Scottish & Southern Energy has agreed a five-year coal supply agreement with UK Coal for its West Yorkshire power station to keep transport costs down. The recent installation of flue gas desulphurisation equipment at the Ferrybridge power station means the UK’s higher-sulphur coal can be used to generate power but SSE opted to take supplies from exclusively English-based UK Coal. Under the agreement with UK Coal, Perth-based SSE will buy 3.5 million tonnes of coal between the end of this year and 2015, enough to meet around 15% of the station’s coal requirements. This will be taken from deep mine and open-cast sites, including the nearby Kellingley Colliery in North Yorkshire. One option for transport between the two locations is canal barge. SSE spokeswoman said the utility opted for the deal with UK Coal, its first contract with the company, rather than suppliers with operations further afield, because of the proximity of its sites. “This is about transportation costs. It’s not a Scottish-English thing. This is a stand-alone kind of deal and it is more about a local supplier.”

SSE does not disclose where it sources its coal from but in recent years typically around half of the UK’s coal has come from Russia, Poland, South Africa and Colombia. The price SSE pays will be linked to global coal prices, but with a ceiling and floor. SSE has agreed a secured loan to UK Coal to help it upgrade several sites. SSE will receive interest on the advance, which is to be repaid by 2014. Ian Marchant, chief executive of SSE, said: “With its higher sulphur content, the UK’s coal has previously been unsuitable for use in SSE’s power generation plants. Our investment in equipment to remove emissions of sulphur means we can now make this substantial commitment to an indigenous source of fuel, thereby supporting jobs in the UK’s mining industry.”

Marchant sought to tackle concerns about the environmental impact of coal-fired power: “We are aiming to reduce the carbon intensity of our power generation by 50% by 2020, but the secur-ity of the UK’s energy supply will continue to require a role for coal for the foreseeable future.”

The deal comes after the announcement in January that ATH Resources had won a three-year, £40m deal to provide ScottishPower with coal from its Muir Dean open-cast mine in Fife.

The contract to supply 800,000 tonnes of coal from ATH’s new Muir Dean mine to the energy firm’s nearby Longannet power station begins this month.

UK Coal said yesterday it made a pre-tax loss of £15.6m in 2008. It made a profit of £69m the year before after posting a smaller than normal gain in its property portfolio.

However, news of the contract win with SSE, as well as new or amended long-term deals with Drax, E.ON and EDF Energy boosted its shares by 8.75p, or 8.2%, to 115p.

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