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Transition funding: can Eastern Europe follow Lithuanian lead?

May 3, 2019 by Joe Mitton

Transition funding: can Eastern Europe follow Lithuanian lead?

by Joe Mitton and Matthew James – May 3, 2019

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The funding plan received cross-party support in the Seimas (Lithuania's parliament hall)

Lithuania is committing itself to renewable energy in a significant way, which could help shift the way other Eastern European countries define their interests in the energy sector. The EU is signalling its strong willingness to support countries that follow Lithuania’s lead, says political analyst Joe Mitton. Crucial decisions on the EU’s Modernisation Fund will be made in the coming months, allocating spending in the ten lower-income EU Member States.

Energy Post’s Matthew James, spoke to the Lithuanian Vice-Minister for Energy, Rytis Kėvelaitis, about his government’s €385 million fund for renewable energy projects, which was cleared by EU competition authorities last week.

Lithuanian Vice-Minister for Energy Rytis Kėvelaitis

The scale and ambition are impressive. Lithuania plans to double its domestically-produced renewable energy output to 38 percent of its energy mix by 2025 and reach 45 percent by 2030. By 2050 it plans to reach 80 percent of energy renewables (100 percent if you exclude the electricity market). A €385 million fund is a significant investment for any country. For Lithuania, with a GDP of under €50 billion and a population of just 2.8 million, it is phenomenal.

New projects which use renewable sources such as solar, wind and hydro will receive grants, in amounts to be determined through competitive auctions. The grants will help bridge the gaps between the market prices for energy and the costs of producing it with renewable sources. While the programme rewards energy production, not research, it will no doubt spur private-sector investment in R&D and could help make Lithuania a leading source of new technologies.

Support for energy independence

Committing almost one percent of the country’s annual GDP to a project needs widespread support. “There is political and societal support for this”, says Vice-Minister Kėvelaitis, noting that the National Energy Independence Strategy was approved with cross-party support in parliament last year.

The concept of “energy independence” clearly carries weight in this country with a long history of resisting domination by foreign powers. In this respect, the move to renewables can be seen as much a foreign policy objective as it is an economic and energy policy objective. Kėvelaitis notes that two-thirds of Lithuanian electricity is imported, a level matched only by Luxembourg in the EU. With the closing of the Ingalina nuclear power plant in 2009, imported electricity spiked up. A government report in 2015 showed that Lithuania had approximately halved its dependence on Russian gas but remained heavily dependent on electricity from other EU nations.

Regional leadership?

Asked if Lithuania plans to take a regional leadership role in the renewables market, Kėvelaitis replies diplomatically that each national situation is different. (Unlike neighbouring Poland, Lithuania has virtually no coal sector, making this transition politically easier for Vilnius). But he does admire the ambition for renewable energy development in Germany and Denmark and says that Lithuania could be an example in Central Europe. He notes that within ten years, his country managed to increase the share of domestic biomass for central heating systems from 30 percent to 70 percent.

The industry body, WindEurope, welcomed the ambitious Lithuanian targets. WindEurope’s Head of Advocacy Viktoriya Kerelska said, “there’s 9 GW of offshore potential in the Baltic Sea that can easily be exploited by 2030. The National Plans process this year gives Lithuania and its neighbours the opportunity to work on a regional scale and pin down concrete offshore deployment targets and measures to exploit their common resource in the Baltic.” She also called for the auction schedule to be incorporated in Lithuania’s National Energy & Climate Plan to give legal certainty for investors.

Wind and solar: costs are falling

WindEurope’s positivity was echoed by Aistis Radavičius, Executive Director of the Lithuanian Wind Power Association, who said, “the Lithuanian Wind Power Association views this as a clear signal for project developers and investors that the Lithuanian wind energy market is stable”. He added that “so far Lithuania focuses on developing onshore wind energy projects and offshore projects are not yet included in the support scheme. There is still a need for explicit research and clear legislation before we can expect offshore wind parks in the Baltic Sea. It might take up to a couple of years to start these developments”.

It would seem that onshore wind projects are best placed to take advantage of this scheme, at least in the short-term. But Vice-Minister Kėvelaitis says that the fund is neutral regarding the types of renewable sources. “Its difficult to forecast [which sources will dominate] but […] the main competition will be between onshore wind and solar”. The Vice-Minister says, “the price of renewables has been significantly reduced in recent years”, adding later that “there may be a subsidy-free energy market in the following decade”.

Thumbs up from the EU

The European Commission is clearly proud of Lithuania’s commitment to renewables, and it ruled that the scheme abides by EU regulations. EU State Aid rules generally prohibit market-distorting subsidies, though in 2014 the Commission clarified the way incentives can be used in the energy market to achieve environmental goals.

This is not the first time the European Commissioner for Competition Margrethe Vesager has ruled in favour of cleaner energy incentives in Europe’s East. Earlier this month a €5 billion Polish scheme to promote high-efficiency cogeneration of electricity was also approved. In January Vesager approved a €36 million Polish subsidy for electric vehicle battery production. (The Commissioner is not always so accomodating for other sectors – for example, she has ordered the UK to recover tax incentives given to foreign tech companies, even as the UK prepares to leave the EU).

Lessons from Vilnius

As noted earlier, Lithuania is free from some of the thorny political issues that nearby countries face with energy transition. Poland, with 60 percent of its energy from coal, and entire communities dependent on coal-mining jobs, has to balance political pragmatism with its EU and international commitments on carbon reductions. The Czech government is in a similar position.

Nevertheless, Lithuania’s special way of understanding of energy security is worth noting by other countries. Greater energy independence has become a whole-of-government goal, indeed a national goal that largely seems to transcend ordinary political debate. The Latvian and Estonian economies are in a good position to complement and support the renewable revolution in Lithuania. Just outside the EU, the idea of investing in renewables seems particularly apt for Ukraine, which worries about its dependence on gas from an antagonistic Russia.

There are also lessons to be drawn from the way the European Commission has supported these policy aims. The Commission is now more joined-up in promoting its environmental aims through all directorates, including the competition authority. When the next set of Commissioners takes office on 1 November this year, Eastern European governments should use the Lithuanian example to lobby aggressively for support for their own clean energy initiatives.

Future EU funding

The €100 billion Horizon Europe fund for research and innovation will be a windfall for developers of clean energy technologies in the next five years. But countries already strong in those technologies, such as Germany, are best placed to win this funding. Eastern European countries may not all be technology leaders, but they can be large-scale convertors to renewable energy.

Spending decisions for the EU’s Modernisation Fund will begin to be made from the middle of this year. The fund, administered under the Emissions Trading Scheme, targets the ten lower-income Member States – all except Greece and Portugal are in the former-Communist East of the continent. Decisions will be made about what kinds of projects will count as “modernisations”. (Some will argue for example that switching from coal to gas is modernising, but that would be a far cry from modernising to renewables). This presents a key opportunity for governments to secure funds for projects that best suit their national energy circumstances and their economic strategies.

Lithuania has shown that under the right conditions, Eastern European countries can make seismic shifts in their energy policies. But strong political will, and a change in the understanding of energy security, will be needed first.

