Gas plant go-ahead deals fresh blow to coal industry

The British coal industry was dealt another blow yesterday after National Power confirmed it is to build a pounds 450m gas-fired power station on a former coal-fired site in Nottinghamshire. Michael Harrison reports on an industry under siege from rival fuels, environmental demands and rising imports. The 1,500 megawatt station at Staythorpe near Newark will reduce the market for coal by 3.5 million tonnes a year and bring nearer the day when gas is the dominant force in the electricity generating market.

The station, due to come on stream in 2003, will raise National Power's gas-fired portfolio to 4,500 megawatts - just under a third of its present generating capacity.

This year coal and gas will each generate about a third of Britain's electricity needs. But by the turn of the century the share of the market accounted for by gas is projected to reach 50 per cent with coal's share falling to as little as 15 per cent.

News of National Power's decision to press ahead with the Staythorpe plant came as fresh doubts hit plans to build a new generation of environmentally friendly clean coal power stations.

A feasibility study into the building of a 400 megawatt clean coal station at Kellingley in west Yorkshire had been due to appear this autumn. However, the study is not now expected to be ready until next year, amid indications that the cost of the station will be higher than previously forecast.

Britain's leading coal producer, RJB Mining, which is preparing the study in partnership with Texaco and National Power, had put the cost of the station at around pounds 300m. However, an industry source said yesterday: "Those sort of figures are beginning to look far too optimistic."

The go-ahead for the plant is dependent on the Government agreeing to subsidise the clean coal technology, either directly with a capital grant or in the shape of a nuclear-style subsidy paid for through domestic electricity bills.

Lord Ezra, the Liberal Democrat peer, will move an amendment to legislation being debated in the Lords this month to enable clean coal generation to qualify for support.

At present the levy, which raises pounds 266m a year, can only subsidise the nuclear industry and electricity generated from renewable sources such as wind and wave. But when the Fossil Fuel Levy Bill reaches committee stage in the Lords on 16 October, Lord Ezra will call for the levy to be widened.

The deepening uncertainty facing the coal industry comes as RJB attempts to fend off rising imports, protect the open-cast mining industry from a gradual run down and, most immediately, negotiate a fresh set of supply deals with the generators when its long-term contracts run out next April.

RJB, which paid pounds 815m to take over the English coalfields in 1995, is dependent on National Power, PowerGen and Eastern group for 90 per cent of sales.

This year RJB will supply 30 million tonnes and its chief executive, Richard Budge, is confident that the company will be able to secure a mix of contracts at competitive prices that safeguards the future of the coal industry from next year.

However, the generators are sceptical about the size of the market and say privately that RJB may have to close as many as six of its 19 deep mines.

In the first half of this year RJB's sales to generators were down 20 per cent, due to a sharp reduction in coal-fired generation, mild weather and destocking at power stations. Meanwhile, imports shot up from 8.3 million tonnes in 1996 to 6.6 million tonnes in the first six months of 1997.

The prospectus which accompanied RJB's purchase of the English coalfields forecast that sales this year and next would be 34 million tonnes, but analysts are pencilling in sales this year of about 31.5 million tonnes. Mr Budge says, however, that RJB has consistently managed to outstrip its own sales projections.

When Labour came to power it was seen as good news for the coal industry but since then doubts have grown, particularly because of the Government's commitment to targets to cut emissions of carbon dioxide by 20 per cent by 2010.

There is a growing belief that the Energy Minister John Battle will not intervene directly to defend the coal industryagainst the rise of gas- fired capacity - as evidenced by the go-ahead recently for a BP gas-fired station.

Outlook, page 25