Article

UK energy: don't bet the farm on emissions trading

As outlined in its newly-published energy review, the UK government has announced that its policy instrument of choice to encourage new nuclear build is a strong carbon market in Europe. If the European market is unable to deliver this, then additional UK incentives will be introduced to prop up the value of emission credits.

The UK energy review has come out strongly in favor of energy efficiency measures, renewable energy and new nuclear build. However, the targets and incentives laid out for nuclear are noticeably weaker and less substantive than for the other two technology areas.

Instead of a specific mechanism to support nuclear, the review sets out case studies designed to demonstrate its financial viability. Under the base case scenario, where carbon has no value and a gas price of 36.6p/therm is used, the expected cost for nuclear (GBP38/MWh) is greater than that for any thermal power plant. In fact it is not until the price of carbon climbs to E25/tonne that nuclear becomes competitive with CCGT, the most expensive of the thermal plants. A high gas price (53p/therm) would also see nuclear become cheaper than CCGT, however still above the cost of advanced coal power plants.

While the European emissions trading scheme (ETS) currently values a tonne of carbon at E16, the market is not mature and has seen very high levels of volatility since its official opening in January 2005. In its infancy, a tonne traded for around E5, which rose to over E30 in April, fell to E9 and... more [truncated due to possible copyright]  

The UK energy review has come out strongly in favor of energy efficiency measures, renewable energy and new nuclear build. However, the targets and incentives laid out for nuclear are noticeably weaker and less substantive than for the other two technology areas.

Instead of a specific mechanism to support nuclear, the review sets out case studies designed to demonstrate its financial viability. Under the base case scenario, where carbon has no value and a gas price of 36.6p/therm is used, the expected cost for nuclear (GBP38/MWh) is greater than that for any thermal power plant. In fact it is not until the price of carbon climbs to E25/tonne that nuclear becomes competitive with CCGT, the most expensive of the thermal plants. A high gas price (53p/therm) would also see nuclear become cheaper than CCGT, however still above the cost of advanced coal power plants.

While the European emissions trading scheme (ETS) currently values a tonne of carbon at E16, the market is not mature and has seen very high levels of volatility since its official opening in January 2005. In its infancy, a tonne traded for around E5, which rose to over E30 in April, fell to E9 and then rose to its current level. A great deal of this volatility is created by uncertainty about which countries will meet their targets and which countries do not have the political willpower to force through the necessary changes in their energy consumption.

ETS phase I certainly has not delivered a strong price signal. The review also seems to concede that the second phase will not do so either, with the government indeed focusing on lobbying for strengthening of the scheme in phase III from 2012 onwards.

It seems likely that the government will have to move to introduce specific UK measures to backstop the long-term price of carbon in the UK. This will be required sooner rather than later, probably in the life of this parliament, if the commercial sector is to start sinking money into new nuclear plant development.


Source: http://www.energy-business-...

JUL 15 2006
https://www.windaction.org/posts/3520-uk-energy-don-t-bet-the-farm-on-emissions-trading
back to top