Carbon Price Support will become irrelevant after 2025: Aurora

The government’s plans to close all unabated coal-fired generation by 2025 means the Carbon Price Support (CPS) will eventually become irrelevant, analysis by Aurora Energy Research has found.

Scrapping the scheme following the phase out could actually lead to an overall reduction in carbon emissions.

“The CPS was designed to reduce emissions by encouraging coal-to-gas switching,” said Aurora. “With coal mandated to close that objective loses relevance.” The mechanism also causes “economic distortions” by creating an “uneven playing field” between combined cycle gas turbines (CCGT) plants in the UK and imported power from Europe.

Getting rid of the CPS after 2025 would cut interconnector imports by 39 per cent, the analysis predicted. As a result, between 2026 and 2035 an additional 21 TWh of power would be produced domestically from CCGT plants every year.

Although some of the extra output would be provided by extending the lives of existing plants or running them at high load factors, its abolition would also lead to a further 1.4GW of CCGT capacity being built over the period.

Another effect of scrapping the scheme would be an overall reduction in carbon emissions, as each year 6TWh of imported coal generated power would be displaced by domestic gas generation. For marginal coal plants on the continent, this could be enough to undermine their profitability and force them to close.

“With entire plants shutting down, the result is a disproportionately large decrease in Europe’s emissions,” said Aurora. However, it noted that this prediction only covered the medium term, and warned that this effect would need to be “weighed against the potential detrimental impact on long-term investment in renewables and in other carbon-free options”.

The CPS was introduced in April 2013 as a top-up to the EU Emissions Trading Scheme (ETS) to ensure generators in Great Britain pay a minimum price for carbon emissions, called the Carbon Price Floor. The CPS takes the form of a levy on the fossil fuels used for generation.

The top up rate has been capped at £18 per tonne until 2019/20 to ensure British businesses remain competitive with their European counterparts. The freeze was introduced in response to an increasing divergence between the carbon price paid by generators in Great Britain and those on the continent. EU ETS allowances are currently trading at just €4.74 (£4.04) per tonne.

France is planning to introduce its own carbon price floor in 2017. If it is set at €30 per tonne, as was initially indicated, interconnector imports to the UK could be expected to fall by a third, an analyst at Thomson Reuters told Utility Week.