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Filed Under: locked, Renewables Tagged With: Aistis Radavičius, Baltics, DG Competition, EU ETS, European Commission, Lithuania, Margrethe Vesager, Offshore wind, onshore wind, Poland, Rytas Kevelaitis, Solar, state aid, Viktoriya Kerelska, Wind Europe

EU ETS permit price fuelling demand for gas

January 30, 2019 by Gaurav Sharma

EU ETS price contributing to gas demand

by Gaurav Sharma

January 30, 2019

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Whilst the top-level 40% 2030 emissions reduction target looks relatively safe, share from RES is definitely not. Carbon pricing, in its various forms, is working but, frankly, not in a predictable way. A closer inspection of the market-driven EU ETS permit scheme illustrates how and why gas – especially American LNG – is going strong, putting the 32% share of final energy consumption from renewables in doubt.

Whenever European energy industry dialogues touch on market volatility, much of the obsession seems to be on oil and gas prices, reduction in coal usage, security of supply and the fundamental renewable versus conventional power cost implication.

But away from consumer scrutiny, the driving mechanism in an inexorable pan European march to a low carbon future that to some extent links all of the above is equally volatile – the European Union’s carbon permit pricing scheme. The concept has been around since 2005 and is pretty simple to fathom, but its pricing and dynamics are anything but.

As part of the scheme, carbon permits or allowances are traded under the common market’s Emissions Trading System (ETS), which charges commercial carbon emitters (most notably power and manufacturing plants) for every tonne of carbon dioxide they emit above a certain limit.

Simply put, higher carbon prices make it pricier for European utilities and selected manufacturers to burn fossil fuels and provide monetary incentives to shift to lower emissions or cleaner sources of energy generation.

The allowances are distributed via a combination of free allocation and auctioning. While that’s simple enough, trading carbon is anything but as the ETS has often suffered from too many or too few permits with a lack of balance. Things started with a bang and by 2006 prices spiked above €30 per tonne, only to slump to lows of €2-3 in the wake of the global financial crisis, when fears of a surplus of permits became a reality.

Plenty of tussles in Brussels

Most EU policymakers agreed something had to be done. However, problems arose in streamlining the process to begin with and getting member nations to agree on a common framework. Meanwhile, the ETS continued to progress to its next phase (from 2013-2020) adding sectors such as aviation but not materially altering its trading structure.

Furthermore, several markets – including France and Nordic EU members – put complementary carbon taxation policy measures in place alongside the ETS, slapping levies on sectors exempt from it.

Nobody in Brussels was all that keen to drive energy intensive industries to relocate for the sake of onerous climate legislation. So the situation triggered lengthy deliberations in Brussels – not about whether to head to a low carbon future but rather about finding the most optimal way of getting there. The answer, after two years of wrangling, was first offered in November 2017 – the Market Stability Reserve (MSR) mechanism.

The MSR provides a framework to restrict a certain number of permits from market auctions effective 2019 with an aim to address oversupply scenarios. However, the timing of it all has created yet another market muddle.

Carbon pricing makes for pricier carbon

An EU spokesperson says that, courtesy of the ETS, by 2020, emissions from sectors covered by the system will be 21% lower than in 2005 and added: “The scheme and subsequent reforms have proved that putting a price on carbon and trading in it can work.”

Be that as it may, those at the receiving end might be forgiven for not sharing that enthusiasm, especially about the timing. Just as the MSR appeared over the trading horizon, in November 2018 Germany – one of the biggest markets for carbon permits – paused auctions until the first quarter of 2019 as its contract with the European Energy Exchange expired.

In its wake, anecdotal evidence suggests buying increased in early in fourth quarter of 2018 as carbon traders built long positions due to reduced supply from auctions, and higher energy prices as the European winter approached. Sources in London and Frankfurt say around 22 million permits from auctions already logged will have to be sold as German auctions resume.

And let’s not forget, MSR has already put 2019 in a serious deficit. That means prices could average at their current levels of €25 per tonne in 2019, and as high as €30 in 2020, according to projections by investment bank Berenberg.

The ongoing situational price spike, to the highest level on record since the fourth quarter of 2008, is unlikely to be a one-off and Berenberg is not the only forecaster with a bullish stance, not least owing to firm German commitments for a coal switch-off by 2038 or earlier.

“The Germans have no choice but to revert to natural gas so utilities can keep emissions costs in check. Renewables, as events this winter illustrate, won’t be the primary beneficiary” Gaurav Sharma, Energy Post

As early as 2023-24, prices as high as €40 are not inconceivable and the knock-on effect on already high German baseload power prices remains to be seen. But when wholesale energy prices rise after feeling the effects of higher carbon, utilities – not just in Germany but across Europe – will have to pass on some of the cost to consumers through higher retail energy prices and raise capital expenditure on alternative energy.

The Americans are coming, the Americans are coming

Renewable energy is supposed to be the beneficiary of higher carbon prices, but another fossil fuel is the medium-term beneficiary as Germany, Italy and Spain attempt what the UK is doing with a degree of success – swapping coal with natural gas as a low carbon bridging fuel.

And as things stand at the time of writing, the Europeans can’t get enough of it and are scrambling well beyond Russia in their quest for volumes. According to Refinitiv Eikon data (see graph), European utility companies have stepped up their efforts to procure more US natural gas as carbon prices bite.

US LNG shipments to Europe totalled 3.23 million tonnes, or 48 cargoes, from October to end-January, compared to 0.7 million tonnes, or nine cargoes, over the corresponding period a year ago, the data analysis firm says.

That makes the US currently second only to Qatar when it comes to supplying LNG to Europe, more than European imports via Russia’s Yamal LNG project. While Gazprom still exports on average 145 million tonnes of pipelined Russian gas a year to Europe, which is four times the current capacity of all onstream US LNG export terminals, the Americans are quietly cheering ETS and MSR.

That’s because the currently high Dutch benchmark gas prices in the $7-8/MMBtu range compete favourably with Asian spot prices for LNG which have dropped to the $8-9/MmBtu range. More expensive carbon pricing and the winter has driven prices higher in Europe, cutting the conventional Asian premium. In absence of the premium, it is cheaper for American exporters to ship to Europe and make money, at least this winter.

Not only that, UK’s Centrica, Spain’s Naturgy, Iberdrola and Endesa, France’s EDF and Total, and Italy’s Eni have all inked contracts with US LNG exporters with cargo deliveries speared throughout the year. Although most attribute it to “competitive LNG pricing”, high carbon costs remain a driver.

Floored by Alphandéry

Nonetheless, all US exporters do is provide a mitigation mechanism for carbon pricing exposure, while the market remains far from perfect. That has led some, including Edmond Alphandéry, former French economy minister and founder of the Euro 50 Group, to demand a continent-wide carbon price floor.

He has been scathing about the ongoing carbon price volatility, describing it as “bad for business” and has called on the European Commission to set a carbon price floor around €20. However, an EU spokesperson dismissed the idea saying it was not the commission’s job but that of the market. “We regulate the volumes in consumer interest, and not the price of emissions.”

In that respect, there should be some sympathy for the policymakers. Alphandéry’s proposed floor is a political hot potato, and not exactly low in any sense of the word. Taxing carbon emissions at EU-level would open a whole new can of worms for Brussels, which has delegated it to national governments.

What’s more, with European elections around the corner, while few would admit it, there is no appetite for providing populists with another reason to fan anti-EU sentiment. However, high prices do provide an incentive to lower emissions and Alphandéry’s stance remains a popular one among policymakers.

