Britain: Where Now? Is there any future for Britain's coal industry?

INSTEAD of closing 31 of Britain's 50 coal mines at short notice, the Government has decided to close 10 after a three-month delay and reconsider the fate of 21 more in the context of a general review of energy needs. If the Government is not to cut the supply of coal, it must increase the demand. To do this it will have to either persuade or bully the electricity generators, who are the only big coal consumers, into helping.

Why is demand so low?

The generators want to cut their contract from 65 million tons a year to 40 million tons and then less. This has happened for several reasons:

Demand for electricity has fallen in the recession. This probably accounts for about 5 million tons.

The generators say British coal is expensive and dirty, and there are plenty of better alternatives.

Nuclear power stations have increased their share of the electricity market from 16 to 22 per cent in the past three years, and at times have touched 35 per cent.

More electricity has been imported by undersea cable from France's nuclear stations. In coal equivalent, the annual amount has gone up from about 5 million to 7 million tons last year.

The generators have increased their imports of coal from about 2 million to 9 million tons a year.

Can coal imports be restricted?

Difficult. Imported coal can undercut the home product at many power stations. National Power says its landed price in the Thames estuary is pounds 1 to pounds 1.20 a gigajoule, compared with the pounds 1.85 the generators are currently paying for British coal, and the pounds 1.50 they are likely to pay from next March.

But because of transport costs, imports are competitive only in power stations close to suitable specialised ports. The generators' problem in the past was their shortage of such ports, but after privatisation they began to plan them. According to Port Development International, three new terminals will be operational by next autumn with combined capacity of 18 million tons.

There are signs that the Government has intervened on British Coal's behalf, wielding its 40 per cent shareholdings in the generators. Grandiose plans to build a 10 million to 12 million ton terminal at Immingham on the Humber were mysteriously shelved in February, possibly because of the threat it posed to the Yorkshire mines. The Government could presumably use similar pressure to persuade the generators to slow their port plans.

Can nuclear's share be cut?

Nuclear Electric is heavily subsidised: this year the so-called nuclear levy paid by consumers will be pounds 1.2bn. But options for cutting output are limited. The Government could cancel the new Sizewell B station, which will give nuclear power another 3 percentage points of market share, but this is so nearly completed that it would involve a massive waste of money.

There is one move it could make that would be politically acceptable and could create demand for another 10 million tons of coal, albeit over several years. This is to stop Nuclear Electric extending the lives of any more Magnox reactors, which were built in the Fifties. Permission has so far been given for one extension, but the rest could be refused, allowing a gradual run- down of the Magnox programme.

As for the French power imports, any cut or cancellation would meet strong resistance from the European Community; the present deal was part of a large and complex trade-off.

What about gas?

This is the medium-term problem. Although 17 gas power stations have been given planning consent, only two are up and running. If they are all built, the total electricity they will generate will be almost 10GW, equivalent to 30 million tons of coal. A consultancy has been asked to examine claims that gas-powered electricity will actually be more expensive than that from coal. If the verdict goes against gas, some of the existing consents could be revoked - construction of eight of the stations has not yet started.

The electricity regulator, Stephen Littlechild, is also looking at the issue and has the power to stop regional electricity companies selling power from gas stations if they are more expensive than coal. In addition, he could stop the generators closing down coal-fired stations. If he backs gas, the Government will then have to decide if it wants to overrule him. That would imply returning to the conventional controlled energy market rejected in the Thatcher years. With a controlled energy policy, it would be easy to argue that it was against the national interest to use up Britain's gas reserves too quickly and leave the country dependent upon Norway and Russia.

How many pits could all these moves save?

Industry experts say that three or four of the 31 pits will be saved by the current review, which will find that about four of the proposed gas stations will not be economic and should therefore not be built. The Magnox stations produce the equivalent of 10 pits' production, but it is unlikely for technical reasons that phasing them out would actually save that many mines. Hoare Govett, the stockbroker, reckons that no more than eight of the 21 pits that have been given a stay of execution will survive.

And in the long run?

Had a decision gone the other way two years ago, the long-term future of coal-burning stations could have been very different. East Midlands Electricity came close to building a new 'clean coal' power station at the Bilsthorpe colliery in Nottinghamshire. It would have been fairly small, environmentally friendly, and efficient. But it was not built and Britain remains without a plant to demonstrate that coal power stations need not be huge and dirty.

Meanwhile, other countries and companies are pushing ahead, pouring money into new ways of improving coal technology. In the United States, for example, the government, and the coal and power industries are spending almost pounds 3bn on experiments in new, clean ways to burn coal. Clean coal power stations could be built in Britain, and would flourish on its high-sulphur coal. The problem is that these stations cannot compete with the gas power stations. They are more than twice as expensive per kilowatt to build.

The drive to switch to clean coal technology must therefore be environmental rather than economic. While it is difficult for anyone to think in such terms right now, in the long run the environment could be a more important factor than cost in power generation. The EC is putting a steady squeeze on the noxious fumes that can be generated, while American limits are already strict. Advanced coal technology stations cannot be built unless the Government makes a positive move to support them (as it did with nuclear stations) - and that depends, as with gas, on how far the Government decides to abandon its old ideals and move towards a controlled energy policy that takes strategic factors into account. We should know early in the new year.

(Photograph omitted)