Tim Probert, Power Engineering International
Coal fired power plant is on the margins as an investment option for European electricity generators and a carbon price of above EUR30/tonne would effectively kill it off according to a Deutsche Bank analyst.
The price of a carbon allowance under Phase II of the European Union Emissions Trading Scheme (EU ETS) is currently around EUR15/tonne ($18.30), but in July 2008 the carbon price reached a record high of EUR28.78/tonne. Speaking at the European Nuclear Power conference in London on Wednesday, Mark C Lewis, Deutsche Bank’s managing director of its Global Carbon Markets desk, said a return to record levels would make coal less economic than new build nuclear and gas.
“Coal is basically out of the game as a new build choice with carbon prices above EUR30/tonne, except in specific circumstances,” said Lewis. “And if you believe that there will be an international climate change agreement in the next three to five years then [utilities] will have to be very wary about building new coal fired power stations.”
Assuming a crude oil price of $85/bbl and a coal price of $100/tonne, Lewis said a carbon price of EUR40/tonne would mean the price of electricity would need to hit EUR83/MWh for new coal plant investment to be economic. This compares to EUR68-75/MWh for nuclear, EUR75/MWh for gas and EUR130-160/MWh for offshore wind.
While coal plant remains relatively cheap to build and operate, with a carbon price of EUR40/tonne, the carbon price makes up more than a third of the total costs of generating coal fired electricity. Lewis said: “The carbon market has pushed out coal to the margins as a source of new build. It is out of the equation unless you can find CCS solutions. That is the future for coal.”
Deutsche Bank forecasts the price of EU ETS carbon allowances to rise to around EUR25/tonne by 2012 with the current European Union’s carbon reduction target of 20 per cent by 2020. If the Commission, as it has recently hinted, raises the target to 30 per cent by 2020, it expects the carbon price to rise to EUR30-35/tonne in 2012 and EUR48/tonne by 2020.
Lewis said upward pressure on carbon prices would come from an upswing in electricity demand and from European utilities, which will have to buy more carbon allowances under Phase III of the scheme commencing 2013. The Paris-based analyst said German utility RWE, the biggest emitter in the EU ETS, would have to buy 160m-170m carbon permits a year under the 2013-2020 Phase III scheme, up from 60m-70m in Phase II.
European utilities currently have a net deficit of 500m tonnes of carbon allowances under Phase II, said Lewis. In stark contrast, industrial emitters like steel manufacturers have a large surplus due to the global recession, but are not yet selling. These factors could push up the price of carbon to EUR 20/tonne by the end of 2010, said Lewis.