The Intergovernemental Panel on Climate Change (IPCC) has often called for polluters to pay more and for the proceeds so obtained to be streamed into industry innovation. France’s EDF and Germany’s E.ON have also called for a more detailed examination of carbon pricing, and have proposed visiting it at regional level, notching things up a level from the current national frameworks.

How this will play out remains unpredictable. MSR will inflict pain on utilities and manufacturers, while US LNG exporters and other natural gas providers will provide a short-term balm. As for the way forward – there’s guaranteed to be a lot of political hot air about but at least it will be carbon neutral.

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Filed Under: 2030 emissions target, locked Tagged With: climate targets, EU ETS, LNG, Renewables

Germany: headed for an amazing energy year

November 13, 2018 by Karel Beckman

ENERGY WATCH #1 - November 13, 2018

Germany: headed for an amazing energy year

by Karel Beckman

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Lignite mine on edge of Hambach Forest

Germany is headed for a rather amazing energy year. According to energy market research group AG Energiebilanzen (AGEB), the country will use more than 5% less energy this year compared to last year! This is based on data over the first nine months of 2018.

The reasons for this spectacular decline, according to AGEB: higher energy prices, warmer weather, and energy efficiency. The reason is not to be found in lower economic production or a decline in population, AGEB notes.

Primary energy use in Germany has been declining since 2006 and is the lowest in over 20 years.

More remarkable findings: oil, gas and coal use all declined, the production of renewable energy and nuclear power (!) grew. As a result, AGEB expects CO2 emissions to decline by no less than 7%.

However, energy analysts said the data did not indicate that Germany was solidly on track for further emission reductions in the coming years. They warned that the drop was largely caused by one-off effects, reported Clean Energy Wire. “I would warn against calling this a trend”, said Hans-Joachim Ziesing, a member of the federal government’s independent Energiewende monitoring commission.

Hans König from Aurora Energy Research said emissions could even rise next year if energy demand and the weather returned to average levels.

*

In other news: according to new figures from utility association BDEW, renewables produced 38% of the power used in Germany in the first nine months, an increase of three percentage points.

GlobalData, a leading analyst company, expects that non-hydro renewables will almost entirely make up for the lost production from nuclear power when the last nuclear plant closes in Germany in 2022.

“Non-hydro renewable power capacity is expected to continue growing to establish itself as the dominant source of energy by 2030, when it is expected to account for 71.9% of total installed capacity,” said Chiradeep Chatterjee, Power Analyst at GlobalData, on CleanTechnica.

Looking forward, “GlobalData sees Germany focusing on expanding its offshore wind and geothermal power sectors, which are expected to increase at a rate of 8.7% and 9.9% respectively. Conversely, thermal capacity is expected to decline from its current levels of 38.4% to only 23.2% by 2030, due primarily to a reduction in coal-fired capacity.”

Specifically, according to GlobalData, the following table outlines the company’s forecasts for onshore wind, offshore wind, solar PV, and solar thermal (CSP) through to 2030:

“The share of coal power, which was 22.1% in 2017 in the total capacity mix, is expected to decline to 9.3% in 2030,” added Chatterjee. “The gap is expected to be filled up only partially by gas-based capacity which explains the net decline in the share of thermal power.”

*

All this does not necessarily mean that energy prices will go down. The German website Strom Report tracks consumer electricity prices throughout the country.

Recently it reported that although taxes and duties are expected to decline next year, prices will probably nevertheless go up.

The German renewable energy levy (EEG), the main financing instrument of the Energiewende, which makes up 23% of all taxes and duties, will be adjusted downwards by 0.39 cents to 6.404 cents per kWh in 2019. The CHP (combined heat and power) levy will go down slightly to 0.28 cts per kWh. However, the Offshore Network levy will go up from 0.037 cts to 0.416 cts per kWh. Total levies will be 7.411 cts per kWh, 1.9% lower than in 2018.

Network tariffs vary by state by will go up on average by 2%, notes Strom-Report.

Wholesale prices for electricity have risen sharply, by 54%, in the first nine months, to 5.5 cts per kWh. This is the highest in five years. The main reasons are higher prices of gas and coal and higher carbon prices in the EU ETS. Strom-Report does not see any indications that this trend will reverse itself in the coming period.

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Filed Under: Energy Watch, locked Tagged With: climate change, coal power, electricity market, Energy efficiency, energy transition, EU energy policy, EU ETS, natural gas, Nuclear power, Renewables, solar power, wind power

How to get the GET right (please give us a carbon tax and skip EU and UN boondoggles)

October 23, 2018 by Karel Beckman

ENERGY WATCH #1 - October 23, 2018

How to get the GET right (please give us a carbon tax and skip EU and UN boondoggles)

by Karel Beckman

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"Ending on a light note"

What is the timeframe for the Global Energy Transition (GET)?

According to a report from global consultancy Wood Mackenzie, “Thinking global energy transitions: The what, if, how and when”,  the “sustainability tipping point – when the world shifts from the age of oil and gas to the age of renewables – will arrive by 2035, less than 18 years away.”

The report notes “the emergence of two drivers underpinning the pace of the global energy transition: renewables and the use of electric-based technologies in transportation. By 2035, the convergence of the two will usher in the age of renewables. ‘Sustainability friendly’ technologies – such as autonomous driving and the wider application of advanced grid-edge and machine learning applications – will effectively become the norm.”

You may think – so what, here is another report predicting a speedy energy transition. However, what is significant about this report is the source: Wood Mackenzie has for decades been known as perhaps the most prestigious oil industry consultancy in the world. You can say that when Wood Mackenzie speaks, the oil and gas industry listens.

And they have only fairly recently decided to start studying alternative energies – in effect, when they took over Greentech Media and Make two years ago. A month ago, in late September, they combined their “clean power research” into one unit called Wood Mackenzie Power & Renewables, which now employs 115 solar, energy storage, wind, power market and grid experts spread across 15 countries. The company says it has invested strongly in “integrating datasets, technology platforms and teams.”

The conclusions Wood Mackenzie now draws from its research must be quite alarming to its clients in the oil sector (and they undoubtedly include all major oil companies). Although it notes that lots of things could either speed up the energy transition (e.g. a breakthrough in battery technologies or more policy-led curbs on the internal combustion engine) or slow it down (e.g. as a result of affordability or reliability issues), nevertheless “the global energy transition (GET) is happening, and the implications for commodity markets are profound. We expect oil demand to peak by 2036, and for EVs to displace around 6 million b/d of oil demand by 2040. The decline will likely accelerate thereafter with the pace of change heightened post-singularity.”

According to the report, the “point of singularity” – when the GET is over and a new era in energy begins – will be reached when the renewables revolution and the EV revolution meet:

Although solar and wind currently account for only 7% of the global power market, “the breakthrough success of these technologies is better revealed by looking locally”, notes the report. “Solar and wind (shown as green circles in the chart) already provide 20% to 50% of generation in many complex regional power systems, some quite large. The state of South Australia, ERCOT (Texas, US), CAISO (California, US), the Iberian Peninsula power grid (Spain and Portugal), and the German grids are leaders. Other power

systems such as Elia (Belgium), SPP (across 13 central US states), TenneT (Netherlands), and WECC (Western US) are in the 15% to 20% range.”

