UK: British Coal minefield for sale. (2 of 4)

UK: British Coal minefield for sale. (2 of 4) - As these events shuffle forward, the chief matter worrying the pro-coal lobby is Britain's need to preserve large-scale coal reserves - our only remaining large and reliable energy source. For once British

Last Updated: 31 Aug 2010

As these events shuffle forward, the chief matter worrying the pro-coal lobby is Britain's need to preserve large-scale coal reserves - our only remaining large and reliable energy source. For once British Coal shrinks, it cannot be easily reflated. Unfortunately coal tunnels deteriorate quickly and cannot be reopened.

Dr Dieter Helm, an energy expert at New College, Oxford, argues that if this is a concern, the Government should simply pay a privatised British Coal to keep some uncommercial mining capacity open. However, as mines are only kept open by working them, the payments would amount to a subsidy. And despite enormous subsidies elsewhere in Europe, such an idea is anathema to the Conservatives.

British Coal might well shudder at its cold shock treatment, for it is the lowest cost producer in the EC and yet the only one slashing back its reserves so radically. But the Government has already plugged £7 billion into British Coal's recent financial reconstruction, and another £17 billion in the past 10 years in capital investment and social payouts. It now wants British Coal to stand on its own. A major turning point will be achieved this year in fact, when the group shows its first bottom-line profit in 13 years of about £80 million.

The decisions before the Government are, first, just how to privatise British Coal - as one hunk or in pieces? Second, how far to allow it to be cut back in size by market forces. Taking the latter point first, British Coal's Malcolm Edwards estimates that a 35 million tonnes per annum (mtpa) deep-mined industry (compared with 70mtpa now) is the minimum economic size for a coal business, because of the capital costs and geological risks. This 35mtpa ironically coincides with what some Department of Energy officials believe is all that would be left if the generators had a free hand in setting their contract. It is lower, though, than the prediction of the local council backed Coalfield Communities Campaign (CCC), which foresees a 59mtpa privatised British Coal by 1995. Even this size, it says, would mean the closure of another 32 pits, leaving only 36.

The Government has brushed aside such figures as mere speculation. British Coal chairman Neil Clarke is also cautious: "It's very easy to dramatise it. But both sides (the generators and British Coal) know very well, in their quieter moments around the table, the very considerable degree of mutual interdependence that exists. We and the generators are in a long-term business."

At the moment the generators have little to lose by diversifying their sources of fuel. Imported coal prices average £25 a tonne at the dock, compared with the £41 a tonne paid to British Coal. Gas-based generation debatably costs about 2.5p per kilowatt hour, compared with 3.5p for coal, and, critically, is less polluting.

Thus it is that both National Power and PowerGen plan for all their new plant to be gas-fired stations. Many such projects are proposed, including a major station each at Killingholme, Humberside. The independent UK Coal Review expects six plants, totalling 4,000 megawatts, to be operating by 1995. This would knock some 10 million tonnes a year off coal usage. If gas was really pushed by the generators, the magazine predicts that one third of electricity power could be gas fired by 2005. The remaining two thirds would have to be shared by local and imported coal.

The threat from imports is even more fearsome. The only thing stopping National Power and PowerGen from making a large shift to imported coal in the short term is the lack of port capacity to bring it in. The two now import six million tonnes a year, mainly from the United States, Columbia and China. National Power has stated that it wants import facilities for 15 to 20 million tonnes within a few years. One major facility at Immingham, with a 10 million tonne capacity, is soon to be started by Associated British Ports and will open by 1994. Indeed, by several accounts, it should be possible for the generators to import 20 million tonnes a year by 1995.

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