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CO2 Mitigation in Europe's Power Sector: Challenges and Opportunities

Explore strategies for CO2 abatement in Europe's power sector, including fuel switching in CCGT plants to reduce emissions and address CO2 constraints. Understand the impact on wholesale power prices and the need for innovative solutions to meet environmental goals.

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CO2 Mitigation in Europe's Power Sector: Challenges and Opportunities

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  1. Pan-European Utility Research Chris Rowland Dresdner Kleinwort Wasserstein Generating in a CO2 constrained world Europe to be CO2 constrained => €15/tonne & risk on upside Value-creation opportunity => Power prices @ cash costs = no longer sustainable November 2003

  2. How can Europe abate CO2? • Power sector provide CO2 abatement 125 100 75 CO2 abatement (t) 50 25 0 1 5 8 12 16 20 24 28 Cost per tonne CO2 (€) Ferrous metals Materials Pulp & other industry Steam raising Coal-CCGT switching Coal-CCGT new build

  3. How can Europe abate CO2? • Power sector provide CO2 abatement • In underutilised CCGT capacity Scope to switch fuel mix for generation in existing gas-fired CCGTs ... ... saves 50-55mln tonnes of CO2 125 100 75 CO2 abatement (t) 50 25 0 1 5 8 12 16 20 24 28 Cost per tonne CO2 (€) Ferrous metals Materials Pulp & other industry Steam raising Coal-CCGT switching Coal-CCGT new build

  4. How can Europe abate CO2? • Power sector provide CO2 abatement • In new CCGT capacity Scope to switch fuel mix for generation in existing gas-fired CCGTs ... ... saves 50-55mln tonnes of CO2 ... ... but for greater savings need new build

  5. How CO2 constrained will Europe be? • How aggressive will “environmentally-concerned” countries be? Germany and UK both have targets under National Climate Change programmes EC will limit surplus Shortfall could be greater • Germany & UK could have 85mln shortfall alone

  6. How CO2 constrained will Europe be? • How aggressive will “environmentally-concerned” countries be? • How flexible can “environmentally-stretched” countries be? Most of existing EU likely to be “imaginative” in interpreting EU rules EC will limit surplus Shortfall could be greater • Existing EU likely to face a shortfall of 100-110mln tonnes

  7. How CO2 constrained will Europe be? • How aggressive will “environmentally-concerned” countries be? • How flexible can “environmentally-stretched” countries be? • How much flexibility will there be in Accession Countries? Just 3-4% shortfall seen for 2005-2007 EC will limit surplus Shortfall could be greater • Shortfall of 60-65mln tonnes CO2 per year over 2005-2007

  8. Value of CO2 allowances • Power sector provide CO2 abatement • In underutilised CCGT capacity CO2 allowances have to be priced to offset higher costs of running cleaner plant ... ... will push CO2 allowances to €15/tonne 60-65mln t abatement

  9. Prices for CO2 likely to be volatile • Incentive to switch from coal to gas changes with fuel prices • Economic growth could tighten CO2 constraint Fuel prices could reduce CO2 emissions if coal too dear … … but economic growth could add to CO2 emissions We assume prices of: $25/bbl oil price $40/tonne coal price

  10. Boost to electricity prices • Wholesale power prices Gradual increase would have been expected for wholesale power prices Wholesale power prices - €/MWh 55.0 With CO2 Without CO2 50.0 45.0 40.0 35.0 30.0 25.0 20.0 UK - ytd Italy - ytd Spain - ytd UK 2005-2007 UK 2008-2012 Germany -ytd Italy 2005-2007 Italy 2008-2012 2007 2012 Germany 2005- Germany 2008- Spain 2005-2007 Spain 2008-2012

  11. Boost to electricity prices • Wholesale power prices Gradual increase would have been expected for wholesale power prices Wholesale power prices - €/MWh

  12. Boost to electricity prices • Wholesale power prices Germany and UK wholesale power prices starting to rise Wholesale power prices - €/MWh 55.0 With CO2 Without CO2 50.0 45.0 40.0 35.0 30.0 25.0 20.0 UK - ytd Italy - ytd Spain - ytd UK 2005-2007 UK 2008-2012 Germany -ytd Italy 2005-2007 Italy 2008-2012 2007 2012 Germany 2005- Germany 2008- Spain 2005-2007 Spain 2008-2012

  13. Boost to electricity prices • Wholesale power prices Germany and UK could see 70%+ increases in wholesale power prices Wholesale power prices - €/MWh 55.0 With CO2 Without CO2 50.0 45.0 40.0 35.0 30.0 25.0 20.0 UK - ytd Italy - ytd Spain - ytd UK 2005-2007 UK 2008-2012 Germany -ytd Italy 2005-2007 Italy 2008-2012 2007 2012 Germany 2005- Germany 2008- Spain 2005-2007 Spain 2008-2012 35% up(75% from start year) 45% up(70% from start year)

  14. Boost to electricity prices • Wholesale power prices Wholesale power price increases less dramatic in southern Europe Wholesale power prices - €/MWh 35% up(75% from start year) 45% up(70% from start year) Moderates pace of decline Modest increase related to new entrant prices

  15. CO2 Constraint tightens by 2008-2012 • Carbon constraint won’t go away! • By 2008-2012, likely to need 10% cuts By 2008-2012, flexibility in individual country allocations recedes Accession Members surplus dwindles Go beyond Kyoto?

  16. CO2 Constraint tightens by 2008-2012 • Carbon constraint won’t go away! • By 2008-2012, likely to need 10% cuts By 2008-2012, flexibility in individual country allocations recedes Accession Members surplus dwindles Kyoto tough target Go beyond Kyoto?

  17. CO2 Constraint tightens by 2008-2012 • Power sector provide CO2 abatement • New build required to meet Kyoto target More abatement likely to be possible in industry ... ... but without new build CCGTs, Kyoto target will be missed 220mln t abatement

  18. CO2 Constraint tightens by 2008-2012 • Power sector provide CO2 abatement • New build required to meet Kyoto target • CO2 constraint is here to stay! More abatement likely to be posible in industry ... ... but without new build CCGTs, Kyoto target will be missed 220mln t abatement

  19. Pan-European Utility Research Chris Rowland Dresdner Kleinwort Wassersteinchris.rowland@drkw.com +44 20 7475 7489 Generating in a CO2 constrained world Europe to be CO2 constrained => €15/tonne & risk on upside Value-creation opportunity => Power prices @ cash costs = no longer sustainable CO2 constraint is here to stay! November 2003

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