“Electric vehicles, by contrast, have captured just 1% of the total car market by stock”, Wood Mackenzie observes. “Yet EVs are beginning to exhibit similar trends to those seen in renewables markets a few years back (blue circles in the chart). Norway, supported by monumental investment initiatives, is approaching double-digit market share for electric vehicles (stock), with upwards of 35% of annual new

car sales electric. Other markets will surely follow Norway’s lead. With rapid technology growth, supportive policy frameworks and large numbers of new models expected to enter the market within the next few years, electric vehicles are preparing for the mainstream.”

According to Wood Mackenzie, “These different early trajectories of renewables and EV adoption reflect the natural pace and order of how the GET will unfold. Renewables growth is a necessary precursor to any future transport electrification. Success in the former will inevitably boost the rationale for the latter. The convergence of the two trends is likely to accelerate the progress of the GET. It is at this point, in 2035, that we expect the singularity to occur…. By then, close to 20% of global power needs will be met by solar or wind, enough to displace the equivalent of roughly 100 bcfd of gas demand [this is about 27% of current global gas demand, KB]. Similarly, upwards of 20% of all miles travelled globally by cars, trucks, buses and bikes will use electric motors rather than gasoline or diesel.”

What will happen beyond this point? “After the singularity, adoption rates for renewable generation and electrified transport increase rapidly as they become the default choice across many energy systems around the world. So much so that half of all new power plants constructed globally are either solar or wind, or a hybrid combination with storage. Plus, half of all additional miles travelled by road will use an electric vehicle. The convergence of other nascent technologies embedded within grid-edge applications – autonomous and shared driving, for instance – facilitates this rapid uptick.”

The chart below shows “a visual schematic of renewables and electric vehicles as a percentage of the annual ‘new’ market for power and transport sectors by 2040. Compared with the previous chart, this shows the rate of growth of these technologies rather than total market share. This is how we anticipate the world will look like five years from singularity (based on Wood Mackenzie’s interim integrated H1 2018 long-term outlook). Each bubble represents a country, and the bubble size, the size of the market.”

Needless to say, “The GET is influencing all aspects of the energy industry and related sectors: state and national policy, the corporate value chain and capital markets. The implications for commodity markets are profound. Peak oil demand is acknowledged as a potential reality, even if it is a decade or two away. Oil demand could be 5 to 6 million b/d lower under our base case forecasts by 2040, compared with a scenario where EVs and autonomous driving make no impact at all. Once we reach the point of singularity, demand could fall away at an accelerating rate. Gas, too, will be affected.”

The report warns that “Energy market disruption is a probability, likely inevitable. There will be winners – and no doubt high-profile losers. There will be geopolitical upsets, too.”

Wood Mackenzie does add that, although the GET is unstoppable, “it can only go so fast. Too fast and it may be counter-productive. Power outages, political turmoil, freak accidents, regulatory lags and other unintended consequences are likely.”

***

This last warning from Wood Mackenzie is one that policymakers and climate NGO’s should take to hear. Power outages, political turmoil, freak accidents, regulatory lags and other unintended consequences are likely.

That means: backlash is likely, which could derail the entire GET. This is after all not a simple policy measure. It is a fundamental transformation of the economy.

What is important to realize the GET, is the story that is told about it. The framing. Emma Pinchbeck, executive director of Renewable UK, wrote an interesting opinion article about this in the British newspaper the Telegraph, entitled: Sceptical about climate change? You might still like a green economy.

She writes: “There is a well-known cartoon of a climate summit with a speaker showing a list of benefits including ‘liveable cities, clean air, green jobs, preserved rainforests’ while someone in the audience asks: “What if it’s a big hoax and we create a better world for nothing?”

She adds: “I think about this cartoon a lot, as in the last 10 years we’ve managed to mangle an issue about what we value as a society and turned it into a false dichotomy: ‘Higher energy bills today, for more polar bears tomorrow.’ This framing of how we avoid widespread destruction to habitats and our economy by limiting warming to 1.5C is one that politicians have been maddeningly slow to move on from. And it is a framing that misses out on the economic opportunities and those things that cannot be valued in a spreadsheet.”

In my own country, the Netherlands, I see this happening too, with opposition politicians arguing that climate policy will mean spending hundreds of millions on heat pumps and other expensive alternatives to natural gas and oil with only very small effects on total greenhouse gas emissions.

The fact that Dutch emissions will only have a very small effect on total emissions is true of course, but misleading, since we can hardly expect the rest of the world to move if we as rich countries don’t do so in the first place.

But the part about costs is misleading too. To be sure, politicians and NGO’s should be honest that there will be costs and risks, winners and losers. Climate policy is not a simple win-win story, as it’s sometimes made out to be.

But neither is it a simple story about costs. There will be huge benefits too, as the cartoon shows. Benefits which, I am convinced, can never be caught in statistics or economic analysis. They are as much about value judgements as anything.

***

Who will make the big decisions in the end and how will they be made? Here I feel that some climate advocates are completely missing the mark. Often they will issue calls for some form of centralized decision-making, on the Chinese model, with the idea that a few political leaders should get together and decide how the economy must be structured.

Of course leadership is needed, including bold visions and decisions. But it’s a dangerous illusion to think that a transformation of the economy can be realized top-down.

First, if power is concentrated, it can be used in the wrong way too. Those Chinese leaders can just as well decide to call off their renewables revolution and plunge for coal again if they feel that is more in their interest.

Secondly, the world is just too complex for a few people to know what are the best options. Should we build 500 nuclear power stations or a thousand concentrated solar power plants or a hundred battery gigafactories? Such decisions are best left to “the market” (i.e. individual people and companies).

Personally, I believe the best thing to do is what the new Nobel prize winning economist William Nordhaus has been advocating: put a price on carbon.

How exactly? In an interview in the New York Times, Nordhaus discusses how this could best be done. It should be framed, he says, not as a cost, but as a “financial windfall for taxpayers”.

In other words, carbon should be taxed and the taxes spent so that all citizens benefit. He mentions the EU ETS as an example of how NOT to do it, and British Columbia (Canada) and South Korea as good models.

“We learned with the European Union that once you go beyond the simple, idealized version of carbon prices and into implementation, it’s a very different thing”, says Nordhaus. “One of the things we found out: One of the problems with cap and trade [a system in which governments place a cap on countries’ carbon-dioxide pollution and companies then pay for, and trade, credits that permit them to pollute] is that it is dependent on predicting what future emissions will be. But if those projections are wrong, the system fails.”

“With the E.U., their projected carbon emissions were high, but the actual carbon emissions were low, and the carbon price fell drastically, from $30 to $40 per ton down to single digits. So the price was so low it did not have an effect in lowering emissions. It was flawed design. If the models had predicted too few emissions, and the price had gone to $1,000 per ton. we would have had a different problem.

The carbon tax has different problems, but not this one. The price of carbon is independent of the amount of emissions.”

The best model Nordhaus has encountered so far is British Columbia. “You raise electricity prices by $100 a year, but then the government gives back a dividend that lowers internet prices by $100 year. In real terms, you’re raising the price of carbon goods but lowering the prices of non-carbon-intensive goods. That’s the model of how something like this might work. It would have the right economic effects but politically not be so toxic. The one in British Columbia is not only well designed but has been politically successful.”

***

Note that even ExxonMobil is lobbying for a carbon tax nowadays, although that might not necessarily be a recommendation.

The US oil giant, known for its lobbying efforts against climate change policies, announced recently that it will spend $1 million over two years to lobby for a carbon tax. The company has long favored carbon taxes, but it’s the first time it will put real money behind the idea.

