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 Keeping Coal in the Portfolio - Clean Coal Policies

When the UK liberalised its power markets from the early 1990’s it was seen as a pioneer in Europe, but, under the new system, generators initially failed to fit clean-up equipment for SOx and NOx, and are now questioning the investment signals for new plant.  A currently depressed EU Emissions Allowance price, along with uncertainties in investment and carbon rules going forward, is failing to incentivise investment in low carbon generation without additional subsidies or market mechanisms.

Concerns continue to mount about the generation mix in 2016, after which a number of older plants will be forced to close by the Large Combustion Plants Directive.  Under the LCPD’s successor – the Industrial Emissions Directive - nearly all remaining coal plants that do not adopt selective catalytic reduction to abate SOx and NOx emissions or switch to biomass will shut down or drastically reduce operation by 2023. While some of the regulatory environment originates in Brussels, it is overlaid with UK-specific  policy such as the Carbon Price Floor and Emissions Performance Standards for CO2.  Even with the most bullish scenarios for new coal plant, the UK will see a major reduction in the quantities of coal burnt, at least in the medium term. And all this is before any considerations of relative prices of coal and competing fuels, mainly gas.

However, the subsidy regime for renewables – in particular for co-firing of biomass – may positively impact on the survival of coal-fired plant and how much coal is burnt, while recent roadblocks to the Government’s nuclear new build plan, arising from a reluctance to invest in next-generation capacity given regulatory and price uncertainty, could give existing coal plant a reprieve.  

And although the picture remains bleak for existing plant, there is a good prospect that the development of viable carbon capture and storage (CCS) projects will allow at least some of the closing coal capacity to be replaced. The Coalition Government, which in 2011 laid out a series of carbon budgets through 2027 designed to meet earlier commitments to an 80%  greenhouse gas emissions cut by 2050, views CCS as a critical option in  achieving its reduction targets and is taking a number of actions to support the advancement of CCS, particularly in its renewal of the  CCS Competition, under which four new technology pilot plant projects across the UK are vying to receive  1 billion in available grant direct funding.

In the long term, there is little doubt that the coal market in the UK will be entirely dependent on the successful deployment of CCS technology. In the mid-term, considerable uncertainty remains as to how the interplay of regulation, macroeconomic factors, climate change policy, and interfuel competition will affect existing and new coal-fired power plant. Energy Edge has the expertise both to track policy developments and model potential outcomes for the coal market. If you would like to discuss further how all this may affect your business, contact Nigel Yaxley at Energy Edge today.



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Clean coal, Emissions allowances, Industrial Emissions Directive
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