Record low prices for natural gas, combined with rising UK carbon price support levy, left thermal coal as being uncompetitive. Less emission-intensive gas power units are also burdened by the carbon price, although to a much lesser degree.
With an installed capacity of 3.9 GW, the giant Drax Power Station can provide electricity for around 13 million homes. The operator has already converted four of six former coal-fired power units to run on biomass wood pellets. A new combined-cycle gas power plant will be built to replace Drax’s two remaining coal units. Approval for this CCGT is still subject to a judicial review.
Coal exit curbs OPEX
Ending coal generation at Drax will reduce operating costs at the plant by between 25 million and 35 million Pounds per year, once the phase-out it complete. It will also lead to layoffs of up to 230 employees at the plant from April 2021.
Posting full-year results on Thursday, Drax said earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 64% to £410 million for the year ended December 31, up from £250 million a year earlier. The rise in profits was attributed to the integration gas-fired and hydro power assets, acquired from Scottish Power.
At the UK government’s latest T3 auction, Drax has secured capacity contracts for 2,562 MW, mainly for gas-fired and hydro power units. These contracts, running from October 2022 to September 2023, are priced at £6.44 per kilowatt and worth some £15 million.
“Ending the use of coal at Drax is a landmark in our continued efforts to transform the business and become a world-leading carbon negative company by 2030,” said Drax CEO Will Gardiner. “Our journey away from coal began some years ago and I’m proud to say we’re going to finish the job well ahead of the government ... deadline.”
Bowing to growing regulatory pressure, several other UK utilities have announced the closure of some of their left-over coal power assets, including SSE’s Fiddlers Ferry unit in Cheshire which is meant to close by March 31.