But website Vox reports that there is a catch: in exchange for a tax, Exxon apparently wants immunity from all climate lawsuits in the future.

With its announcement to lobby for a carbon tax, Exxon is backing a broader effort for carbon pricing from an extremely high-powered initiative called the Climate Leadership Council. This Council is backed by major companies such as ExxonMobil, Shell, BP, Total, GM, Unilever, and Pepsico, and has among its founding members such luminaries as Stephen Hawking, Steven Chu, Ben Bernanke, Janet Yellen and Klaus Schwab.

It has a plan consisting of four pillars:

I.    A GRADUALLY INCREASING CARBON FEE

The first pillar of a carbon dividends plan is a gradually rising fee on carbon dioxide emissions, to be implemented at the refinery or the first point where fossil fuels enter the economy, meaning the mine, well or port. Economists are nearly unanimous in their belief that a carbon fee is the most efficient and effective way to reduce carbon emissions. A sensible carbon fee should begin at $40 a ton and increase steadily over time, sending a powerful signal to businesses and consumers, while generating revenue to reward Americans for decreasing their carbon footprint.

II.    CARBON DIVIDENDS FOR ALL AMERICANS

All the proceeds from this carbon fee would be returned to the American people on an equal and monthly basis via dividend checks, direct deposits or contributions to their individual retirement accounts. In the example above of a $40/ton carbon fee, a family of four would receive nearly $2,000 in carbon dividend payments in the first year. This amount would grow over time as the carbon fee rate increases, creating a positive feedback loop: the more the climate is protected, the greater the individual dividend payments to all Americans. The Social Security Administration should administer this program, with eligibility for dividends based on a valid social security number.

III.    BORDER CARBON ADJUSTMENTS

Border adjustments for the carbon content of both imports and exports would protect American competitiveness and punish free-riding by other nations, encouraging them to adopt carbon pricing of their own. Exports to countries without comparable carbon pricing systems would receive rebates for carbon fees paid, while imports from such countries would face fees on the carbon content of their products. Proceeds from such fees would benefit the American people in the form of larger carbon dividends or could be used for transitional assistance for industries or regions hurt by the carbon fee. Other trade remedies could also be used to encourage our trading partners to adopt comparable carbon pricing.

IV.   REGULATORY SIMPLIFICATION

The final pillar is the elimination of regulations that are no longer necessary upon the enactment of a rising carbon fee whose longevity is secured by the popularity of dividends. Many, though not all, of the Obama-era carbon dioxide regulations could be safely phased out, including an outright repeal of the Clean Power Plan. Robust carbon fees would also make possible liability rationalization for emitters. To build and sustain a bipartisan consensus for a regulatory rollback of this magnitude, however, the initial carbon fee rate should be set to significantly exceed the emissions reductions of all Obama-era climate regulations, and the carbon fee should increase from year to year.

The idea is for the plan to be first implemented in the U.S. and then to apply it to other countries.

***

Dare I say that I find this plan much more appealing than such initiatives as the Green Climate Fund or The Global Commission on Adaptation, both UN-backed schemes that seem to be mainly the stuff of high-profile climate conferences with a lot of talk and in the end very little action.

The website Climate Change News, not exactly a hotbed of climate skepticism, has been reporting how the Green Climate Fund, set up under the Paris Agreement, has been bogged down by bureaucratic bickering. The idea is that developed nations will put billions into this fund to help developing countries implement climate policies, but it doesn’t take a Ph.D to figure out that this money will mostly end up in the pockets of government bureaucracies, as Climate Change News shows.

As to the Global Commission on Adaptation, this is led by Ban Ki-Moon, Bill Gates and Kristalina Georgieva, CEO of the World Bank, and consists of 28 commissioners, including two national presidents as well as the mayor of Miami. Somehow I am convinced that a carbon tax will be much more useful than whatever is going to come out of this commission.

What about EU-led and subsidized efforts?

On 17 October, the European Commission announced that it had signed a Memorandum of Understanding with the Bill Gates-led initiative Breakthrough Energy to “establish a Breakthrough Energy Europe (BEE) – a joint investment fund to help innovative European companies develop and bring radically new clean energy technologies to the market.”

“With this initiative, the Commission takes action to continue leading in the fight against climate change and to deliver on the Paris Agreement – giving a strong signal to capital markets and investors that the global transition to a modern and clean economy is here to stay”, the Commission said in a press release.

According to the press release, Breakthrough Energy Europe “links public funding with long-term risk capital so that clean energy research and innovation can be brought to market faster and more efficiently. With a capitalisation of €100 million, the fund will focus on reducing greenhouse gas emissions and promoting energy efficiency in the areas of electricity, transport, agriculture, manufacturing, and buildings. It is a pilot project that can serve as a model for similar initiatives in other thematic areas.”

Breakthrough Energy Europe is expected to be operational in 2019. Half of the equity will come from Breakthrough Energy and the other half from InnovFin – risk-sharing financial instruments funded through Horizon 2020, the EU’s current research and innovation programme.

Forgive me my skepticism: I have been around too long. I am prepared to take a bet with anyone that very little useful will come out of this initiative. A real, biting carbon tax, by contrast, will work miracles.

***

On a final note about what markets can do, guided by prices, compared to what policymakers can NOT do, consider this bit of news from the Hill: Greenhouse gas emissions dropped nearly 3 percent in Trump’s first year!

“Harmful greenhouses gases that largely contribute to climate change decreased during President Trump’s first year in office, according to new Environmental Protection Agency (EPA) report released Wednesday”, notes The Hill. “U.S. emissions dropped by 2.7 percent from 2016 to 2017, continuing a downward trend that’s been apparent since 2007, according to data collected through the agency’s Greenhouse Gas Reporting Program.”

Doesn’t this supremely ironic piece of news say it all?

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Filed Under: Energy Watch, locked Tagged With: Carbon pricing, carbon trading, climate change, Energy storage, energy transition, EU ETS, EVs, financing, natural gas, Oil, Renewables, solar power, sustainable mobility, wind power

Austria’s #mission2030

September 25, 2018 by Express Editor

EXPRESS #2 - September 25, 2018

Austria’s #mission2030

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Austrian chancellor Sebastian Kurz

Under the new EU climate regime, all EU member states have to make national climate and energy plans which they have to submit to the European Commission.

Austria, which currently holds the EU presidency, seems certainly ready for that task. Under the hashtag #mission2030, the cabinet of Sebastian Kurz adopted a new climate and energy strategy earlier this year. The Polish Institute of International Affairs (PISM) recently published a useful analysis of it, noting that elements of the plan “became reference points for the programme of the Austrian Presidency of the EU Council, which began on 1 July. Under the plan, Austria wants to promote low-carbon transport and fully embrace the “Clean energy for all Europeans” package.”

Austria’s climate policy is accompanied by public support and cross-party consensus, notes PISM. 85% of Austrians support the policy of increasing the share of renewable energy sources (RES) in the energy sector and 81% connect them with sustainable economic growth.

Public support for an ambitious climate and renewable energy strategy has always been strong in Austria. Thus, the new government’s strategy “is a continuation of the vision of the former government”, notes PISM. “In 2015, the then chancellor and chairman of the Social Democratic Party of Austria (SPÖ), Werner Faymann, announced that by 2030, 100% of electricity would come from RES [renewable energy sources]. Kurz’s government — which includes the Christian Democratic Austrian People’s Party (ÖVP) and the far-right Austrian Freedom Party (FPÖ) — confirmed these goals in its 2017-2021 programme and indicated the means to achieve them.”

