RISING energy costs have put coal back on the agenda at International Power (IP), which is using the out-of-favour fuel to make big profits at one of the UK's largest power plants.

The company said that its coal-fired power station at Rugeley, Staffordshire, has been operating at 90pc capacity in the past three months, compared with 65pc for the same period last year.

Philip Cox, IP's chief executive, said: "The economics of coal- fired generation have improved to the point where we can now make a return on it.''

With gas and oil prices soaring, there has been much talk in the power industry about a revival of coal. Mr Cox said that there "was definitely a place for coal in our portfolio for the foreseeable future''.

The increased cost of gas had squeezed margins at some of the company's generating stations but those at Rugeley were at their strongest for years, Mr Cox said.

As recently as a decade ago Rugeley faced closure and four years ago IP substantially wrote-down the value of the operation.

The news comes as IP posted first-quarter profits up 30pc because of sharply increased electricity prices in Europe and a recovery in the company's operations in America.

Pre-tax profit before goodwill and one-time items almost doubled to pounds 161m, from pounds 90m.

Profits in the UK were also boosted by high demand for power between January and March from First Hydro, a water-pump operation that is used to generate electricity quickly when there is a sudden shortfall.

In America, IP returned to the black with profits of pounds 4m, although its Australian operations were not faring as well as this time last year, making pounds 33m in the first quarter compared with pounds 38m.

IP - formed in 2000 by the demerger of National Power - has 37 power stations in 17 countries.

IP shares closed down 9p at 298p.