A resurgence in coal generation driven by rising gas prices could lead to the first year-on-year increase in power sector emissions in more than half a decade, a new report has warned.
After dropping to a historic low of just 0.2GW over June and July, average coal output in Great Britain more than doubled during August before shooting up to 2GW in the first week of September.
The last time coal generation was this high was during the cold temperatures brought by the Beast from the East in March.
According to the latest Electric Insights report produced by Imperial College London, the cost of carbon emissions has risen by 45 per cent since the beginning of 2018 due to a major rally in the price of EU Emissions Trading System allowances. They are now trading at around €20 per tonne having started the year at roughly €8 per tonne.
This should make gas more economical to burn as it emits less than half as much carbon dioxide as coal for each unit of electricity generated.
However, wholesale gas prices have soared by more than 40 per cent over the same period as supplies have tightened in the run up to the coming winter. They are now at a 10-year high and 14 per cent above their previous peak in quarterly averages in 2013.
These ballooning gas prices have handed the cost advantage to coal and have also fed through to wholesale power prices which have grown by a third over the past year to £60/MWh. The report said if coal remains cheaper than gas then a six-year trend of declining power sector emissions could be reversed in 2018.
It urged policy-makers to avoid the temptation to reduce the UK-only top-up to the European carbon price – known as the Carbon Price Support (CPS) – cautioning that any “knee-jerk” reaction to try to lower power prices would only have a short-term effect and could lead to a longer-term revival for coal.
The CPS rate is currently frozen at £18 per tonne. The Treasury announced in its 2017 autumn budget that the total carbon price paid by generators in Great Britain – around £22 per tonne at the time – would be maintained at the same level until the planned phaseout of unabated coal generation is completed in 2025.
The new report is a special edition of the quarterly Electric Insights series commissioned by Drax.
Drax Power chief executive Andy Koss, said: “The carbon price has been the driving force behind Britain’s decarbonisation. This analysis shows that even with the carbon price, market conditions can be such that coal power can have a resurgence. The UK is getting closer to removing coal from the power system by 2025, but we’re not there yet.
“Even now, with so much coal already removed from the system, emissions from power generation would rise significantly without a strong carbon price, making it very difficult to deliver the clean growth required to meet our climate targets.”
Coal, gas and carbon prices
Source: Electric Insights, Imperial College London and Drax