18th Nov 2015 12:55
LONDON (Alliance News) - The UK government on Wednesday outlined plans to close all coal-fired power stations in the country by 2025 and shift its focus to gas, sending shares in power plant operator Drax Group PLC lower, and said it will consider whether any reform is required to the system operator model for National Grid PLC.
Amber Rudd, the Energy and Climate Change Secretary, confirmed earlier reports that the government will open a consultation on closing all remaining coal-fired power stations in the UK by 2025, a move she said would make the UK one of the first developed countries to take coal out of the power generation system.
The government will aim to replace the coal-fired stations with gas-fired alternatives, though Rudd said the changes would only go ahead if consultation found the switch could be carried out within the timescale tabled.
Rudd, speaking at the Institution of Civil Engineers, also reiterated the government's support for building nuclear power stations in the UK and committed to supporting the offshore wind industry, provided the cost of generating power via this method is brought down.
Rudd also said that as the energy system changes, a strong case is raised for greater independence for the electricity system operator, currently National Grid, in order for it to be able to make the necessary changes to adapt to the market shifts.
Therefore, Rudd said the government will be working alongside the National Infrastructure Commission to consider how to reform the current system operator model in order to make it "more flexible and independent." Shares in National Grid were down 0.2% to 923.106 pence on Wednesday.
The news on the planned closure of the coal-fired power stations sent shares in Drax, which operates power plants in the UK, including three coal-fired units, lower on Wednesday, down 4.6% to 216.10 pence to be the worst performer in the FTSE 250.
Drax itself said it welcomed the consultation, however, saying it will provide "greater clarity" on future energy policy.
"Over the last decade we've developed the latest technology to transform our power station and more than half the electricity we generate now comes from sustainable biomass," said Dorothy Thompson, Drax's chief executive.
"Coal and gas still produce the majority of our electricity and a truly diverse energy mix, including sustainable biomass, is the key to keeping the lights on in an affordable way. Getting coal off the system present a huge opportunity for government to use existing power stations to generate affordable electricity using sustainable biomass," Thompson added.
Peter Atherton, an equity analyst at Jefferies, however, said the impact for Drax may be that it will bring forward the closure date for its three remaining coal units by two years. Jefferies had previously assumed those units would close, or be converted by biomass if the necessary government support was available, by 2027.
This at least means it will have a likely greater impact on Drax than on SSE PLC, the blue-chip energy company, which only operates 2.5 gigawatts of coal capacity and which has already written down its coal stations on the assumption they will be closed by 2023.
Responding to the wider consultation, Jenifer Baxter, the head of energy and environment at the Institution of Mechanical Engineers, said while the closure of the coal-fired stations is a positive move, moving to gas will not be a "silver bullet" for creating a secure, affordable and clean energy system.
Baxter added increasing demand for natural gas will lead to other "difficult" challenges in securing the UK's gas network, which may include a greater proportion of imports and an increased use of shale gas.
By Sam Unsted; [email protected]; @SamUAtAlliance
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
National GridDrax