The FPÖ, “which puts less weight than ÖVP on international climate agreements, combines the transformation to a low-carbon regime with the possibility of achieving the country’s energy independence”, notes PISM. In other words, for the right-wing in Austria, the Paris Agreement is not the main driver –it is more interested in national self-sufficiency.

The share of RES in total energy supply (not just electricity) was 33.5% in 2016, the highest in the EU after Sweden, Finland, and Latvia. In Austria, the largest portion of RES is hydropower (36) and biomass (30%).

The Austrian authorities “want domestic electricity demand to come from 100% renewable sources. The total share of RES in the final energy consumption would then be 45-50%. In addition, the government plans to reduce greenhouse gas emissions by 2030 by 36% compared to 2005 in sectors outside the Emissions Trading Scheme (ETS). For those sectors, the government has cited only the overall EU objective of reducing greenhouse gas emissions by 43% compared to 2005. By 2050, Austria plans to end the use of fossil fuels.”

The #mission2030 strategy “is based on three pillars, consistent with the EU’s priorities: security of supply, competitiveness of the economy, and affordable prices of energy. The government decided that Austria should become independent of imports of fossil fuels, thanks to electrification of the economy with RES, including the replacement of natural gas with biomethane and power-to-gas technologies.”

In the short term, the strategy envisages the diversification of sources of supply, increase of gas storage capacity, and expansion of the gas market in Europe writes PISM. “The gas hub in Baumgarten in Lower Austria is to play a key role. After 2020, Austria does not plan to use heating oil for newly constructed buildings.”

The Austrian government is critical of coal-fired power plants in neighbouring countries, and supports a minimum price for CO2 emission allowances. Austria is also consistently against nuclear energy. It sued at the EU Court of Justice against the construction or modernisation of nuclear power plants, including the Hungarian Paks and British Hinkley Point C plants.”

The government wants to transform the transport sector and increase energy efficiency. “Greenhouse gas emission reductions are to be achieved by a larger share of pedestrian and bicycle traffic, public transport, electrification of vehicles, and the switch to gas, especially biomethane, as well as the transfer of passenger and freight traffic to rail (modernisation of the railway network based on the government’s 2025+ strategy from 2011) and rivers.”

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Filed Under: Energy Post Express, locked Tagged With: climate change, energy transition, EU energy policy, EU ETS, nuclear energy, Renewables, sustainable mobility

“The biggest carbon supply squeeze Europe has ever seen” could lead to a gas boom – and crisis in coal mining regions

September 4, 2018 by Karel Beckman

ENERGY WATCH #4 - September 4, 2018

“The biggest carbon supply squeeze Europe has ever seen” could lead to a gas boom – and crisis in coal mining regions

by Karel Beckman

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Miners in Poland protest against planned closure of mines

The Carbon Tracker Initiative – the UK-based think tank which popularized the terms “carbon bubble” and “stranded assets” – reports that “The EU carbon market has been the hottest commodity market in the world over the last 16 months, with the price of European carbon allowances (EUAs) up 310% since May 2017, 120% since the start of the year.”

The price rice has been “driven by the market’s anticipation of the start-up from January 2019 of the Market Stability Reserve (MSR), the centrepiece of the EU-ETS reform agreed last year. With only five months to go before the MSR starts reducing the over-supply of EUAs [carbon allowances] by 24% of the outstanding cumulative surplus each year over 2019-2023, the market is now counting down to the biggest supply squeeze the EU-ETS has ever seen”, writes CTI.

In a new report, called Carbon Countdown, CTI tries “to model the amount of emissions reductions that can occur from fuel switching and energy-efficiency savings over 2019-23 if EUA prices rise to levels that flip the merit order and enable gas to run ahead of coal across the EU.”

“The logic of our argument”, writes CTI, “is that the supply squeeze caused by the MSR over 2019-23 will create a cumulative deficit for the power and aviation sectors over these five years of ~ 1.4bn tonnes, and that in order to clear the market over this period power generators will have to reduce emissions via switching from coal to gas.”

The report concludes “that in order to achieve the level of fuel-switching required to clear the market over 2019-23 it will be necessary for combined-cycle gas-turbine plants (CCGTs) with a thermal efficiency rate of 45% and above to displace coal plants with thermal efficiencies of 38% and below. With the fuel-switching price very sensitive to efficiency rates, then other things being equal this implies higher EUA prices than we imputed from our modelling in our previous report, Carbon Clampdown.”

CTI stresses that its projection for 2019-2023 is subject to many uncertainties, relating to:

  • exactly how much abatement might be required over 2019-23
  • the amount and availability of CCGTs with the required efficiency levels
  • the evolution of commodity prices between now and 2021, the EUA price required to plug generators’ and airlines’ forward-hedging gap could be higher or lower than the levels imputed from our modelling

CTI also notes that “it is important to remember that the EU-ETS is ultimately a political construct, and there is therefore always a political dimension to EUA prices. This is not only because of the impact of CO2 prices themselves on EU industry – after all, industry is largely protected from high prices at the moment owing to its accumulated surplus of EUAs and to the fact that it is still receiving the vast amount of its EUAs for free – but also because higher CO2 prices will raise power prices for both industry and households. Accordingly, we also provide a reminder in this report of the measures that could be taken under existing legislation – i.e. before the scheduled review of the MSR in 2021 – to smooth the impact of lower auction volumes when the MSR is at its peak over 2019-21.”

In case you are wondering what exactly the Market Stability Reserve (MSR) is about, the CTI report has a very useful infographic that sums it all up:

***

Whatever the exact amount of coal-to-gas switching that we will see, it is clear that the rising CO2 price spells trouble for the coal sector.

That is not a big surprise. The European Commission’s Joint Research Centre published a report at the end of June, on the EU coal regions, noting that around 160,000 jobs of the half million jobs may be lost in the European coal sector by 2030.

The report contains interesting facts and figures and draws some important conclusions. Here some highlights:

