while the clean spark spread for a 46pc efficient plant was £1.66/MWh.