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Corrected: UK carbon support could fast-track coal-fired plant closures - report

18 Mar 2014 10:54:30 | csd

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The below ICIS article, originally published on 7 March 2014, contained an error in the 13th paragraph.

The article indicated that choosing the limited life derogation (LLD) would allow a generator to comply with the industrial emissions directive (IED). In fact the LLD is an alternative to complying with the IED, and it mandates limited running hours or closure by the end of 2023. A corrected story follows.

Only a freeze of the UK’s carbon price support at £9.55/tCO2e rather than the expected £18.08/tCO2e will prevent the country’s coal-fired electricity generation fleet from halving from 2017, according to the authors of a report commissioned by the coal industry out Friday.

The report by NERA Economic Consulting said freezing the carbon price support at the 2014/15 price of £9.55/tCO2e could enable 13GW of coal-fired generation capacity to opt in to the EU’s Industrial Emissions Directive (IED) and stay online through to a period when carbon capture and storage might be commercially viable. The IED is legislation that aims to minimise pollution, by 2016, older-generation plants must opt in and pay for being retrofitted or opt out. Opted-out plants can run for 17,500 hours between 2016 and 2023 before switching off.

Price freeze

It is anticipated by many market participants the carbon price mechanism will be frozen from April 2015 at the 2015/16 level of £18.08/tCO2e. But the authors of the report said only freezing the price support at £9.55/tCO2e can guarantee coal’s future in the UK’s energy mix.

“In the absence of a freeze [of the carbon price support], we anticipate that all GB coal-fired capacity will be shut down by 2023,” said Mauricio Bermudez-Neubauer, associate director at NERA and co-author of the report.

In such circumstances, Bermudez-Neubauer said that capacity payments will play a role in keeping coal-fired capacity on line towards the back end of this period.

“Without capacity payments, or if these were lower than we have assumed, coal plants could come off line even earlier,” he said.

“This means that, in contrast to the sudden drop off of coal capacity in the early 2020s, the aggregate load factor of coal plants gradually declines from 2014 onwards.”

The load factor profiles of individual plants would be different from that average, depending on the operator’s strategy and the plant’s characteristics, Bermudez-Neubauer added.

“If the carbon price support rate is not frozen [at the £9.55/tCO2e rate], coal-fired generation drops off by more than half in 2017/18 and by more than 90 percent in 2021/22, relative to 2014/15 levels,” Daniel Radov, associate director at NERA and report co-author said.

Closures

CoalPro, the confederation of UK coal producers, commissioned the NERA report. Last month, the association produced a budget representation, arguing that the 2014/15 carbon price support value of £9.55t/tCO2e is the maximum price that can be absorbed by coal power operators for the extension of plant operation to 2020 and beyond.

Phil Garner, director general of CoalPro, told ICIS earlier in the week that the argument had been put forward on the basis of a presentation by utility ScottishPower’s regulation director Rupert Steele, at the Coaltrans UK conference last month. He said a rise in the price support above £10.00t/tCO2e would no longer make investment in coal-fired capacity economic, according to Garner.

ScottishPower has yet to respond to ICIS’s requests for detail on its long-term strategy regarding coal-fired assets. Last May, the Big Six supplier confirmed it was embarking on a “major upgrade project” on one of the four 600MW units at the Longannet 2.4GW coal-fired power station.

Recently, GDF said it had committed to entering the 1GW Rugeley coal plant into the government’s Transitional National Plan (TNP) and had not chosen the Limited Life Derogation (LLD) option. Choosing the LLD option is an alternative to complying with the IED, and it mandates limited running hours or closure by the end of 2023 ( see EDEM 18 February 2014 ).

The UK arm of German utility E.ON has also confirmed that it did not enter its 2GW Ratcliffe coal plant into the LLD before last December’s deadline, indicating that it has not changed its commitment to reducing emissions and keeping the plant on line in the long term. Henry Evans



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