Declining U.K. natural gas prices are prompting utilities to burn more of the fuel for power production as profit from coal-fed plants falls to the lowest in more than four years.
The CHART OF THE DAY shows the amount of electricity generated from gas in the U.K. is the highest for this time of year since 2011, while that from coal has slumped. The price of month-ahead U.K. gas has dropped for seven consecutive months in the longest downward streak since 2009, making the fuel more competitive for power generation, broker data show.
Since 2010, coal has been more profitable than gas for electricity production, prompting U.K. utilities to shutter enough gas-fired generation in the past two years to power more than 4 million homes, according to Bloomberg New Energy Finance. Cheaper gas and a rising carbon tax that will boost penalties for burning coal means companies may reconsider shutting some plants, according to Energy Aspects Ltd.
“Gas has become so cheap at the moment, that it, combined with the future rise in the carbon tax, may change the view on mothballing,” Trevor Sikorski, the head of gas, coal and carbon at Energy Aspects Ltd. in London, said by phone on July 11. “You wouldn’t now think of closing gas assets, particularly nothing that looks half-decent in terms of efficiency.”
The next-month clean-dark spread, a measure of profit from burning coal to produce power, narrowed more than 84 percent this year to the smallest margin since May 2010, according to data compiled by Bloomberg. Coal-fired generation became more expensive as the price of carbon permits jumped 16 percent since December, increasing the amount utilities must pay to cover their emissions under European Union rules.
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