On 4 February 2014, I was a panellist at the Coaltrans UK Coal conference in London. While the event covered a wide range of issues, this particular panel discussion involved the impact of regulations on the UK coal industry.
Needless to say there was plenty of scope for an entire day’s discussion on regulations and one issue dominated: the carbon floor price. As average prices for the EU emissions allowance are incredibly low, a price anywhere above 10 £/t was deemed to make coal far less competitive against its rival CCGT.
While the carbon tax was also recognised as an effective decarbonising tool, and there remains a distinct lack of carbon capture in the UK, this means that UK coal producers are facing an uncertain future regarding whether UK power stations will be operating far beyond 2016.
The wider issue of the carbon floor price and its impact on wholesale electricity prices encompassed fuel poverty in the UK and the increasing burden on the whole of UK society and business.
What was interesting was why the carbon price has remained so low. Is the EU Emissions Trading Scheme (ETS) a failure, and if so was the carbon floor price necessary? Financial experts at the conference suggested that the low price was a signal of the success of the EU ETS, not failure. Perhaps the EU ETS worked too well under the weight of renewable power that was generated in Europe in recent years. The sheer scale of renewables has squeezed out fossil fuels (even gas power in Germany), leaving a massive overstock of emission allowances thus depressing the price. This all happened at the same time as the economic decline of the region, and so prices have remained low.
Low carbon prices have kept coal competitive for now, which was not an outcome intended for the low carbon fuel mix. Perhaps it was the initial allocation of carbon allowances that is at fault, hence the plan to grandfather and withdraw allowances from the market.
One thing is for sure, unless the allowance price rebounds in Europe, the funding for Drax’s White Rose project will be less than it should be under the NER300 and UK government fund matching scheme. Nevertheless, news from Drax was definitely a highlight from a clean coal perspective, as they have been successfully awarded funding for a FEED study by the UK government, and as a result CCS has never looked so promising. Construction is still a few years away, but in the meantime, Drax has taken advantage of the current subsidy system to convert half its units to biomass and provide a healthy business case for it.
Other issues covered at Coaltrans UK included fascinating insights into UK’s rail network, global market trends, and prospects for UK shale gas which made the whole day a thoroughly informative and diverse event.
For more information on Coaltrans events worldwide, contact: Henry Hely Hutchinson on [email protected] or Sarah Robertson on [email protected]