Emissions ruling threatens coal market

OWNERS of the soon-to-be-privatised coal industry face a serious threat from new environmental standards for power stations, due to come into effect in 2001.

Under the new rules, National Power and PowerGen, the electricity generators, must achieve steep cuts in emissions of sulphur dioxide, carbon dioxide and oxides of nitrogen.

The aim is to reduce the level of emissions from all power plants to meet the standards of the most modern generating technology. In the case of old coal-fired plant, scrubbing out the emissions could cost hundreds of millions of pounds.

One industry source said the result could be a fresh 'dash for gas' in electricity generation, reducing the market for power station coal by up to 15 million tonnes.

At present, National Power and PowerGen buy about 30 million tonnes a year from British Coal. Combined cycle gas turbine stations, however, are becoming increasingly attractive because they are much cleaner and cheaper to operate than coal-fired plant.

National Power and PowerGen are in negotiation with Her Majesty's Inspectorate of Pollution over how best to achieve the standards, which result from the 1990 Environmental Protection Act.

The issue will become increasingly relevant as the Government prepares to sell its remaining 40 per cent stake in each of the generators in February, raising about pounds 4bn. It will have to be dealt with in the prospectus for sale.

Both generators are already building and operating gas-fired plants and each is installing sulphur scrubbing equipment at one large power station.

They argue that if, in addition, they run other coal-fired plants at less than full load, the combination of measures will meet HMIP's demands.

If part-loading is unacceptable to HMIP, the solution could be to burn more gas and to close coal- fired plant.

HMIP is considering the generators' proposals but said that it could not predict when it might respond. Its deliberations come at a sensitive time for ministers, who are hoping to sell British Coal's mining assets by the end of this year.

The Government is expected to announce the preferred bidders for British Coal within the next two weeks. The company is to be sold in up to five regional packages of deep and opencast mines and has attracted bids from 18 organisations.

It emerged last week that Taylor Woodrow, the construction group, is bidding for the South Wales mines with Mitsubishi of Japan.

Other bidders include RJB Mining, which was floated on the stock market last year, and Coal Investments, the company set up by Malcolm Edwards, the former commercial director of British Coal.