Coal power stations unlikely to provide emergency energy top-up next winter
Companies running the UK’s three remaining coal-fired power stations have told Sky News that they will not be able to commit to new emergency power contracts next winter, despite a government request to do so.
The Department for Energy Security and Net Zero has asked the National Grid to extend this winter’s contingency coal contracts through to the end of next winter.
Coal provides a tiny proportion of the UK’s electricity – just 2% – but it remains a critical tool for the National Grid Electricity System Operator (ESO), which is responsible for keeping the lights on.
One energy analyst said we are “sleepwalking into a capacity crunch”.
At the moment five coal units in three power stations are on standby to help avoid blackouts on very cold, very still days where wind power is limited; Drax, EDF’s West Burton A and Uniper’s Ratcliffe.
West Burton was fired up earlier this month during a cold snap when the National Grid became concerned that demand would outstrip supply.
But Drax and EDF have told Sky News that the arrangement cannot continue beyond this year.
In a statement, a Drax spokesperson said: “At the request of the UK government, Drax agreed to temporarily delay the planned closure of its two coal-fired units to help bolster the UK’s energy security this winter. Our coal units will close in March 2023 when this agreement comes to an end.
“The extension was a complex staffing, logistical and engineering project after a significant reorganisation of the power station was already completed to bring almost 50 years of coal-fired generation to an end.
“With two major maintenance outages planned on our biomass units this summer, and a number of certifications expiring on the coal-fired units, the units would not be able to operate compliantly for winter 2023.”
Five coal units remain on standby as chilly weather continues
A spokesperson for EDF said: “The two remaining units at West Burton A coal-fired power station in Nottinghamshire will close as planned on 31 March 2023, in line with the agreement signed last year. The station and its workforce have fulfilled the request to have 400MW available through winter ’22/23 as an emergency standby option.
“There are a number of workforce and operational reasons that mean extending the life of West Burton A again is very challenging.
“For example, retaining suitably qualified and local personnel to ensure safe operation was a major challenge last year and, looking forward, becomes untenable as many of the workforce have stayed on well beyond planned retirement dates already.”
Uniper, which runs the Ratcliffe power station, has said that all four of its units, one of which is currently on standby for emergency purposes, have already entered into commercial contracts for next winter.
In a statement, a spokesperson said: “Uniper’s Ratcliffe power station already has capacity market agreements in place for all four units for winter 23/24, so would not be part of a separate winter contingency contract for this period.”
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A spokesperson for the Department for Energy Security and Net Zero said: “Our energy supplies are safe and secure, but like last year we are exploring options to keep remaining coal-fired power stations available to provide additional back-up electricity if needed this coming winter as a contingency measure.
“Going above and beyond to ensure there are no issues next winter, we’ve written to ESO to request that they start the negotiations.
“Ultimately, the decision will be a commercial one for the coal generators and ESO will update the market in due course.”
Kathryn Porter, an energy analyst from the Watt-Logic energy consultancy, said: “The potential loss of the coal contingency is bad news for next winter.
“We have been sleepwalking into a capacity crunch. The combination of nuclear and coal closures in recent years making us vulnerable to the weather [and] in low wind conditions we are finding it increasingly difficult to meet demand.”
As well as using coal to boost supplies in an emergency, National Grid has been experimenting with paying customers to reduce demand during peak hours when margins are tight.
The lack of emergency coal on standby next winter might mean that the grid’s demand flexibility service is expanded or more heavily relied upon in order to avoid blackouts.
Black Friday sales do not appear to have provided much cheer for retailers amid continued consumer caution, according to official figures.
The Office for National Statistics (ONS) reported a 0.1% decline in sales volumes during November, compared to the previous month, when the data is adjusted for seasonal effects due to the pre-Christmas shopping bonanza falling in December last year.
Economists polled by the Reuters news agency had expected growth of 0.4%. The dip was worse when the effects of fuel sales were excluded.
