Coal sales could lose tens of millions for consumers

A huge stockpile of coal bought for emergency use in power stations this winter is due to be resold at a loss of tens of millions of pounds to consumers.

National Grid funded the procurement of hundreds of thousands of tonnes of coal as part of a deal to keep open five coal-fired units this winter. The estimated £368 million cost of the “winter contingency contracts”, which includes an undisclosed sum for the coal purchases, is being recouped via energy bills.

None of the coal has been burnt after warm winter weather helped to ease supply worries. One of the units, at Uniper’s Ratcliffe plant in Nottinghamshire, is staying open for another winter, but the two at Drax in North Yorkshire and another two at EDF’s West Burton A plant in Nottinghamshire are due to close in six weeks’ time.

National Grid said “any unburnt coal will be sold back to the market” and “the money raised by selling off the coal will go to reducing the overall cost of these contracts”.

Energy experts have warned that the sale is likely to be at a “significant loss” as coal prices have roughly halved since the fuel was procured. Fintan Devenney, an energy analyst at EnAppSys, said: “Not only has the coal itself depreciated in value, but should it be sold and transported away from the power stations, there would also be an additional transportation cost.”

EDF’s stockpile is thought to be 130,000 tonnes, worth more than £30 million at the time it was procured, while Drax last year said it intended to procure up to 400,000 tonnes, worth an estimated £100 million. If the full amount was procured and is resold at today’s prices, it implies a loss to consumers of £65 million-plus in total.

Using even more conservative assumptions, Paul Monk, UK power specialist at Catalyst Commodities, said there could have “easily been a $40 million-plus loss” on the market value of the coal and it was “likely to be sold at a significant discount to the current market price”.

He said National Grid should consider whether it may be better value to burn the coal for power.