SSE is set to close three of the four units at its Fiddler’s Ferry power station, breaking its capacity contracts for 2018/19 and incurring a £33 million penalty.

The supplier is consulting on its proposal to shut the three units by April 2016. The fourth unit will be unaffected as it has a Supplemental Balancing Reserve contract with National Grid for the winter of 2016/17.

SSE attributed the decision to “continuing challenging economic and environmental conditions for coal”. In her energy ‘reset’ speech in November the energy secretary, Amber Rudd, pledged to completely phase out unabated coal-fired power from the UK generation mix by 2025.

Paul Smith, SSE’s managing director of generation, said: “The reality is the station is ageing, its method of generating electricity is being rendered out of date and it has been and is expected to continue to be loss-making in the years ahead.

“Sustaining for too long loss-making power stations would undermine SSE’s ability to invest in modern generation plant in the UK.”

SSE was unable to secure capacity contracts for any of the units at Fiddler’s Ferry for 2019/20 but did secure contracts for three of them for 2018/19, hence the penalties incurred by early closure of the station.

Smith said: “The fact it makes more sense for SSE to contemplate making a substantial payment in lieu of the capacity agreement relating to Fiddler’s Ferry in 2018/19 demonstrates just how economically challenged Fiddler’s Ferry has become – its losses are unsustainable.”

SSE said it would try to avoid any redundancies for the 213 employees who work at the plant by transferring them to other parts of the business, but said “enhanced terms” would be discussed during the consultation if that wasn’t possible. The firm expects to complete the consultation by March 2016.

Michael Macdonald, a negotiator for the trade union Prospect, said: “This will have a devastating impact on an area. It also exacerbates difficulties in keeping the lights on given the way the energy market is incentivised and the loss of Ferrybridge, Eggborough and Longannet in Scotland.

“This is yet more evidence of the need for a rapid rethink of UK energy policy. Capacity auction results so far have seen large thermal generation lose out. We are losing the jobs and key skills that we will need for future generation.”

Analysts at Citibank said in a note: “SSE’s decision to consult on the closure of Fiddler’s Ferry does not come as a surprise. This announcement is also in line with our broader outlook for the sector, where we see a pickup in the transition towards gas given recent gas price declines. Based on our estimates, this closure would represent the removal of an £26m operating loss in 2016/17, which would add 1% to our operating profit estimate.”

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