UK power companies throw weight behind 2025 carbon floor extension

Some of the UK’s largest utilities, independent generators, and renewable energy suppliers have backed the extension of the UK’s carbon price support (CPS) until at least 2025.

While four companies – utility SSE, independent generators Drax and Calon Energy, and Vitol subsidiary VPI Immingham – backed the extension of the CPS until 2025 in a letter to the Chancellor last September ahead of the autumn statement, more of the UK’s leading power companies, including EDF and Engie, have now thrown their weight behind the extension of the CPS.

This comes as the government prepares to reveal more details over the future of the CPS – a tax paid by fossil-fuelled power generators on top of the EU Emissions Trading System (ETS) price – which is currently frozen until 2020 at £18.00/tonne CO2 equivalent (tCO2e). The rate is scheduled to rise in line with inflation for the year after 2020 but the government has yet to reveal its future trajectory beyond April 2021. An announcement could be made at the next budget statement on 8 March.

The initial letter to the Chancellor last September said the ETS alone would not deliver the necessary carbon price signal for at least another decade.

Since then EDF, which owns and operates just over 9GW of nuclear capacity in the UK and is set to build more, has called for the CPS to be extended until at least 2022 in the spring budget.

“The government should confirm the continued operation of CPS at least four years ahead and continue with this approach in subsequent budgets,” the company said in recent written evidence to a Department for Business, Energy and Industrial Strategy (BEIS) committee inquiry titled Leaving the EU: negotiation priorities for energy and climate change policy.

Confidence

As well as the fact that, as the UK’s largest low-carbon power generator EDF is a clear net earner from the CPS, a spokeswoman added: “The confidence it creates has also helped us extend the lives of our nuclear power stations by an average of more than eight years. We support a predictable and rising carbon price that will continue to support low-carbon investment.”

French-owned Engie, which owns generation assets in the UK, said it supported the extension of the CPS outright until at least 2025.

Two of the UK’s largest renewable electricity suppliers Ecotricity and Good Energy also backed the extension of the CPS. “Removing the carbon floor price is a retrograde step,” Ecotricity founder and owner Dale Vince said.

Good Energy’s director of trading and origination Mark Meyrick said the CPS has an important role to play in energy policy beyond the phasing out of coal-fired generation. “A strong financial incentive offering long-term certainty to investors to continue to reduce the carbon intensity of the electricity system through the 2020s and into the 2030s will be essential for helping to deliver necessary lasting change to an energy system materially free of fossil fuels,” he said.

ETS reform, Brexit uncertainty

However, European-owned utilities Uniper and RWE were more coy about endorsing the CPS and said that focus should be placed on reforming the ETS. Both companies operate a range of coal, gas and renewable assets in the UK.

“Uniper supports carbon pricing and believes that countries in and around Europe need to act in unison to drive the move towards reducing carbon emissions that we all seek,” a spokesman said. “We believe the ETS is the right market-based instrument to deliver this

“Unilateral measures result in a distorted electricity market due to the presence of interconnectors and we would certainly like to see the UK government set a clear direction for the future of the carbon price floor and the UK’s participation in the EU ETS.”

An RWE spokeswoman supported this sentiment. “The carbon price should be set through a strong EU emissions trading scheme which provides a consistent price for carbon across Europe and across a wide range of emitters.”

Environmental lobby group Friends of the Earth said that uncertainty around future price signals from the ETS and the UK’s involvement in it could maintain a requirement for the CPS.

“A reformed EU ETS would remove the need for the CPS, but whether this will happen or whether the UK will remain in the ETS post-Brexit remains uncertain,” policy and research co-ordinator Simon Bullock said.

As a tax matter, the CPS is overseen by the Treasury. A spokesman declined to comment on any future trajectory beyond 2021. henry.evans@icis.com