Drax mulls mothballing coal-fired plants after posting 2015 losses
By Paul Homewood
While Japan pushes ahead with a new generation of coal power stations, the UK’s industry lurches further into crisis.
British power group Drax could be set to mothball its coal-fired power plants as low gas prices, competition from renewables, withdrawal of government support and the UK’s plan to close its coal-fired plants by 2025 all take their toll.
The company announced a strategy review this week after posting a loss of 64 per cent in its pre-tax earnings for 2015, with profits falling from £166m ($234m) to £59m. The group was forced to more than halve its dividend to shareholders, citing "severe market deterioration and difficult regulatory challenges".
CEO Dorothy Thompson was quoted as saying that while the firm “may choose to mothball” its coal plants, “what we are keen to do is to work with the government and find the right solution”.
And according to Andy Koss, CEO of Drax Power Ltd, existing coal-fired plants may still be crucial for keeping the UK’s lights on if the government fails to build enough new capacity to make up for the planned plant closures.
Drax has already converted two of the six units at its 3.9 GW coal-fired plant in North Yorkshire to burn biomass, and conversion of a third unit is planned if government aid for the process passes a European Commission investigation.
Koss has warned that unless this aid is delivered within the next two years, the coal-fired boilers may deteriorate to such an extent that conversion would no longer be possible.
Earlier this month, Drax and co-plaintiff Infinis, a renewable power firm, lost an appeal to the UK’s High Court over the government’s decision to remove their exemptions from Climate Change Levy payments. Thompson said the exemptions “have played a critical role supporting investment in a wide range of renewable technologies”.
Why anybody should be in the least bit surprised amazes me. After all, this has been the objective of government policy for years now. The combination of carbon taxes, competition from subsidised renewables and loss of market share was only ever going to have one outcome.
The only thing keeping coal afloat up to now was the cost advantage it had over gas However, falls in gas prices in the last year have changed all that.
The final nail in the coffin was Amber Rudd’s announcement a few months ago, that the government wanted to see an end to all coal generation by 2025. Drax , along with Fiddlers Ferry, Longannet and Rugely, had originally opted into the EU’s Industrial Emissions Directive, which would allow them to operate beyond 2023. The others have subsequently all announced plans to close this year.
If Drax does go, this would leave Ratcliffe as the only plant left that has opted in to the IED. The plants which have opted out, Cottam, West Burton and Aberthaw are each allowed 17500 hours of operation between Jan 2016 and December 2023. Logically, they will seek to use these up as quickly as possible, and then shut down to minimise costs.
Below is the latest summary:
|Capacity MW||MW to close
|Lynemouth||420||Conv to bio|
|Drax||3870||?||50% to bio|