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Oh Dear: Bullish UK Gas Prices Make Coal-Fired Power More Economical

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S&P Global Platts

London — Bullish NBP spot and winter contract gas prices have focused the power market’s attention on the UK’s coal-fired power plants, which have recently become more economical to run in the summer as well as in the winter.

The gap between prompt NBP gas and the coal switching channel indicates that, if and when needed, thermal generation is going to be predominantly coal-fired this winter, with higher gas prices opening the way for increased coal-fired generation, despite a strong hike in carbon prices.

Data from S&P Global Platts show 35% efficient coal-fired plants are competing with 45% gas-fired plants. The UK month-ahead coal-switching price for 45% efficiency was 68.43 pence/therm on Monday, slightly lower than the NBP day-ahead contract assessment of 69.70 p/th. However, UK month-ahead CSP for 50% efficiency was 78.19 p/th. Platts CSPI is the theoretical threshold at which gas is more competitive than coal in power generation. When the gas price is higher than the CSPI, CCGTs are more expensive to run than coal-fired plants.

“Despite the gains in carbon over recent months, coal generation has been supported this week by particular strength in the gas market,” according to S&P Global Platts Analytics. “We forecast gas to lose ground this winter too, with the Q1-19 Clean Dark Spread above the Clean Spark Spread. As a result we expect coal generation to be stable year-on-year this winter, despite the closure of 2GW of capacity, while gas generation is forecast to fall more than 3 GW vs Winter-17.”

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