Consumers to pay ‘dirty’ coal power subsidies for years

Setback for Britain’s carbon emissions targets as ministers choose cheap alternative to gas to meet energy demand

Britain’s dirtiest coal power stations are to be allowed to bid for hundreds of millions of pounds’ worth of subsidies that could allow them to stay open well into the 2020s. Senior ministers are so worried about the possibility that the UK could suffer electricity blackouts over the next few years they have agreed to let Britain’s coal stations bid for “capacity payment” handouts – paid for through people’s energy bills – which could allow them to upgrade their facilities. If successful, the money would help make coal generation economic well into the 2020s – but significantly reduce the UK’s ability to cut its carbon emissions.

The move comes at a time when energy experts are predicting a renewed future for coal, despite the fact that it produces double the amount of CO2 as gas generation. In April 2012 coal took over from gas as Britain’s dominant fuel for electricity for the first time since 2007, driven by a collapse in the international price and a rise

in the cost of gas. In addition, the tax the Government levies on companies emitting carbon currently stands at £16 per ton, rising to £30 a ton in 2020. But analysts warn that at the current prices this would have to rise to more than £40 to make such coal generation uneconomic.

Now the Government intends to allow coal stations to bid for three-year capacity payment contracts that they could use to upgrade existing facilities, which will allow them to continue operating beyond 2020, when EU air pollution and acid rain rules come into effect. Analysis by Greenpeace suggests that suppliers could be in line to expect £240m of subsidies per coal station over the three years – even though the improvement would have no effect on the amount of CO2 the plants emit.

Under the Energy Bill, 12 of Britain’s existing 18 coal power stations that could stay open will be exempt from the Government’s emissions performance standard (EPS) that sets limits on CO2 emissions for all new power generation. While the EPS will stop new coal power stations being built without carbon capture and storage, it will not apply to existing plants. That exemption goes against a pledge made by David Cameron in opposition.

Since then, ministers have become increasingly concerned that if too many existing power station come off-line, Britain could be vulnerable to power shortages. Last month, the electricity regulator Ofgem warned that the risk of future blackouts has trebled from the one in 12 chance it estimated last October to just one in four now.

Lord Teverson, the Liberal Democrat lead on energy policy in the Lords, has tabled an amendment to the Energy Bill that would extend the EPS scheme to existing coal stations.

He told The Independent: “Just a few years ago we all thought that coal was on the way out. But that is no longer the case. The collapse in its price due to America switching from coal to shale gas means power plants that would have been uneconomical may now be given a new lease of life. That is why it is so important that we put new safeguards into the Energy Bill so that, if they remain on the grid, their emissions are controlled by EPS.”

The Labour peer Baroness Worthington, said that allowing existing coal stations to apply for subsidies would discourage operators from building new, cleaner gas plants. “We all want to keep the lights on but we think this should be done by providing incentives for new clean generators, not putting a sticking plaster on existing dirty coal power stations,” she said. “The danger is, if you subsidise these coal power stations, it will make it less likely for companies to come in and build gas power stations with fewer emissions because it will be less economic for them to do so. The Government has said that it expects only two coal power stations to be on the grid by 2025 – but at the moment that looks very unrealistic.”

Joss Garman, deputy political director at Greenpeace, said that while Ed Davey claimed the Energy Bill would drive investment into cleaner power sources, fossil fuels might end up as the prime beneficiary. “This latest subsidy, amounting to hundreds of millions of pounds taken from consumers’ bills, would keep the UK dependent on the dirtiest fuel of all for at least another decade, while simultaneously putting at risk investment in less polluting power systems,” he said.

“Taken together with plans to exempt old coal-burning power plants from carbon pollution limits, Mr Davey risks opening the door to unconstrained emissions for another decade.”

A spokesman from the Department of Energy and Climate Change insisted it would be wrong to prevent coal power stations from competing in the capacity market. “Ruling out all existing coal plant overnight would add unnecessary cost to consumer bills. The future economics of existing coal plants don’t stack up well. The combined effects of their age, EU environmental regulations and the escalating carbon price will outweigh benefits of staying open,” he added.

“Capacity market payments will be a fraction of that suggested and will also lead to a lower wholesale electricity price, so it’s wrong to expect participants to be big winners.

“Our modelling tells us that by 2025 only about 3 per cent of our power is expected to be provided by coal.”