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Does This Secret $150 Million Payment Show A Coal Rebound Coming?

Coal shipping

Big week for coal. With prices for Australian thermal jumping above $100 per tonne for the first time since 2012.

That marks a 100% rise in thermal coal since June. A move that’s been driven by declining production from China — as that country shuts down excess capacity. As well as surprisingly strong demand from Asian consumers.

And news in a further afield location this past week shows it’s not just Asia that’s driving consumption. Demand is in fact surging in Western markets — even in places that have vowed to get rid of coal power.

One of those spots is Britain. Where reports showed that plans to scrap coal power entirely have not gone well — and in fact coal plants are seeing a resurgence in interest from power buyers, to help head off blackouts.

The Telegraph reported over the weekend that Britain’s National Grid is actually making a move back to coal power. After lawmakers had attempted to do away with such power sources earlier this year.

The problem is that, with coal out of the mix, Britain’s power supply has been stretched to the limit. As the chart below shows, spare electricity capacity (“margin” — dark red) is at its lowest level in over a decade.

(Click to enlarge)

Related: Oil Won’t Crash Before The OPEC Meeting

But the chart also shows how Britain’s power generators are meeting this challenge. By using “emergency measures” — namely, calling old coal plants back into service.

The Telegraph found that National Grid is actually paying 10 “retired” coal plants to be ready on standby — in case they need to fire up again to prevent a blackout. All told, the utility is forking over 122 million pounds ($150 million) just to have this capacity available, with millions more in payments expected if the plants are actually called into service.

All of which shows that the dream of clean energy is meeting some hard realities in this key market. Which may give lawmakers here and elsewhere a pause when they consider getting rid of coal-fired capacity.

That could mean the much-touted demise of coal is not quite happening yet. Watch for a potential rebound in demand, which may sustain prices higher and longer than many observers are anticipating.

Here’s to calling them back.

By Dave Forest

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