The carbon price freeze announced in the autumn budget will likely lead to a doubling of coal generation in the early 2020s, according to new analysis by Aurora Energy Research.
The warning comes after chancellor Philip Hammond revealed earlier this week that the carbon price will remain at its current level until all unabated coal generation has ended.
The total carbon price paid by generators consists of the European carbon price created by the EU Emission Trading System (ETS) and a top-up levy called the Carbon Price Support (CPS). Pegging this at £23 per tonne, Aurora forecasts that annual coal output will double from 17TWh in 2017 to an average of 32TWh between 2021 and 2025.
Analysts predicted that coal’s share of overall generation will similarly double from 5 per cent to 10 per cent.
Ahead of the budget, the market intelligence firm cautioned that a total carbon price of £40 per tonne would be needed to completely phase-out unabated coal generation by 2025 without further intervention from government.
Following reforms to the EU ETS to soak up a surplus of allowances, Aurora expects the European carbon price to rise to £11 per tonne by the middle of the next decade.
Analysts said flows across existing interconnectors are likely to fall by up to 15 per cent between now and 2025 due to the decreasing price differential between Britain and continental Europe.
Nevertheless, overall power imports are still predicted to rise due to a doubling of interconnector capacity over the period.
Click here to read Utility Week’s guide the carbon price and the debate over its future.