U.K. Coal Rail Shipments Plunge as Carbon Tax Damps Power Profit

UK Coal Use for Power

U.K. coal shipments by rail to power stations fell to the lowest in at least two years after the government almost doubled a tax on the fuel.

Transport of coal to electricity plants from mines and import terminals fell 66 percent in the four weeks ending April 26, compared with a year earlier, according to Network Rail, the U.K. rail operator. The profitability of coal-fed plants plunged 60 percent this year, data compiled by Bloomberg show.

Britain doubled its carbon surcharge on power producers in April, which may hasten the closing of older coal-fired stations already facing stricter limits on sulfur and nitrogen pollution, blamed for contributing to acid rain and smog. As the use of renewables expands, fossil-fuel plants that don’t win government contracts to provide back-up power are at most risk of shutting, according to investment firm Sanford C. Bernstein.

“Coal for power-station purposes has declined dramatically, and it is due to the increase in the carbon support price,” Chris MacRae, the manager of rail freight policy at the Freight Transport Association, said Wednesday by phone. “There are power stations being shut that run on coal because they haven’t been converted to the latest clean-burn techniques because it’s not economically viable to do that.”

The carbon price support rose to 18.08 pounds ($28.68) a metric ton on April 1 from 9.55 pounds for the previous 12 months. U.K. power producers burning fossil fuels such as gas and coal have to pay the surcharge in addition to buying European Union permits to cover emissions.

The clean-dark spark spread, a measure of the profitability of coal-fired power, was 4.06 pounds a megawatt-hour on a month-ahead basis on Friday, compared with 10.16 pounds at the start of the year, according to data compiled by Bloomberg.

Coal Movements

The increase in the levy encouraged utilities to build coal stocks before April 1, according to the Freight Transport Association, based in Tunbridge Wells, England. Coal movements on U.K. railways rose to the most in at least two years in the four weeks leading up to April 1, Network Rail data show.

“One of the coal routes to Fiddlers Ferry power station in the northwest was getting something like 20 trains a day; they’re down to two a week since April 1,” Simon Weller, the national organizer at the Associated Society of Locomotive Engineers and Firemen, the train drivers’ union, said by phone from Brighton, England, on Thursday.

While coal consumption for power generation has historically declined over summer months amid reduced demand for electricity for heating, the recent drop in rail freight volumes is more than a seasonal reduction, according to the FTA’s MacRae.

“The decline in coal volumes transported by rail is directly linked to U.K. energy policy,” he said.

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