Rolling three-month data showed positive sales volumes were only propped up by strength in September.
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ONS senior statistician Hannah Finselbach said: “Retail continued to grow in the three months to November, helped by a strong performance from clothing and tech shops.
“This year November’s Black Friday discounts did not boost sales as much as in some recent years, meaning that once we adjust for usual seasonality, our headline figures fell a little on the month.
“Meanwhile, our separate household survey showed that although some people said they were planning to do more shopping… this Black Friday than last, almost twice as many said they were planning to do less.”
The data was released against a backdrop of widespread consumer and business caution in the run-up to the budget on 26 November – held just two days before Black Friday – although promotional activity was already well underway before Rachel Reeves’s speech.
That period was dominated by on-off signals over income tax hikes and black holes in the public finances, but the budget itself largely backdated many of the most painful measures towards the end of the parliament.
While the ONS data does little to boost retailers’ expectations for the Christmas season, there was a crumb of comfort to take from a closely-watched survey released just beforehand.
GfK’s consumer confidence index nudged up to its joint-highest level this year – though it remained deep in negative territory.
The biggest upwards contribution came from a willingness to make major purchases, despite perceptions for personal finances weighing amid continuing cost-of-living pressures in the economy.
Neil Bellamy, GfK’s consumer insights director, said: “Consumers resemble a family on a festive winter hike, crossing a boggy field – plodding along stoically, getting stuck in the mud and hoping that easier conditions are not far off.”
We have had better economic news since the survey was completed.
It was revealed this week that a much larger decline in the rate of inflation, to 3.2% from 3.6%, had allowed the Bank of England to cut interest rates to 3.75%.
It promises a boost to spending power as borrowing costs come down further, with wage growth still rising above that pace for price growth.
It is now hoped that the end of the budget circus will spark some life into the economy following two consecutive monthly contractions for output and a surge in the unemployment rate.
Much of the increase has been attributed to the retail and hospitality sectors reacting to sharp rises in employment costs under the Labour government.
Consumer spending accounts for around 60% of the UK economy.
Richard Carter, head of fixed interest research at Quilter Cheviot, said of the outlook: “Markets do not believe growth is coming to the UK anytime soon.
“Indeed, the UK is likely to slip into recession if the latest GDP figures are anything to go by, and there is little sign of positive momentum being generated.”
The Bank of England has cut interest rates from 4% to 3.75%, its sixth cut since last summer.
The decision follows a bigger-than-expected fall in the consumer price index rate of inflation in data released this week. While inflation is still above the Bank‘s 2% target, the fall to 3.2% helped swing today’s decision, with five of the Bank’s nine-member monetary policy committee (MPC) voting for a cut.
The governor, Andrew Bailey, who had voted to leave rates on hold in November pending more data on inflation, shifted his vote this time around.
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“We’ve passed the recent peak in inflation and it has continued to fall,” he said, “so we have cut interest rates for the sixth time, to 3.75 per cent, today. We still think rates are on a gradual path downward. But with every cut we make, how much further we go becomes a closer call.”
The decision will mean those with floating rate mortgages should immediately see a reduction in their monthly repayments – and some lenders are now reducing fixed-rate deals to 3.5% or below.
The Bank also gave its first full assessment of the economic impact of last month’s budget. It said the budget, which included measures to reduce energy bills and freeze fuel duty, should help push inflation half a percentage point lower next year.
That would mean CPI inflation would drop to close to the Bank’s 2% target as soon as the second quarter of 2026, nearly a year earlier than it originally expected.
However, the Bank also warned that growth remained weak. It said it expected gross domestic product to flatline in the fourth quarter of the year.
Since the decision was a narrow one, with four members of the MPC voting against the cut, some investors might judge that the Bank remains finely balanced on future decisions. Right now investors expect another cut by the end of next spring and, possibly, another one thereafter.
But whether rates eventually settle at 3.5% or 3.25% – or even lower – remains a matter of debate.
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