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UK expected to use coal for power in winter

London — Despite coal being a dirtier fuel in the UK power supply generation mix, it looks set to burn this winter regardless of the UK government's plans to phase out coal-fired plants by 2025, with two more coal power stations in Eggborough and Kilroot set to close down this year.

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Two coal-fired power plants seen closing

Coal-fired output also picks up on spot

Power, gas prices for winter hit multi-year highs

With EU carbon allowance for December and NBP gas contracts hitting a 10-year high on Monday, coal plants have become more competitive with gas-fired plants, with coal-fired profit margins now converging with gas-fired profit margins.

Data from S&P Global Platts shows, the UK Clean Dark Spread for season-ahead, winter 2018, was at GBP5.40/MWh on Monday, not far off th UK's Clean Spark Spread for winter 2018 at GBP5.43/MWh. The CDS for Winter-2018 rose by GBP0.70/MWh hitting two-year high.

The CDS is the profitability of power produced at a 35%-efficient coal-fired power plant, after taking into account the cost of coal and emissions, while the CSS is the gross margin of power produced at a 50%-efficient gas-fired power plant after accounting for the cost of gas, Carbon Price Support, and emissions.

The CDS for quarter-ahead, Q4 2018 contract hit the fresh highs of 2018 at GBP4.74/MWh on Monday, while CSS counterpart was at GBP5.76/MWh.

The UK power Winter 2018 baseload rose GBP2.60/MWh to GBP76.20/MWh, reaching a fresh 10-year high. Likewise, fourth-quarter baseload rose GBP2.40/MWh to GBP75.60/MWh.

The NBP gas season-ahead contract, Winter-2018, was at 81.75 pence/therm on Monday also reaching new 10-year high, and quarter-ahead was at 80.475 p/th again a fresh decade high.

The gains in the NBP gas on Monday reversed slightly on Tuesday with Winter 2018 at 79.35 p/th.

The EU carbon allowance for December hit highs of Eur25.79/mt on Monday, while it was slightly lower at Eur24.44/mt on Tuesday morning.

On Tuesday, K coal-fired output was 2.6 GW or 8.5% of the total generation mix, compared with gas-fired output at 9 GW or 27.2% of total supply, data from National Grid shows.

--Shubhlakshmi Shukla, shubhlakshmi.shukla@spglobal.com

--Edited by Jonathan Dart, jonathan.dart@spglobal.com