Power plant announces closure after gas and demand response projects squeeze coal's role in latest capacity auction
Coal's grip on the one subsidy life-line keeping it on the UK grid looks to be slipping, after gas power, demand-side response (DSR) and distributed capacity snapped up the lion's share of agreements in this week's capacity market auctions.
Eggborough Power station, one of a handful of remaining coal-fired plants, announced its closure this morning after failing to secure an agreement for the 2018-2019 T1 auction, which locks in back-up power for next winter.
"It is with regret that Eggborough Power Limited (EPL) announces that Eggborough Power Station was not successful in this week's Capacity Market auction for the period 2018-19," the firm said in a statement. "EPL will continue to meet its obligations under the current Capacity Market contract, which runs through to the end of September 2018, but without a contract for future years it will cease to be economically viable to continue operations at the station."
The closure of Eggborough will leave the UK with just seven coal-fired power plants: Drax, Cottam, West Burton, Fiddlers Ferry, Aberthaw, Uskmouth, and Ratcliffe-on-Soar.
Today's capacity market clearing price of £6 per kW is the lowest of any auction to date, according to analysts who said the drop in prices had been driven by an influx of cheap gas plants and demand-side response systems. "With the government's intelligent intervention through the Capacity Market, we have achieved an even higher standard of energy security for next winter and at a low cost for bill payers," Energy and Climate Change Minister Claire Perry said in a statement.
Around three quarters of the power secured in the auction came from gas plants, with demand response projects also contributing a significant and growing share, crowding out bids from the coal and diesel plants that once dominated the market.
Eggborough was already struggling to operate in an energy market under pressure from low wholesale prices, high carbon taxes, and a rapid transition to cleaner energy sources.
The decision to close the plant marks another milestone towards the government's goal of fully phasing out the unabated use of coal power by 2025.
The ageing plant was bought by Czech power firm EPH in 2014, and had announced its closure in 2015, but it was saved by a capacity market agreement secured in February 2016. Its closure in September 2018 is expected to cause around 200 job losses, and planning documents updated yesterday suggest its operators intend to now convert it to gas power.
However, it may be too early to herald the final death knell for coal power in the UK. In total, around eight per cent of the awarded capacity in this week's T1 auction went to coal power - less than previous years, but still more than battery storage, which only accounted for 1.7 per cent of procured capacity.
For example, EDF Energy confirmed today its West Burton plant secured an agreement for one of its units, alongside a new 49MW battery storage unit and 12.8MW of demand-side response.
"EDF Energy's coal stations play a key role in providing security of supply until they can hand over to new low carbon generation," the firm said in a statement. "EDF Energy has already made big investments to make its coal plants fully compliant with all current emissions and environmental regulations."
Inevitably, many green energy figures remain frustrated with the persistent support for fossil fuel generation in the capacity market auctions, when future support for green technologies such as onshore wind and solar remains uncertain.
"We are in the bizarre situation where we are propping up fossil generation, but scaling back support for technologies that are cheaper, cleaner and will provide future-proofed jobs," James Court, head of policy and external affairs at the Renewable Energy Association, said. "The government's energy policy needs a complete rethink or we will be left behind with a dirty, antiquated and expensive energy system," he warned.
However, most analysts agree this week's T1 results are a mere precursor to the T4 auction set for next week, which will contract power for 2021-22. It is set to be much bigger - seeking around 50GW of capacity compared to the T1 auction's 6GW - and therefore potentially much more lucrative for generators.
Jonathan Marshall of the Energy and Climate Intelligence Unit told BusinessGreen previous T4 auctions have commanded a clearing price of between £18 and £22.50 per kW, and as such many iof the UK's remaining coal plants are expected to bid in. "Next week's auction is the main one," he said.
Michael Phelan, chief executive at Endeco Technologies, which secured demand side response (DSR) agreements in the T-1 round, agreed next week's auction would give a better sense of how advanced the market for emission-saving demand response projects had become. In an emailed statement, he explained that while the T-1 auction functions as a 'top-up' auction to ensure capacity next winter, next week's T-4 auction says more about the future market conditions for different generating technologies.
"In the short term, the significance of this auction result is that we can expect a more stable system over peak months, and energy consumers can look forward to lower bills than expected, had the auction cleared at a higher price," he said. "Looking further out, next week's T-4 auction will give an indication about market conditions in future years."
But, the closure of Eggborough does mark the demise of one of the remaining coal-fired plants in the UK, and its removal will likely clear the way for further closures in the coming years, Marshall predicted. "With Eggborough gone there will be others that start to come under pressure in future auctions," he explained, pointing to Fiddler's Ferry and West Burton as ones to watch next week. "It's not the final blow for coal, but it's a step in the right direction."
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