Fuel for Thought – Sep 30th

30 Sep, 2011

UK ROC review delayed: The UK government faces major embarrassment over their delay of the Renewable Obligation Certificate review, a key factor constraining further investment in renewable generation capacity. When the government launched its Energy Market Reform White Paper in June it emphasised the importance of completing the review this year to avoid an investment hiatus. The delay is likely to seriously damage the credibility of the government’s new policy measures with investors, raising questions as to whether the rest of the EMR policy timetable can be met effectively.

SSE pulls out of UK nuclear consortium:  Last week’s announcement by SSE that it will leave their consortium with GDF Suez and Iberdrola reflects the challenges the UK government faces in trying to develop new nuclear capacity by fostering competition between consortiums of private capital. The SSE withdrawal follows the recent hesitations of the RWE and E.ON consortium given balance sheet constraints and the bleak prospects for new nuclear in other markets. It increasingly appears that the EDF lead consortium is the only game in town and even they appear to be facing enormous cost and technology challenges given overruns in the Flamanville prototype project in France.

Bank suffering to impact energy market lending: The damage that global banking system has suffered over the last two months is likely to cause a substantial tightening in the availability of financing to support energy infrastructure projects. This comes on top of the balance sheet constraints currently faced by many utility companies. The timing could not be worse given the scale of the infrastructure investment challenge facing European energy markets over the next few years.

Investment banks scaling back carbon trading activity:  The European Emissions Trading Scheme (ETS) has seen the theft of €3m in allowances, a €5bn VAT fraud leading to 100 arrests and the temporary closure of a major exchange this year.  Whilst these scandals will undoubtedly have caused concern, lower trading margins as a result of depressed prices and low volatility are a key driver in the scaling back of emissions trading activities. As banks face increasing capital and operating cost constraints, non-core activities such as carbon trading are increasingly vulnerable to cut backs.

Picture of the week:

One of the generator turbines from the Three Gorges Dam spanning the Yangtze River in China. Each turbine has a capacity of 700 MW with a total installed capacity of 22,500 MW on completion of the project. The Chinese government expects the dam to reduce carbon emissions by up to 100m tonnes per year as it replaces power generated from coal capacity. Although impressive, the 16 million tonnes of concrete used in the dams construction would have emitted around 15 million tonnes of CO2 in its production.