  • Coal today accounts for 16% of gross inland energy consumption in the EU, and 24% of the power generation mix.
  • Six countries still rely on coal to meet at least 20% of their energy demand.
  • The role of coal is, however, decreasing, as part of the ongoing transformation of the energy system. The need to reduce greenhouse gas emissions has led to an increasing share for renewables; and coal power generation is actively discouraged with stringent post-2020 emission requirements, high CO2 emission allowance prices, and likely restrictions on coal eligibility for future capacity remuneration mechanisms.
  • There are currently 207 coal-fired power plants in 21 Member States … with a total capacity of almost 150 GW (15% of total European power generation capacity); and 128 coal mines in 12 Member States and 41 regions with a combined annual production of approximately 500 million tonnes (55% of gross EU consumption).
  • It is estimated that the coal sector currently employs about 237,000 people. The vast majority work in coal mining (185 000). Poland employs about half of the coal workforce, followed by Germany, the Czech Republic, Romania, Bulgaria, Greece and Spain. Twenty regions account for nearly 200,000 direct coal-related jobs. Six of these regions are in Poland (including the region of Silesia with an estimated 82 500 jobs in 2015) and another five in Germany.
  • Throughout the coal value chain the number of indirect jobs dependent on coal activities is up to 215,000, with four regions in Poland, Bulgaria and Czech Republic presenting above 10,000 jobs each. Many of these jobs will become redundant in the next decade, both in direct and indirect coal activities.
  • The vast majority of coal-fired plants in Europe were commissioned more than 30 years ago. These plants are on average 35 years old, with an estimated efficiency of 35%, well below the current state of the art. The first wave of power plant retirements will take place in the period 2020-2025, driven by competition in a carbon-constrained world. This could lead to the loss of 15,000 direct jobs in power plants.
  • The countries hit hardest are likely to be the UK, Germany, Poland, the Czech Republic and Spain. A second decommissioning wave between 2025 and 2030 could cause the loss of another 18,000 jobs, mainly in Germany, Poland, UK, Bulgaria and Romania. By then, approximately two thirds of the current coal-fired power generation capacity will have been retired.
  • Carbon capture and storage (CCS) as a mitigation option to reduce CO2 emissions could facilitate the continuity of operation of retrofitted coal plants in the longer term provided it is economically viable and that legal and regulatory challenges are overcome. Preliminary estimations indicate that roughly 13% of European capacity can be retrofitted with CCS.
  • Coal mines are already closing down due to a lack of competitiveness. In 2014-2017, 27 mines were closed across Germany, Poland, the Czech Republic, Hungary, Romania, Slovakia, Slovenia and the United Kingdom. In 2018, 5 more will close in Germany, Poland Romania and Italy. Further 26 mines are expected to close in Spain. Taking into account criteria, including mine productivity, depth of operation and product quality, it is estimated that coal mines in Romania, Slovakia, Spain, the Czech Republic, Germany, Italy, Poland, Slovenia and the United Kingdom could close in the short to medium term. Overall, it is estimated that about 109 000 mining jobs are exposed to high risk due to a lack of competitiveness.
  • In regions with mining infrastructure the dependency on the coal industry resulted in limited development of other economic sectors – most coal regions have a lower GDP/capita than the national average.
  • The decline in coal-related activities will also affect other sectors of the economy. The European iron and steel sector relies on domestic coking coal – a critical raw material for the European economy – to meet 37% of its needs. Hard coal mines capable of producing this type of coal could continue to operate purely by serving this sector, as long as coking coal prices are sufficient enough to sustain mining operations.

According to the JRC, “the retirement of coal assets should be coupled with a strategically planned and gradual industrial restructuring process, aiming to support redundant coal workers. New employment and business opportunities can be created by building on the industrial heritage of the affected regions and establishing new, competitive industries and services.”

***

What also will not come as a surprise is that not everyone is ready to accept the end of the coal era in Europe.

The Polish electricity industry association PKEE has reacted fairly critically to the JRC report. In a press statement released on 30 August, the PKEE notes that “The assumption of decommissioning ca. 70% of coal-fired power plants’ installed capacity in Poland by 2030 is at the same time completely unrealistic. Its fulfilment would result in a serious threat to energy supply security. This would result in the entire Polish economy having to pay the cost of implementing the decarbonisation policy.”

Overall, the European Commission’s Report “minimises the impact assessment of the negative consequences of the coal sector restructuring that will affect mainly local communities”, says the PKEE. “The Report fails to indicate well-justified proposals for remedial measures and at the same time ignores the consequences such as depopulation of coal regions as a result of migration, loss of human capital or increase in poverty. The Report leads to the conclusion that it will be local communities which will pay the most for meeting obligations, benefits of which will be distributed on a global scale. Therefore a just distribution of the costs of decarbonisation coupled with sources of financing adequate to the scale of the identified challenges should be a necessary precondition of the transformation to a “green” EU economy.”

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Filed Under: Energy Watch, locked Tagged With: carbon bubble, carbon trading, climate change, coal power, electricity market, energy transition, EU energy policy, EU ETS

EU carbon price rises good news for nuclear and renewables

August 21, 2018 by Sonja van Renssen

BRUSSELS INSIDER #1 - August 21, 2018

EU carbon price rises good news for nuclear and renewables

by Sonja van Renssen

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EU carbon prices hit a 10-year high last week, Reuters reported, reaching €18 per ton, three times as much as a year ago.

Analysts expect prices to continue climbing over the next few years, as the EU’s reform measures will be implemented The first of the reforms, the Market Stability Reserve (MSR), comes into effect in 2019. This will take “excess reserves” out of the market.

Traders are already anticipating on the effects of the MSR. “This year is all about buying in anticipation of the start of the MSR,” Energy Aspects analyst Trevor Sikorski said.

Carbon analysts at Thomson Reuters forecast the MSR will remove 390 million tonnes of permits in 2019, cutting the supply available from government auctions by 40 percent, notes Reuters. “Over the years 2019-2023, the analysts forecast a total of almost 1.5 billion permits will be withdrawn.”

“In a recent Reuters survey of eight analysts, the analysts on average expect prices to hit 20.76 euros a tonne by 2020 with the most bullish forecast at 30 euros/tonne.”

In addition to the MSR, the total quantity of carbon permits – known as the Linear Reduction Factor – will be reduced by 2.2 percent each year from 2021 to 2030, up from 1.74 percent a year now. This means there will be fewer permits available to buy, driving up the cost.

The big question is how this will affect the European power mix. According to the Guardian, “the carbon price rises and further anticipated increases would begin to hurt coal operators’ profit margins and influence investment decisions.”

Phil MacDonald, the head of communications at Sandbag, a group that monitors the carbon market, said: “It will already be cutting into coal profits … Renewables get a big win from this and so does nuclear.”

Mark Lewis, the head of research at the Carbon Tracker thinktank, said “although coal plant owners were bearing the brunt of the higher carbon price, they would pass it straight through to consumers. The price of carbon would need to go much higher, to as much as €30 (£27) per tonne, to trigger large-scale switches from coal to gas and renewables, he argued. ‘I don’t think we are at the stage yet where the carbon price will have a major effect’.”

Sandrine Ferrand, a market analyst at Engie Global Markets, said the extra cost would be significant for coal, at about €11-12 extra per megawatt hour. “But the incentive to switch fuels would be limited because gas prices had also increased, alongside oil prices.”

“So far, the carbon price is not high enough to trigger a large switch from coal-fired power generation to less polluting gas-fired power generation,” she said.

“Coal companies are also insulated temporarily as they hedge when buying carbon permits and have benefited from recent increases in wholesale power prices.”

One wild card, notes The Guardian, “is Brexit and whether the UK quits the carbon market if and when it leaves the EU. Chris Piabiatek, a carbon trader at Vertis Environmental Finance, which expects a tonne of carbon to cost just under €19 next year, said a no-deal Brexit that involves the UK crashing out of the carbon market would be ‘super bearish’ for carbon prices.”

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Filed Under: Brussels Insider, locked Tagged With: carbon trading, coal power, electricity market, energy transition, EU energy policy, EU ETS, gas power, Nuclear power, Renewables

Brussels Insider: EU news roundup

August 7, 2018 by Express Editor

BRUSSELS INSIDER #1 - August 7, 2018

Brussels Insider: EU news roundup

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Macron Sanchez and Costa

Note: our EU correspondent Sonja van Renssen is on holiday as long as the Parliament is not in session. We are providing an overview of relevant EU energy news instead.

French President Emmanuel Macron has said increased power links with Spain can be part of a bigger plan for reducing carbon emissions in energy generation, reports Bloomberg.

