UPDATE 1-SSE likely to close three units at UK coal plant

* Fiddler’s Ferry coal plant has been loss-making for 2 yrs

* Power plant employs 213 people

* Power plant gained capacity market contract for 2018/19 (Updates throughout)

LONDON, Feb 3 (Reuters) - British power producer SSE said it would likely close most of the units at its 1,995-megawatt Fiddler’s Ferry coal-fired plant from April 1, despite gaining a government capacity contract designed to incentivise back-up plants to stay online.

SSE said its 45-year old station near Manchester had been loss-making for two years and was expected to continue losing money until 2020.

A surge in renewable energy production and cheap gas prices have effectively priced coal-fired power plants out of the market in Britain.

Three months ago, Britain’s energy minister also announced the permanent closure of all coal-fired power plants by 2025 in a bid to lower carbon emissions from the electricity sector.

SSE said it was consulting staff on the closure of three out of four generation units at Fiddler’s Ferry but that shutdown from April 1 was a likely outcome.

“The plant at the station is aging, its method of generating electricity is being rendered out of date and it has been, and is expected to continue to be, loss-making,” said Paul Smith, managing director of the generation business at SSE, in a statement.

Fiddler’s Ferry power plant, which employs 213 people, won a 2018/19 capacity market contract for three of its units in Britain’s first ever capacity market auction.

These contracts reward successful bidders for keeping power plants on standby so they can be called upon when renewable energy production is low. They are a major pillar of the British government’s electricity market reform.

SSE said it would incur a penalty charge of around 33 million pounds ($48 million) if it breaches the contract by closing the units.

Last month, SSE was unsuccessful in gaining a capacity contract for the power plant for the year 2019/20.

The fourth generation unit at Fiddler’s Ferry is contracted by network operator National Grid to provide market balancing services during the winter of 2016/17.

SSE declined to comment on what will happen to the unit after that contract expires.

$1 = 0.6865 pounds Editing by Mark Potter