ENERGY VIEWPOINT: Time for coal to come in from the cold?
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Energy bills are to increase from this autumn for households across the country, with the maximum price suppliers can charge customers on a standard tariff – known as the energy price cap –going up from October 11.
According to Ofgem, the UK’s energy regulator, this could mean people on standard tariffs could experience an increase of £139 a year on their gas and electricity bills, or £153 for prepayment customers.
People on a fixed tariff won’t be impacted until their deal ends. But it’s worth investigating a cheaper fixed deal now – either with your current provider or by switching suppliers.
The price cap, which is set by Ofgem, is reviewed every six months and is based on the price of energy. This has risen more than 50 per cent over the last six months, with gas prices hitting a series of record highs in recent weeks. At the beginning of September, gas prices reached £1.31 per therm, more than four times higher than the same time last year.
This impacts not only the provision of gas to our homes, but also electricity. According to the National Grid, more than 46 per cent of the UK’s electricity supply comes from gas power plants, and the situation is leading to suggestions there could be a serious shortage of gas this winter.
So, what’s the reason for this problem? It’s down to global demand.
Industry is the main consumer of gas, and shut downs in business activity due to the pandemic created an unprecedented collapse in demand for gas last year. To put this into perspective, pre-pandemic gas production and consumption grew at three per cent a year between 2009 and 2019. However, consumption dropped by 2.1 per cent last year while production fell even further – by 3.1 per cent – in response to falling demand.
A small world oversupply of gas was brought under control by the end of 2020. However, harsh weather globally at the beginning of this year, especially in the US, led the energy balance to swing the other way due to increased energy use and a fall in gas reserve supplies.
In the UK, maintenance work on a number of power stations, carried over from 2020 because of the pandemic, led to plant shut downs earlier this year. To encourage gas power stations to increase their short-term electricity generation during this period, some were paid handsomely for their megawatts.
The upswing in economic activity around the world this year has not yet been matched by an increase in gas production. It has been estimated that the current imbalance could exist until the second half of 2022 or even into 2023.
With gas at such a high price, how can we ensure we manage to keep power on in our homes and workplaces? Wind power generation, which provided an average 18 per cent of the UK’s electricity over the past year according to the National Grid, was hit by relatively calm and still conditions over the summer. Only 4.9 per cent of electricity was generated by wind at the beginning of September.
So, which energy source is being called on to fill the electricity demand gap? The one that produces more greenhouse gases than any other fossil fuel: coal.
When it comes to public perceptions of the most unpalatable sources of energy, dirty old coal is right up there with nuclear. Both the UK government and the National Grid have committed to phasing out coal power by 2024.
However, coal is coming in from the cold. The use of coal for electricity generation in the UK has risen from 1.6 per cent last year to 2.2 per cent so far in 2021. In September, EDF was asked by the National Grid to resume production of electricity from its West Burton A coal plant, which had previously been on standby.
Even if we accept the increased use of coal as a temporary stop gap, the fact its use is going up when it should be going down with the 2024 finish line in clear sight must be a concern to policy makers.
We are not the only ones falling back on coal. Germany, for example, has also seen coal-fired generation climb from 690MW in August to an average of 7.2GW in September. In China, coal fired power plants make up more than half of all the world’s coal generation and contribute 14 per cent of global power sector carbon emissions – the largest single contributor to climate change.
With the COP26 conference in Glasgow just weeks away, calling on unpopular coal to bail us out of an electricity crisis could not have come at a worse time.
In the longer term, with the number of electric cars expected to reach 145 million globally by 2030, how can we guarantee that we will have the electricity available to cope with demand without falling back on coal again?
As someone wrote on Twitter recently: “Should we reopen coal plants in Europe or curtail (energy) consumption by force at peak hours? Saving the planet comes with sacrifices.”
- Andrew Bradshaw is head of energy insight at global corporate communications company Fifth Ring and is based at the company’s Inverness office. He is internationally recognised as one of the leading experts in energy public relations.