Crisis in the Pits: 'Dash for gas' that hastened miners' fate

British Coal's fate is now sealed. The speculation is over and the 31 pits earmarked for closure have been confirmed. Severance packages and regional aid agreed by the Government will be little consolation to 30,000 miners whose jobs will disappear, or to the communities which have grown up around coalmines.

British Coal's demise has been accelerated by the Government's drive to privatise the coal industry, but more so by the recent privatisation of the electricity companies on whose custom British Coal depends to survive.

It was a leaked report by N M Rothschild, the merchant bank advising on the coal sale, that first warned that British Coal might have to shrink to as few as 14 pits to survive. Yesterday's announcement leaves 19 mines. There are fears that may not be the end of the story.

The electricity generators have been forced in the past to buy British Coal under government- imposed contracts which expire early next year. Now, freed from Whitehall shackles, National Power and PowerGen intend to buy more imported coal, which is cheaper and often cleaner than UK coal. More important, however, is the sudden trend to the use of natural gas for power generation.

The 'dash for gas' was hailed by the Government as a way of promoting competition in the electricity generation market. Stations using Combined Cycle Gas Turbine (CCGT) technology can be built more quickly and cheaply than their coal-burning counterparts and run with one-tenth of the staff. They produce less carbon dioxide and virtually no acid emissions. The theory was that they also produced electricity more cheaply than coal-fired stations.

Plans for about 25 CCGT projects with a total of 21,000 megawatts of generating capacity have already been notified to the National Grid Company. This compares with a total generating capacity of 60,000 megawatts in England and Wales.

The National Grid Company says that if all the projects go ahead, the UK will have 60 per cent too much generating capacity within a few years. Both National Power and PowerGen are among those building CCGTs and to cut capacity they will close mainly coal-fired and oil- fired plants. The rush to burn gas for electricity is in spite of a recent sharp rise in gas prices for electricity generation, which is likely to make some of the planned CCGTs more expensive power producers than modern coal-fired plant.

The prices were increased by 30 per cent last year by British Gas because it believed it could not meet the unexpected surge in demand in the mid 1990s and beyond. In spite of that, the Government's advisers assume that within five years, the UK will have at least 11,000 megawatts of electricity from CCGTs. That is the main reason why the market for coal will be squeezed. British Coal fears that the gas burn will be higher still.

Even if more expensive, the electricity from gas-fired plants will be bought by the regional electricity companies, most of which have already signed 15-year contracts for the supplies. These deals mean that the gas stations will squeeze even modern coal- fired plant off the electricity system, irrespective of price. Under their licences, the regional electricity supply companies can pass costs related to electricity generation on to customers.

Dieter Helm, the director of Oxford Economic Research Associates, says that the age of existing coal fired plants and the cost of replacing them makes the decline of the coal industry inevitable. But he also says the surge of gas projects has made the rundown far too fast.

'The dash for gas has brought a lot of capacity on to a market where there was a glut. Both the Government and regulators are protecting the gas plant in the interests of competition. That's the mess,' he said.

Since the regional electricity companies are also partners in the gas projects, it is in their interests to make sure the CCGTs are a success.

As a result of the dash for gas, the balance of demand and supply facing the coal industry was devastated. This year, British Coal is supplying 65 million tonnes to National Power and PowerGen. But ministerial advisers believe that the market for coal for power generation will have shrunk to around 40 million tonnes by 1996-7.

Some of this total will be met by imports, and both National Power and PowerGen have been expanding their import facilities.

The market outside electricity generation is no more than 15 million tonnes for domestic and industrial use. It is largely offset in the 16 million tonnes from British Coal open-cast mines, worked by contractors. There is also the problem of existing UK coal stocks, which overhang the whole market, standing at an estimated 47 million tonnes.

The Government's advisers are also assuming a slight increase in the amount of electricity generated by Nuclear Electric, which is applying to extend the lives of its ageing Magnox reactors as well as building the Sizewell B pressurised water reactor. Nuclear Electric is subsidised by more than pounds 1bn a year. In addition, government advisers assume some use of orimulsion, an oil-based emulsion which environmentalists say is the dirtiest fuel on earth.

Of the 40 million tonnes of coal burnt, the share of British Coal or its privatised successor depends on the coal price and whether new five-year contracts currently under negotiation with the electricity industry are ever signed.

The pit closures announced yesterday were supposed to coincide with a secured coal deal. They do not take into account the implications for coal if the electricity industry refuses to sign.

Under the contracts being negotiated, British Coal will sell to the generators next year at about 150p per gigajoule, decreasing thereafter. This compares with 185p at present.

But foreign coal is still produced far more cheaply thanks to extensive open-cast mining in Australia and elsewhere. Coal imports can be landed at the Thames Estuary for between 100p and 120p, with prices at inland power stations increasing according to transport costs. The five-year deal is intended to give British Coal a breathing space to allow it to bring prices to world levels, but no deal is yet in sight.

Commentary, page 23

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
The Doctor and Clara have their first real heart to heart since he regenerated in 'Deep Breath'
TV
Arts and Entertainment
James Hewitt has firmly denied being Harry’s father
arts + ents
Arts and Entertainment
Jamie Oliver
filmTV chef Jamie Oliver turned down role in The Hobbit
News
The official police photograph of Dustin Diamond taken after he was arrested in Wisconsin
peopleDownfall of the TV star charged with bar stabbing
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Life and Style
tech
Arts and Entertainment
Jeremy Clarkson, left, and Richard Hammond upset the locals in South America
tvReview: Top Gear team flee Patagonia as Christmas special reaches its climax in the style of Butch and Sundance
News
people
Sport
Ashley Barnes of Burnley scores their second goal
footballMan City vs Burnley match report
News
news
Arts and Entertainment
Peter Mayhew as Chewbacca alongside Harrison Ford's Han Solo in 'Star Wars'
film
News
i100
Arts and Entertainment
Man of action: Christian Bale stars in Exodus: Gods and Kings
film
Life and Style
Apple showed no sign of losing its talent for product launches with the new, slightly larger iPhone 6 making headlines
techSecurity breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Arts and Entertainment
Catherine (Sarah Lancashire) in Happy Valley ((C) Red Productions/Ben Blackall)
TV
Arts and Entertainment
Clueless? Locked-door mysteries are the ultimate manifestation of the cerebral detective story
booksAs a new collection of the genre’s best is published, its editor explains the rules of engagement
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Maintenance Assistant

£25000 - £30000 per annum: Recruitment Genius: A Maintenance Assistant is requ...

Recruitment Genius: Business Manager

£32000 - £40000 per annum: Recruitment Genius: A Business Manager is required ...

Recruitment Genius: Operations Manager

£45000 - £55000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Panel & Cabinet Wireman

£20000 per annum: Recruitment Genius: Panel Wireman required for small electro...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?