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EuropeanElectricity
Figure2: RetirementofSteamUnitsvs.NewFossilFuel
ProjectsAcrossEU
havefacedarollercoasterrideofpricingsimilarto
thatofotherenergycommoditiessuchasoil,coal
and gas. Peaks in the summer of 2008 were
followed by plunging prices early in 2009 as
weakereconomicgrowthunderminesdemandfor
allowances. With the supply of allowances fixed
by policy, there can be only limited supply
responsetohelpsustainprices.Furthermore,with
almost all allocations handed out to participants
in advance and largely fungible between years,
industrialentitieshavebeensellingoffallowances
in part to meet their cash flow needs. The
significant weakening in current carbon prices
Source: PIRA
alsoreflectsexpectationsoflowercoststoachieve
thetargetssetfor2020.
Slovakia and Romania, with 40% and 45% of the countries’ This fact has certainly provided some momentum for coal
fossil fuel capacities. As these units will be retiring no later within the current and future generation mix. Coal units
than 2015, their markets are likely to have a more stringent currentlyinconstructionorinaplanningstagetotalabout20
needtoaddnewcapacity. GWsacrossEurope,withGermanyaccountingformorethan
Fears of shortfalls in power production in some countries 50%ofthetotal.
overthenextdecademay,however,pushtowardarevisionof Itshouldbesaid,however,thatallocationpolicieswillalso
therules.InaprogressreportofEUgovernments’discussions determine carbon’s impact on new build and new capacity.
on the Integrated Pollution Prevention and Control (IPPC) Within the ETS, a drive to shift to 100% auctioning of
directive issued last November, the Council of Ministers said allowancesstarting in Phase III (2013-2020) ran intoawall
thata“largenumberofgovernments”hadaskedtopostpone duringnegotiations,andanumberoflesswealthyandmore
the2016deadlineforplantstocloseuntil2020. coal-oriented eastern European states negotiated for a more
Figure2showsthatunitsoptingoutoftheLCPDareroughly gradualtransitionfromfreeallocations.Thatsaid,newcoal-
equivalenttothepopulationofunitsoperatingformorethan firedprojectshavebeenfacingchallengesbesidescompliance
40years,butunitstotalling120GWshavebeenoperatingfor with tightening environmental limits or carbon regulations.
morethan30years.Adecisionwithregardtotheirretirement ThepermittingofnewcoalfacilitiesacrossEuropeisproving
looms in the next few years. These units may be affected by to be a challenge, with local communities opposing new
stricter LCPD requirements (currently being debated) to be projects, thereby extending already lengthy lead or
implementedafter2015. constructiontime.Biomassco-firinghasbeenemergingasa
cleaner option for new coal, while carbon sequestration
NewCoalFacesSignificantChallenges projectsarestillfarfromcommercialviabilityandcurrently
Regulatory policies, especially long-term carbon policies, requiremassivesubsidisation.
certainly play a critical role in driving investment decisions. Overall,theseconstraintsappearsettolimitcoalasamain
January 2008 saw the unveiling of the EC’s 20/20/20 energy choice for new build, making gas units a preferred option.
policy package, which lays out plans for a 20% reduction in Figure3showsthatmarketshareofgas-firedgenerationwillbe
CO
2
emissions, along with a 20% penetration of renewable gaining dramatically in the years to come, mostly at the
energy and a 20% improvement in energy efficiency by the expenseofsteamcoalunits.However,increasinggasdemand
year2020.Afteralmostayearofintensenegotiations,bythe implies an increasing call on foreign supplies. Disruption of
endof2008theEuropeanParliamenthadapprovedthefinal Russian gas supplies occurred again this year: While lasting
versionoftheproposeddirectives–aremarkableachievement onlyafewdaysandaffectingavailabilityofgaslargelyinthe
given the scope and significance of the proposals and the Ukraine and eastern Europe, it did raise a few eyebrows in
economicinterestsatstake. majorgasconsuming(andpolitical)centresacrossEurope.
In addition to the long-term carbon prices, developments Clearly,astrongdependencyonforeignsourceswillcontinue
withintheEUETSplayacriticalrole.EUAcarbonallowances to make the Continent more exposed to risks of short-term
20 worldPower2009
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