Analysis: Renewable energy growth pressures carbon price
The growth in renewable energy has been a factor in pushing down the carbon price over the past few years, analysts said to ICIS.
The EU has three targets for 2020 – to raise the proportion of energy consumption produced from renewables to 20%, to reduce emissions by 20% on 1990 totals and improve energy efficiency by 20%.
The European Commission is in favour of a similar multiple target approach for 2030 ( see EDCM 10 October 2013 ), although there is no firm decision yet.
This has caused concern in the electricity sector.
“We’re anxious about there being multiple targets [for 2030]”, Jesse Scott of Eurelectric said to ICIS last month. The electricity lobby group’s environment head cited the possibility of competing instruments as the reason.
If policymakers left it up to the emissions trading system to direct investment in the energy sector, money would be spent on the most economically attractive types of new generation, whether that is renewable sources or fossil fuels. However, EU policymakers have been reluctant to let the market decide completely, as the risk is no renewable investment being made.
Carbon prices have crashed over the past few years. On 19 April 2006, the Year 2006 EUA contract – the benchmark product at the time – hit an all-time high of €30.55/tCO2e. Since then carbon prices have slid and the EuU emissions allowance (EUA) Dec ’13 product was just €4.60/tCO2e on Thursday.
The price plummeted as demand for carbon permits shrank because of the economic downturn of the past few years, but increasing levels of renewable output exacerbated the allowance oversupply, said Georgie Hayden, renewables analyst at UK-headquartered Business Monitor International, on Thursday.
An increasing share of renewables could place pressure on carbon prices, by displacing polluting energy generation sources which the utility sector would otherwise need to buy permits for.
“More renewables has pushed up the price of energy and driven people to improve energy efficiency, which reduces carbon demand,”said David Oliver at energy consultants Inenco.
The power sector emits most of the pollution swept into the EU emissions trading system. In phase II from 2008 to 2012, utilities – including on-site combustion – made up 72% of all verified emissions, according to European Environment Agency data.
Therefore, changes in the sectors’ requirement for allowances can have a big impact on allowance demand under the scheme.
Since 2013, the power sector has been required to purchase all of its emission permits – with the exception of a few countries, mainly in eastern Europe. The industry previously received some free allowances.
In 2011, 10% of energy consumption in the EU was produced from renewables, according to the latest figures from the European Commission. The proportion was lower – just 6% – in 2005, when the EU ETS began.
With a target of 20% of 2020, renewable’s share is expected to grow and this could weigh on the price of carbon.
Renewables accounted for 22% of energy produced within the EU in 2011, according to Eurelectric. This is forecast to rise to 31% in 2020, with growth likely to be driven by the level of subsidies in place. In contrast, fossil-fuel based generators will shrink to 44%, from 51% in 2011.Ben Lee
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