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Another Utility Exits Coal as Market Slowly Kills Dirtiest Fuel

Drax is Next U.K. Utility to Leave Coal Generation Behind

(Bloomberg) -- Once the U.K.’s biggest power plant churning out 7% of the nation’s electricity and the pollution that came with it, Drax Group Plc will exit coal completely after the market and lawmakers turned against the fuel.

The U.K. utility, which has since diversified into biomass and hydro power, will stop commercial output by March next year at the cost of between 200 and 230 jobs. The move follows other European utilities from Electricite de France SA to RWE AG and SSE Plc which have already shut plants ahead of the government’s 2025 deadline.

U.K. coal plants are closing faster than policy makers expected as a price plunge has made cleaner burning gas more profitable than the fuel that’s still the most widely used because of its popularity in Asia. Britain has cut emissions from 1990 levels faster than any other nation.

“We made the decision after a comprehensive review with key stakeholders and it wasn’t an easy decision, Chief Executive Officer Will Gardiner said in a call with journalists. “It’s a difficult day for some people.”

The fuel has been a U.K. staple since the industrial revolution, but now there are only three coal stations left in the U.K. that haven’t announced exit plans. Since the renewable revolution upended traditional energy economics, coal stations are being used less and less. As of Thursday morning, the fuel accounted for less than 2% of the nation’s power.

U.K. gas prices have fallen 47% since the start of winter, according to ICE Futures Europe. Drax would like to convert one of the coal units to run on gas. The plans are undergoing a judicial review and the company says it won’t enter the new project into the capacity market until the result is known.

Another Utility Exits Coal as Market Slowly Kills Dirtiest Fuel

“The market for coal generation has remained challenging and our two coal units continue to focus on short-term power market opportunities during higher demand periods,” the utility said.

The announcement by Drax is pointing the spotlight on remaining plants: EDF’s West Burton A, Uniper SE’s Ratcliffe and Energeticky a Prumyslovy Holding AS’s Kilroot.

Drax’s plant in Yorkshire has in the past few years converted four of its six units to burn biomass. The coal burners will remain available to meet capacity market obligations until September 2022.

The closing is expected to involve one-off costs of 25 million pounds ($32 million) to 35 million pounds and will result in a reduction in operating costs within the same range. Drax will start a consultation process with employees and trade unions.

Burning coal generated 0.6TWh of power for the utility last year, representing 4% of the group’s output.

Drax also published its full-year earnings statement on Thursday:

  • EBITDA rose 64% to 410 million pounds, in line with estimates. Growth came from the generation business where the value of flexibility services rose 63% to 129 million pounds.
  • EPS came in at 29.9 pence a share, above estimates of 28.4 pence

Its shares gained as much as 5.5% in London, the most since Dec. 13.

To contact the reporter on this story: Rachel Morison in London at rmorison@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Lars Paulsson

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