“The issue of energy interconnections needs to be seen within a broader strategy of sovereignty and the much broader energy transition,” Macron said in Lisbon, where he reiterated that France plans to close coal plants by 2022.

Macron spoke at a joint press conference with Portuguese Prime Minister Antonio Costa and Spanish Premier Pedro Sanchez following a meeting between the three countries about improving energy interconnections between the Iberian Peninsula and the rest of Europe.

“The leaders signed an agreement on European Union grants totaling €578 million for a power line crossing the Bay of Biscay that will double the electricity exchange capacity between France and Spain by 2025.”

Macron also said Spanish and French regulators “will study if it makes sense to have a new natural gas pipeline link between the two countries. There are already two gas pipelines linking those nations. Beyond links to Spain, Macron said the three governments agreed to work on possible links with African countries that could lead to greater interconnections in Europe.”

***

Europe added 4.5 GW of wind energy in the first half of 2018, according to figures released by Wind Europe. This is down on last year (6.1 GW), but “in line with expectations”, says Wind Europe.

There was 3.3 GW of onshore wind, driven by Germany (1.6 GW), France (605 MW) and Denmark (202 MW). The 1.1 GW of offshore wind was mainly in the UK (911 MW), Belgium (175 MW) and Denmark (28 MW). Germany is set to install new offshore wind in the second half of the year.

For the whole of 2018, Wind Europe expects to see 3.3 GW new offshore wind and 10.2 GW of onshore wind. This will mean 13.5 GW of new wind capacity in total for the year.

WindEurope Chief Policy Officer Pierre Tardieu said: “We are on track for a solid year in new wind farm installations but the growth is driven by just a handful of markets. The figures also mask some worrying trends. France has installed a lot of new onshore wind this year but they haven’t issued a single new permit for onshore wind permit in the last eight months because of an administrative issue – which has also resulted in their latest auction being under-subscribed. So there’ll be a drop-off in their new build now, creating uncertainty in the supply chain.”

“In Germany it’s good that projects now need a permit to bid into onshore auctions, but that rule now needs to be made permanent. Also, there’s no clarity yet on when the 4 GW new onshore wind promised in the coalition agreement for 2019-20 is going to be auctioned. And the new Government is slow in confirming the auction volumes beyond that. Like all Member States they now need to give five years’ visibility on future auction timetable and volumes – under the terms of the new Renewables Directive.

“And in offshore wind, Europe is too dependent on the UK, which is striding ahead in current installations and in committing to future volumes. By contrast, the rate of new installations has slowed down in Germany. Other countries also need to beef up and speed up their plans on offshore wind.”

***

Spain’s coal mining companies may have to pay back up to €2bn in government subsidies, after environmental groups alerted the European Commission that they could be using the money to support their ongoing activities, rather than to close down, according to a press release from NGO ClientEarth.

Under the Mine Closure Plan, the majority of Spain’s hard coal mines need to close down by the end of 2018, notes ClientEarth. “The government has granted subsidies in excess of €2.1bn to help them do this. But it seems that the companies may be finding ways to use the funds to suit their own ends. ClientEarth warned of this when the closure plan and associated subsidies were approved in 2016.

The aid is given on a ‘no closure, no cash’ basis: receipt of the money is conditional on a commitment to the mines in question closing by the end of 2018. With reason to believe the aid is being misused, NGOs IIDMA, Ecologistas en Acción and ClientEarth have written to the Commission.”

ClientEarth energy lawyer Sam Bright said: “Spanish coal mining companies are receiving significant sums of public money to help them shut down, on the condition that they close their mines by the end of 2018.

“If they were trying to wriggle out of this agreement – taking the money but ignoring their promise to close down – this would be totally unacceptable and a huge waste of public money. This is why we have alerted the European Commission – it has the power to hold the Spanish authorities to account.”

IIDMA lawyer Carlota Jover said: “If mines are using State aid in a way that is contrary to the law, it undermines the objective of the Mine Closure Plan. It is urgent that Spain and the government of Asturias now work to ensure a just transition for mining regions and workers.

“These unprofitable mines are a sinkhole for aid that should be helping to ensure a just transition. We call on the European Commission to monitor the destination and end use of these subsidies, and ensure they are being used as the law and the Mine Closure Plan lays out.”

***

The European Commission is referring Germany to the Court of Justice of the EU to ensure a correct implementation of the Electricity Directive (Directive 2009/72/EC) and of the Gas Directive (Directive 2009/73/EC). Both directives are part of the Third Energy Package and contain key provisions for the proper functioning of energy markets, the European Commission has announced.

“Germany has not ensured full respect of rules concerning the powers and independence of the national regulatory authority”, notes the Commission. “In particular, the regulator does not enjoy full discretion in the setting of network tariffs and other terms and conditions for access to networks and balancing services, since many elements for setting these tariffs and terms and conditions are to a large extent laid down in detailed regulations adopted by the Federal government.”

“Furthermore, Germany has incorrectly transposed into national law several requirements concerning the independent transmission operator (ITO) unbundling model. For example, the rules on the independence of the staff and the management of the ITO do not fully respect these Directives and the definition of vertically integrated undertaking incorrectly excludes activities outside the EU.

A letter of formal notice was sent to Germany in February 2015, followed by a reasoned opinion in April 2016. Since compliance with EU law is not yet in place, the Commission has to refer these matters to the Court of Justice.”

The Commission is also referring Hungary to the Court of Justice of the EU to ensure a correct implementation of the Third Energy Package’s requirements on network tariffs. “The Third Energy Package requires that tariffs applied by network operators for the use of electricity and gas networks are regulated in order to prevent anti-competitive behaviours, and entrusts national regulatory authorities with the task of setting these tariffs or their methodologies”, writes the Commission. “After it assessed the legislative measures adopted by Hungary in the energy field, the Commission found that Hungarian law excludes certain types of costs from the calculation of network electricity and gas tariffs, in violation of the principle of cost-recovery of tariffs provided for in the Electricity and Gas Regulations.”

“In addition, the Commission found that Hungary adopted amendments to its energy legislation which jeopardise the right of market operators to a full judicial review of the national regulator’s decisions on network tariffs. The Commission addressed to Hungary a letter of formal notice on these issues in February 2015, and two reasoned opinions, respectively in December 2016 and April 2017. Since compliance with EU law is not yet in place, the Commission has decided to refer these matters to the Court of Justice.”

***

Analysts “have raised their forecasts for carbon prices in the EU Emission Trading System (ETS) to 2020 after a bullish start to the year and on expectations that plans to reform the market will significantly curb oversupply”, reports Reuters.

Analysts expect EU Allowances (EUAs) to average 18.59 euros/ton in 2019 and 20.76 euros/ton in 2020, according to the survey of eight analysts by Reuters published on Monday. The forecasts were up 34 percent and 13 percent, respectively, from prices given in April, when the forecasts were for 13.86 euros for 2019 and 18.36 euros for 2020.

Analysts “also for the first time gave forecasts for 2021 which averaged 21.88 euro/ton, almost 30 percent higher than current trading levels for the benchmark European carbon contract.”

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Filed Under: Brussels Insider, locked Tagged With: climate change, coal power, electricity market, energy transition, EU energy policy, EU ETS, financing, Gas pipelines, grid, Infrastructure, networks, wind energy

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