Horngren’s Cost Accounting A Managerial Emphasis, Canadian 9th edition soluti...
Uk switch of generation from gas to coal
1. Switch of Generation from Gas to Coal
The paper I prepared on “Big Six” profits from Generation refers to work I had shared with OFGEM
on capacity utilisation and the switch from gas to coal. This will have boosted profitability in the
most recent twelve months, a period not yet disclosed, in the dis-aggregated profits which the
industry supplies showing earnings from the generation and the supply side of their business.
Please find below pie charts showing the switch for each of the major players. Given the reduced
input cost of coal in comparison to gas there will have been a significant increase in generation
profits over the period.
British Gas (Centrica) undertook a massive switch in fuel from gas to coal between 2012 and 2013.
Gas fell from 50% of generation in 2012 to only 34% in 2013. Over the same period coal use rose
from 14% to 26%. Both renewables and nuclear saw small increases over the year before.
Carbon Emissions from British Gas generating capacity will have markedly increased over the period
with a commensurate increase in wholesale generation profits for the company’s shareholders.
coal
26%
natural gas
34%
nuclear
28%
renewable
10%
other
2%
British Gas
Fuel Used for Generation 2013
coal
14%
natural gas
50%
nuclear
26%
renewable
8%
other
2%
British Gas
Fuel Used for Generation 2012
coal
52%
natural gas
31%
nuclear
5%
renewable
8%
other
4%
E.On
Fuel Used for Generation 2013
coal
32%
natural gas
52%
nuclear
6%
renewable
5%
other
5%
E.On
Fuel Used for Generation 2012
2. As was the case for British Gas, E.On has undertaken a massive switch from gas to coal between
2012 and 2013. Coal used in generation has increased from 32% of the total in 2012 to 52% in 2013.
At the same time gas plant provision has fallen from 52% to 31% over the course of one year. This
switch will have increased profitability and CO2 emissions to a considerable degree.
EDF Energy relies on Nuclear for most of its generating capacity and this reliance has only
strengthened between 2012 and 2013. Nuclear rose in percentage terms from 69% to 74% as a
source of power generated. EDF was the only company to reduce its coal usage over the period with
a fall from 28% to 17% between 2012 and 2013. The company added renewables capacity and this
rose from 3% of power generated to 8% between 2012 and 2013.
coal
17%
natural gas
0%
nuclear
74%
renewable
8%
other
1%
EDF Energy
Fuel Used for Generation 2013
coal
28%
natural
gas
0%
nuclear
69%
renewable
3%
other
0%
EDF Energy
Fuel Used for Generation 2012
3. RWE/npower reacted more cautiously to changes in the market than the other electricity suppliers.
They were unable or unwilling to switch with the same rapidity from gas to coal between 2012 and
2013. Coal accounted for 29% of generation in 2012 and rose slightly to 34% in 2013. Over the same
period use of natural gas declined from 55% to 51%. There will have been a slight increase in CO2
emissions and a slight increase in profitability as a result.
SSE undertook a very significant switch from gas to coal between 2012 and 2013. This will have
resulted in a massive increase in CO2 emissions and also in generation profitability. This increased
profitability in the wholesale side of their business was not passed on to their customers in the form
of lower bills. Indeed SSE cited higher gas prices necessitating an increase in retail prices for
customers to maintain the profitability of the supply side of their business. Coal accounted for 54%
of generation in 2013 up from 35% of generation in 2012. Over the same period gas usage declined
from 49% of generation to 28%. Citing rising gas prices as a reason for increasing bills in these
circumstances seems particularly disingenuous – but it went unchallenged!
coal
34%
natural gas
51%
nuclear
0%
renewable
14%
other
1%
RWE/npower
Fuel Used for Generation 2013
coal
29%
natural gas
55%
nuclear
2%
renewable
12%
other
2%
RWE/npower
Fuel Used for Generation 2012
coal
54%
natural gas
28%
nuclear
1%
renewable
15%
other
2%
SSE
Fuel Used for Generation 2013
coal
35%
natural gas
49%
nuclear
1%
renewable
14%
other
1%
SSE
Fuel Used for Generation 2012
4. Scottish Power is the last of the “Big Six” suppliers that we’ll look at here. They too show a massive
switch from gas use to coal use in the generation of electricity. Coal use increased from 47% of
generation in 2012 to 59% in 2013. Usage of natural gas declined over the same period from 40% of
generation to 26%. This reduction will have resulted in a massive increase in profit per unit of power
generated and a similar increase in CO2 emissions.
A final set of graphs shows the overall position in each of the two years:
These two graphs show that there was a small but welcome increase in renewable generation
between 2012 and 2013. Nuclear also accounted for a slightly higher total in 2013. These changes
were however small in comparison with the switch from gas to coal. Coal accounted for 29% of
generation in 2012 and 38% in 2013, a massive increase. The position of gas moved in the opposite
direction with a huge decline from 41% of generation in 2012 to 28% of generation in 2013.
In their evidence to the House of Commons Energy and Climate Change Select Committee the “Big
Six” talked about the rising cost of gas as the reason for them having to increase prices for
customers. The switch from gas to coal belies this myth. Input costs of raw materials vary widely
and the unit price of coal used for generation will be around half of that for gas. Gas fired plants are
by their nature more efficient so the input cost of generation won’t have halved but it will have
declined significantly by perhaps 25%. In the circumstances, increases in price to consumers were
without any foundation or justification and should be reversed without delay.
coal
59%
natural gas
26%
nuclear
1%
renewable
13%
other
1%
Scottish Power
Fuel Used for Generation 2013
coal
47%
natural gas
40%
nuclear
0%
renewable
13%
other
0%
Scottish Power
Fuel Used for Generation 2012
coal
38%
natural gas
28%
nuclear
21%
renewable
11%
other
2%
UK Average
Fuel Used for Generation 2013
coal
29%
natural gas
41%
nuclear
19%
renewable
9%
other
2%
UK Average
Fuel Used for Generation 2012