Coal regains crown as slump in nuclear output raises fears of power shortages

Sunday, November 16, 2008

ENERGY GAP: Power suppliers are turning back the clock to use coal-fired plants as their main source of electricity in a bid to avert potential shortages this winter.

POWER SUPPLIERS are turning back the clock to use coal-fired plants as their main source of electricity in a bid to avert potential shortages this winter.

Latest figures from the National Grid show that the fuel accounted for 42.5% of all power generation, overtaking natural gas production for the first time in years.

The surge, from a usual level of little more than a third of total output, comes as the major networks seek to fill a gap caused by a slump in nuclear energy output at East Kilbride-based British Energy.

Nuclear power accounted for as little as 10.5% of output during peak times last week. This is roughly half the levels of a couple of years ago and there had been fears that we could see the first power shortages as early as this month.

"Conditions have certainly tightened for November but we have an adequate surplus of supply and expect things to ease as plant comes back on stream after maintenance and updates," commented a National Grid spokesman. "We are not expecting to issue warnings over potential shortages this winter."

The National Grid statistics, which change on an hourly basis, provide little comfort for those who believe that energy from renewable sources can plug the gap at any time in the near future - hydro-electricity from Scottish and Southern Energy accounted for just 1.4% of production and wind power only 1.3%.

By contrast, imported power from France reached a peak of more than 4% last week.

The major power companies stress that the increased use of coal is compatible with the drive for cleaner energy, and ScottishPower is investing heavily in "clean coal" technology at its Longannet and Cockenzie plants which could provide a quarter of Scotland's energy needs.

The development will cut carbon emissions by 20% and has been accompanied by a five-year supply contract with Scottish Coal which could be worth as much as £700 million.

It has been welcomed by first minister Alex Salmond, who says it forms part of plans to exploit Scotland's natural resources along with the development of renewable energy sources.

While the UK as a whole is struggling to meet EU targets to gain 20% of its energy from renewable sources, he believes Scotland could get up to 50% of its own needs from wind farms, tidal energy and biomass as well as hydro-electricity by the same date.

Much, though, depends on infrastructure investment to link the primary sources to the National Grid, which runs the transmission system in England and Wales and oversees operations in Scotland.

The organisation, which also operates networks in the US, is due to update investors on Thursday over its plans to splash out £3 billion a year on capital spending for the foreseeable future.

Analyst Fraser McLaren at Merrill Lynch believes the announcement will be accompanied by news of a dip in first-half profits from £757m to around £520m because of financing costs of US expansion but says the group can afford its ambitious plans because of the secure income base from its regulated activities.

He expects underlying net income to rise from just more than £1bn to around £1.25bn for the full year and says the group's undrawn borrowing facilities of £2.9bn will see it through to March 2010 even if credit markets remain difficult.

In contrast, British Energy chairman Bill Coley will underline the scale of the problems facing the group's new owners at EDF when he produces his own trading update on Tuesday. He will confirm that the continuing problems among the group's eight nuclear power stations led to a 27% slump in output in the opening half of the year despite rising production from its coal-fired plant at Eggborough.

The group's big B21 reactor in Dungeness recently re-opened after four months' closure, but four reactors at Hartlepool and Heysham will remain closed until early next year for boiler repairs.

EDF hopes to complete its £12bn acquisition of BE after gaining regulatory approval early next year and aims to spend about £4bn modernising existing plant in addition to some £10bn set aside to build another four reactors.

Scottish Gas owner Centrica plans to take a 25% stake in the business once the deal goes through.

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