UK could end coal power generation by 2025 as part of 'new direction' for energy policy

Out-Law News | 19 Nov 2015 | 11:43 am | 2 min. read

All UK coal-fired power stations could be closed by 2025 and their use restricted by 2023, the government has announced.

It will consult on how to do so "early next year", according to energy secretary Amber Rudd.

Rudd said that the decision was part of a "new direction" for UK energy policy, based around "secure, affordable and clean energy supplies that hardworking families and businesses can rely on now and in the future".

However, the plans will only proceed if the government is "confident" that it can replace coal-fired power stations with new gas plants within this timescale, she said.

The announcement comes two weeks ahead of the international climate change conference in Paris, at which a global deal on action to tackle climate change is expected to be agreed.

Rudd said that the government was determined to tackle "a legacy of underinvestment and ageing power stations which we need to replace with alternatives that are reliable, good value for money, and help to reduce our emissions". One way it hoped to do this was through "improvements" to the capacity market auction mechanism, which will be used to incentivise the delivery of backup generating capacity from 2018/19, she said.

The government would also prioritise new nuclear as well as offshore wind, "if, and only if, the government's conditions on cost reduction are met", she said. The government plans to hold three contracts for difference (CfD) auctions before the 2020 general election, the first of these by the end of 2016.

"Investors have a right to clarity on our objectives, and that is what I am providing today," she said. "New nuclear, new gas and, if costs come down, new offshore wind will all help us meet the challenge of decarbonisation."

However, energy law expert Bob Ruddiman of Pinsent Masons, the law firm behind, said that "the jury will still be out" for investors.

"Clearly there is a good understanding of the issues creating the so-called 'energy trilemma', but one isn't left with the sense of a clear vision of how to address them in a sustainable way," he said. "Investors are still feeling sore about sudden and swift policy changes, not just in the recent past but over a number of years, and I'm not sure these developments address that."

"The fundamental disconnect remains between the long-term investment cycle and the four-year political cycle. We need to create a way to implement a long-term policy vision which transcends party politics yet remains in the interests of the British people," he said.

The UK needs around £110 billion worth of investment over the next decade in order to replace its ageing energy infrastructure and match increasing demand, while still meeting international climate change commitments and keeping energy affordable for consumers, according to estimates by the Department of Energy and Climate Change (DECC). Since the general election in May, the Conservative government has consulted on plans to close the existing Renewables Obligation (RO) subsidy mechanism to onshore wind and small-scale solar.

Rudd said that the government was trying to "get the right balance between supporting new technologies and being tough on subsidies to keep bills as low as possible".

"We can only expect bill payers to support low carbon power as long as costs are controlled," she said.

"More importantly, new, clean technologies will only be sustainable at the scale we need if they are cheap enough. When costs come down, as they have in onshore wind and solar, so should support," she said.