Carbon rationing in Europe

– ‘will stimulate efficient generation’

Meeting Europe’s growing electricity demand while complying with the EU’s emissions reduction commitments under the Kyoto Protocol will require a major investment in carbon-efficient power generation capacity between 2005 and 2010 and, ultimately, it will be Europe’s households and businesses that will foot the bill, according to recent research from market analyst Datamonitor.

Datamonitor’s report analyses the future impact of the Kyoto Protocol and the EU Emissions Trading Scheme (ETS), both now in force, on the way power is produced and sold in western Europe’s markets.

By 2010, power demand in EU-25 will have grown by 16% from the 2002 base, with southern Europe seeing the fastest growth. However, more power produced generally means more carbon emissions. Now that EU countries have caps on how many tonnes of carbon dioxide they are allowed to produce each year, this could potentially lead to severe shortages, says Datamonitor senior energy analyst Mikhail Masokin: ‘For instance, if Europe’s generators were to simply build more power plants of the same types they have now, and stop producing as soon as they reached their annual emission quotas, by 2010 the EU would be faced with a 500 TWh shortfall each year ” almost as much as the whole of Germany produces and consumes now.’

Of course, Europe’s governments would be unlikely to allow largescale blackouts, and would much sooner increase their quotas or scrap them altogether. This would mean a collapse of the EU-ETS and a severe setback for the Kyoto process.

The alternative to either blackouts or a collapse of EU-ETS is a major restructuring of the way in which Europe’s utilities generate power. Ultimately, this means to less carbon-intensive generation technologies. However, for the next few years renewables will not be the answer, says Datamonitor, which fails to quantify the contribution that on-site generation could make.

Even the introduction of emissions quotas in line with the EU’s Kyoto commitment has not made large-scale growth of renewables the optimum compliance mechanism, Masokin says. ‘Instead, those commitments can generally be met through a large-scale switch from coal and oil to natural gas (with its much lower carbon content per MWh of power produced), and by delaying the planned closure of nuclear plants. However, building new nuclear capacity would take too long to solve the 2010 problem, and should be viewed as an even longer-term solution.’

The leading EU markets face three distinct compliance scenarios to 2010. The UK, French and Dutch power industries have relatively painless options for reforming their generation portfolios and securing any remaining carbon shortfall on the traded market (primarily from Eastern Europe), says Datamonitor.

– Connecticut lawmakers are debating ‘Raised Bill 6906

Connecticut lawmakers are debating ‘Raised Bill 6906: An Act Concerning Energy Independence’, which includes several structural reforms and incentives for decentralized energy (DE) and energy efficiency projects in the US state. The bill has been driven in part by recent actions by the Federal Energy Regulatory Commission (FERC), which has assessed congestion penalties of US$300 million per year to the state, continuing indefinitely until the south-west Connecticut grid is ‘de-bottlenecked’. The region is one of the most over-burdened parts of the US transmission and distribution (T&D) network.

The Connecticut Attorney General is currently contesting the legality of the financial penalty, but there seems little doubt of the need for significant T&D reform in the state. With no quick fixes available, state lawmakers are anticipating FERC charges in billions of dollars, and the proposed legislation seeks to provide incentives for anyone who can help the state avoid these fees.

Two particular parts of the bill are worthy of note. First, a redefinition of ‘renewable’ energy would include certain types of CHP systems that would allow CHP plants to realize additional value in ‘renewable portfolio standards’ markets. Second, the bill includes language that directs the Department of Public Utility Control to pay ‘not less than US$300 and not more than $500 per kW’ to individuals and businesses who invest in clean, local generation and/or other load reduction measures that help the state avoid ‘federally mandated congestion charges’.

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