LONDON - Britain's power generators face a coal against gas burning dilemma this winter that extends beyond fuel prices, with high coal stocks, limited coal-fired power plant lifespans, and carbon prices blurring decisions.
Energy network operator National Grid expects gas prices to remain relatively low this winter as recession dampens demand at a time of plentiful liquefied natural gas (LNG) supply.
This gas glut was expected to see gas-fired plants dominate UK electricity generation this winter -- a time when coal is usually more profitable because gas prices normally surge due to heating demand.
But current low carbon prices, mountains of coal, and around 30 percent of Britain's coal plants that decided not to fit cleaning equipment facing closure in 2015 under the Large Combustion Plant Directive (LCPD) could spur more coal use.
High coal stocks, carbon, and LCPD related considerations could restrict some of the fuel switching (to gas), Peter Osbaldstone, manager of European Gas and Power Research at consultants Wood Mackenzie, said.
It's potentially cheaper to run that coal now, rather than those later years leading up to 2015.
Under the LCPD, plants that have not fitted equipment to cut pollution can only run for 20,000 hours before they close in 2015.
The cost of emitting climate warming carbon is expected to rise significantly from 2012, potentially making coal-fired power generation much more expensive in the last three years of the plant's expected life.
Coal can be stored for years but a fall in spot prices this year prompted aggressive stockpiling, and the requirement to buy a certain percentage of future orders means burning could be an attractive option to manage brimming inventories.
The market has also seen older coal plants being run this winter, instead of more efficient and profitable newer plants, due to high stockpiles and the pressures on producers of the
It does look like it might be happening, actually, as I was a bit surprised that over the past week they haven't been more selective in offering prices from more efficient coal onto the market, a power trader at a bank said.
We haven't been able to quantify if high stock piles is an issue or not, but we do know they have an expected obligation to take coal.
Latest government data showed that British coal stocks stood at 23.9 million tonnes in August, the highest level since 1995 and up 8 million tonnes from a year earlier.