Fuel for Thought – Mar 30th

30 Mar, 2012

US constrains coal fired power: The US Environmental Protection Agency plans to implement an emissions performance standard which will effectively prevent the construction of new non-CCS coal plant.  This will not have big implications for generation investors in the short term given the current abundance of cheap gas.  But the emissions standard should act to underwrite the development of gas plant as the dominant generation technology in the US.  This may be much more important later this decade if gas prices increase as a result of a combination of LNG exports and an increase in unconventional gas production costs.  John Kemp sets out some of the potential implications of the emissions standard here.

Danish power market flexibility: The Danish government is planning aggressive new targets for increasing the renewable share or its energy mix to 35% by 2020 and 100% by 2050.  Hitting these targets will mean a huge increase in penetration of must run and intermittent renewable generation capacity, dominated by wind.  Denmark’s task is made easier by the fact that it is a well interconnected transit market between Scandinavia and continental Europe.  But in pursuing such a policy , Denmark is effectively outsourcing its generation flexibility requirements to thermal and hydro plant in neighbouring countries.  Despite government claims that the policy will reduce Denmark’s dependence on volatile fossil fuels, the pricing of imported generation flexibility will still be predominantly driven by the variable costs of thermal plant for decades to come.  

EU member states diverge on carbon: Political inaction in addressing price weakness in the EU ETS carbon market has drawn a lot of attention.  But there has been less focus on EU member states implementing domestic policies that are increasingly inconsistent with the effective operation of the ETS.  The UK was widely criticised last year for implementing a unilateral carbon price floor in an attempt to support low carbon investment (or more specifically EDF’s new nuclear investment).  Finland on the other hand is taking the opposite approach and trying to claw back margin from low carbon generators by introducing a ‘windfall tax’

Picture of the week:

An offshore wind farm off the Southern coast of Denmark.  Wind turbine production is a key employment driver in Denmark with key manufacturer Vestas having about 12% of global market share.  But Vestas has announce 2300 job cuts this year as the result of the economic downturn and increasing competition from other turbine producers.