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U.K. Carbon Lessons

Emissions regulations are reshaping the U.K. and Irish energy markets.

Fortnightly Magazine - November 2007

baseload generation must be built, and more than 5 GW of new coal plants already have been proposed. The U.K. government is investigating clean-coal technologies, and discussing providing subsidies for the pilot carbon capture and storage (CCS) projects at Hatfield Colliery and Peterhead IGCC.

As coal faces rising constraints, other energy sources will become more important in U.K. electricity markets. Gas-fired generation will rise from its current levels (34 percent) to around 45 percent by the end of the study period. New peaking plants likely will be using natural gas rather than gasoil, contributing to increased gas-fired generation.

Also, Global Energy has simulated a high renewables case where enough capacity to meet the renewables targets is assumed to be built (see Figure 3) . Generation from renewables is expected to constitute 7.4 percent of total U.K. generation by 2010 and 14.2 percent by 2020. Renewables includes the categories wind, biomass, co-generation, landfill gas, sewage gas, hydro, and other.

Similarly, in the All Island Electricity Market (Ireland) gas, coal, and renewables will continue to be the main sources of generation. A new coal plant with CCS likely will be built in the Republic of Ireland (RoI) after 2020 to reduce the dependence on gas. Figure 4 exhibits the reference case’s generation forecast for the AIEM.

Forecasts of generation from renewables in the RoI put it at 14.6 percent of total generation in 2010, which is in line with the Irish government’s renewables target. By 2020, the renewables share is 23.7 percent, short of the 30-percent target (see Figure 5) .

Carbon Trading

The GBEM has witnessed substantial activity over the last two years, due mainly to the introduction of the Emission Trading Scheme (ETS) in 2005, volatile natural-gas prices, and increasingly frequent cold snaps and heat waves.

Under the ETS, generation companies now factor the CO 2 allowance cost into generation costs for electricity production, causing a rise in the price of wholesale electricity. Relatively low gas prices and increased coal prices due to high CO 2 costs have reduced the margin between coal and gas prices, making generation from coal and gas very competitive during much of 2005 (see Figure 1) .

The U.K.’s CO 2 emission volumes likely will rise between the years 2015 and 2020 (see Figure 6) . The retiring nuclear fleet in the GBEM, which was carbon free, will be replaced by gas and coal generation emitting higher CO 2 volumes. This effect is magnified because new coal plants, assumed to replace the ones that have retired as a consequence of the LCPD, have flue-gas desulfurization (FGD) equipment and thus acid-gas emissions limits do not limit their running hours.

According to the U.K. NAP for Phase 2, LEPs will be allocated 107.42 metric tons CO 2e per annum. from 2008 to 2012. Given the results of the reference case, LEPs will be short of carbon allowances (see Figure 7) .

Escalating Prices

NBP prices and CO 2 allowance prices have been the two main drivers in Great Britain during the years 2005 and 2006. This is expected