Britain's Coal Industry Sees Hope with New Long-Term Contracts

Strategic Insights -

Senior industry sources believe PowerGen and Eastern, two of Britain's largest generators, are close to signing long-term coal contracts with Richard Budge, head of RJB Mining, which operates most of the country's deep-coal mines. This announcement could boost the image of Peter Mandelson, Secretary of State for Trade and Industry, ahead of the Labour Party's conference in Blackpool. The deal would help prove New Labour's commitment to the coal industry, which faces dire consequences without new contracts - approximately 9,000 jobs at RJB Mining could be lost.

Key Takeaways:

  • PowerGen and Eastern are close to signing long-term coal contracts with RJB Mining, ensuring the future of Britain's coal industry. (According to senior industry sources)
  • The announcement would suit Peter Mandelson perfectly, as he could be hailed as the saviour of the coal industry, proving New Labour has not lost touch with Old Labour.
  • New contracts would prevent the loss of around 9,000 jobs at RJB Mining if they were to fail.
  • The deal includes a secret agreement where Eastern will burn more coal after cutting its "earn-out" payments from PowerGen, which discourages Eastern from burning coal.
  • The "earn-out" payments amount to £40 million annually.
  • A £100m flue gas desulphurisation unit for Eastern's West Burton station will be funded through the project's project Eastern announced last week.
  • PowerGen sold two 2,000 megawatt coal-fired stations to Eastern as part of the agreement.
  • Professor Stephen Littlechild advised PowerGen and National Power to each sell three large power stations or 6,000 megawatts of generating capacity to break the generators' stranglehold on the market.
  • Letting PowerGen sell fewer power stations may have given the generators more clout and higher credibility, which could result in higher electricity prices for consumers.
  • New long-term contracts alone will not ensure coal's future; a change in market structure to reduce the inherent bias against coal is necessary.
  • The forthcoming Energy Review, to be published by Mandelson within two weeks, is set to argue that coal is strategically important and may extend the moratorium on new gas-fired station permits for three years.

Statistics:

  • 9,000 jobs at RJB Mining could be lost without new contracts.
  • Eastern is set to pay £40 million in annual "earn-out" payments to PowerGen, which will be cut as part of the secret deal.
  • The £100m flue gas desulphurisation unit at Western's West Burton station is expected to be operational after the "earn-out" payments are cut.
  • Foreign gas is expected to account for 70% of Britain's market by 2020.
  • The Energy Review aims to extend the moratorium on new gas-fired station permits for three years.
  • It takes two years to build gas-fired stations, ensuring coal a stable market for five years if the moratorium is extended.

Sources:

  • Senior industry sources
  • PowerGen and Eastern
  • RJB Mining
  • Peter Mandelson
  • Professor Stephen Littlechild
  • Energy Review
  • Labour Party conference in Blackpool
  • British coal industry
  • Foreign gas market predictions