Eurelectric, the main body representing European power generators, has issues a warning on forthcoming legislation being proposed by the European Commission aimed at reducing carbon emissions in the power sector.

The warning was delivered after Eurelectric commissioned an independent study by Compass-Lexecon, the world’s leading consultancy on electricity markets.
The association’s Secretary-General, Kristian Ruby, says the application of the 550g emissions performance standard being proposed could backfire, as more utilities would choose to build gas-fired power plants to adapt to the carbon limit, making for ‘significant unintended economic and systemic consequences for the clean energy transition.’

“Utilities across Europe are investing billions in renewables and other transition-critical solutions”, Ruby said, adding that conventional assets are necessary for security of supply in the transition.

“If this rule is applied to existing assets, it will divert investments and do a disservice to Europe’s efforts in delivering the clean energy transition.”

The Commission’s law would effectively block many coal-fired plants from getting support payments under the region’s capacity market, which is intended to ensure steady supplies of electricity when the wind isn’t blowing and the sun isn’t shining.

But the main concern is that utilities would not invest in zero-emissions systems that could cope with variable flows from wind and solar farms, instead diverting funds to gas-fired power facilities.

The main findings of the report are as followed:

I. The intended effect of this measure in terms of boosting the EU’s emissions reduction efforts will be negligible as the electricity sector’s emissions are already capped under the EU ETS. Due to early retirement of existing assets and investments in new conventional generation, it will however lead to additional abatement costs for the power sector of around €50bn over the period 2020-2040, which translates into 30€/tonne additional costs on top of the EU ETS.

II. The application of the 550g rule will make almost all thermal peaking capacity in Europe ineligible

for capacity mechanisms, such as strategic reserves, leading them to be replaced by new thermal power generation assets, on the eve of batteries’ and demand side response’s large scale deployment.

III. Applying the rule in the middle of the next decade will force baseload assets to leave the market earlier. Arising security of supply issues risk locking-in new, conventional power generation assets.

IV. This new conventional capacity, which will consist of gas assets, will lead to a 40% increase in gas consumption in the power sector between 2020 and 2040 with a major impact in Eastern Europe.

V. This investment in new conventional power generation assets will divert investments away from renewables and other clean transition enabling technologies in the range of €20 bln.

The lobby group suggests lawmakers concentrate on fixing the EU Emissions Trading System, where the cost of pollution fell 70 per cent since 2008 because of a surplus in permits used in the market.

The commission proposal is currently being discussed by the 28-nations bloc’s governments and the European Parliament. Their approval is needed for the law to be amended. Estonia, which holds a rotating presidency of the EU until the end of December, wants to propose a compromise by allowing a certain amount of power produced by utilities exceeding the 550-grams threshold to be used in capacity markets.

Interview: Kristian Ruby, Eurelectric