Mothballed British gas plants to gain from coal closures

Closing coal fired power stations mean a return to life for some British gas fired plants and a rise in gas use for electricity generation for the first summer in three years.

High gas and low electricity prices in the wholesale market have eaten into profits from burning gas for power production, but EU environment rules have forced more coal closures with reliable gas supply likely to be the winner rather than variable wind power.

Over the past month, Britain has already lost more than 5 gigawatts of coal-fired power plant capacity due to the expiry of operating hours given under EU-wide pollution rules and another 7 GW of capacity is scheduled to close by the end of 2015.

“A number of coal plants are expected to close, leading to a higher dependence on gas to last summer,” Britain’s network operator National Grid said in its summer market outlook.

It expects gas demand from Britain’s power plants to rise to 9.8 billion cubic metres this summer, up 18 percent from summer 2012 and the first year-on-year summer demand rise since 2010.

Many operators of gas-fired power plants have temporarily closed plants or reduced capacity, laying off workers, because they were losing money, but a greater need for reliable power capacity to fill supply gaps could now help return some plants to profit.

“If prompt (power) prices start to rise, that may encourage owners to bring their plants out of preservation to be ready to catch small spikes in value,” said one operator of gas-fired power plants in Britain.

Tighter supply margins due to the coal plant closures are likely to lift power prices in order to encourage spare plant capacity to connect to the grid. At the same time UK gas prices could also find support from higher demand in power plants.

A rise in power prices will significantly improve the spark spreads, the measurement used by power plant operators to determine their profits from burning gas for power production.

Forward peakload spark spreads, for power produced during the day’s high demand time, are already trading 50 percent above current levels.

British utility Centrica has mothballed a number of its gas plants.

Earlier this month, however, it returned its 235-megawatt (MW) Barry gas-fired power plant to the open market after a supply contract with the network operator expired.

It is now operating in the balancing market, meaning it offers its output to fill short-term supply gaps.

A spokesman for the 1,000-MW Barking Power gas plant, 60 percent of which have been in preservation mode, said it could offer its full capacity to the market within two weeks if needed.

“It would depend upon UK demand and supply and events that have an impact on that.”

However, not all gas plants will be able to benefit from the supply gap created by coal station closures.

Only those that can respond to sudden demand needs at very short notice will be able to take advantage of requirements in the short-term balancing market.

GDF Suez, for example, stopped production at its huge 1,875-MW Teesside gas-fired power plant over the past month, saying market conditions had not improved since the station’s capacity was reduced to 45 MW two years ago.