Carbon Price at €40/Ton Needed to Make Power Producers Opt for Gas
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March 2013 www.gastopowerjournal.com Carbon price at €40/ton needed to make power producers opt for gas, not coal - IEA For power producers to prefer gas over coal as a fuel for power generation the price of carbon emission allowances would have to rise to €40-50/ton, Thijs van Hittersum, natural gas analyst at the International Energy Agency said at a conference held by Gas to Power Journal in Brussels. egulatory interventions such as the pro- more economic at current market prices. posed backloading of up to 900 billion "Cheap US coal supply and low carbon carbon emission allowances (EUAs) prices make coal the fuel of choice for Euro- Rinto the third phase of the ETS is, how- pean power producers," he said. ever, in his view "most likely not sufficient to The IEA expects gas demand in Europe solve the oversupply situation to increase at "a very slow pace of only 1.3 in the carbon market." percent" over the coming five years, compared "The backloading proposal to over 13 percent in China. is only going to temporarily Production costs for gas are around reduce the oversupply. If this €60/MWh for the average gas plant, compared will only push prices up a little with €40/MWh for average coal plants at cur- Fire tube boiler of a coal-fired power plant. bit, to levels of €10-15/ton, rent fuel prices. Thijs van that is not going to make "There is too much gas generation capacity in concluding that it is "very difficult" to make a Hittersum much of a difference at current Europe that is not running at the number of hours business case for new gas generation capacity. fuel prices," he told Gas to Power Journal. that they were built for," he said. Investment in "Open cycle gas plants are in a better position, To provide residual load, gas-fired power recently build facilities was made with a view to due to their lower investment costs and because plants currently loose out against coal plants, run plants at 5,000 operating hours and not at they need less run-time hour to earn back capital as operational cost of coal-fired plants are way 1,500 hours as is currently the case, he explained, costs," he said. Interview: “All conventional power plants should get €15/kW capacity payments” – Statkraft Injecting a sense of realism in the debate on Germany’s future power market design, Statkraft has come up with a concrete figure by suggesting €15/kW/year should be paid on a non-discriminatory basis to support operations of fossil plants regardless of age, location and technology. Torsten Amelung, Managing Director at Statkraft Markets and responsible for Trading, Origination & Business Development speaks out about the reasoning behind this proposal. e have suggested a flat Direct capacity payment Stressing the importance of a non-discrimi- fee payment for all fos- schemes can serve as a "sim- natory approach, Amelung strongly criticised sil plants which creates ple model for a transition pe- the current political bargaining over plant-spe- “Wa level playing field for riod", he said, but in the long cific payments, for example for so-called ‘strate- all power producers. The number €15/kW/year run German policy makers gic reserve’. “Such payments for selective plants which we gave out is based on a rough cost calcu- should take example of capac- split the market and only benefit a small number lation and indicates what support operators need ity obligations and auctions as of plants at the cost of the others,” he said. Torsten to avoid early closure of loss-making plants,” Amelung considered in France and the Operators feel the pinch as profit margins of he told Gas to Power Journal in an interview. UK, respectively. continued on page 2 Enerjisa looks for new gas supplies, Interview: GE invested over $500m “No new fossil plants in Europe expands gas-to-power capacity in Turkey, to spend further $900m without capacity mechanism” Enerjisa aims to increase gas Turkey’s rising energy demand, Keeping existing fossil import volumes to more than spurred by a flourishing expand- capacity in the market will double its power generation ing economy, is attracting “prove difficult” forecasts capacity to 8 GW to reach a 10 percent market investors and facilitators of Jørgen Kildahl, board member share by 2020. new power plant projects. of E.ON SE. See page 4 See page 5 See page 6 Markets continued from page 1 gas-fired power plant assets have turned nega- tive amid rising renewable power supply. Sup- ported by feed-in tariffs, renewable capacity in Germany saw an unprecedented surge in recent Index years which reduced run-time hours of fossil Carbon price at €40/ton needed to make plants and increased the volatility of power power producers opt for gas, not coal - IEA prices. Regulation gives renewable plants pri- - cover ority to supply electricity to the grid, which Pan-European capacity design ‘unlikely’ – further limits dispatch of fossil capacity and Eurelectric - page 3 exacerbates the squeeze on profits margins. “The rise in renewable energy supply has Statkraft's Knappsack-1 power plant Enerjisa on the lookout for new gas supplies, expands gas-to-power capacity caused a drop in average power prices, but the gas of capacity payment system intensify, a full- - page 4 price remains the same. To improve spark spreads, fledged regulatory scheme is unlikely to mate- simply negotiating the oil-formula out of gas sup- rialise before the upcoming September Interview: GE invests over $500m in Turkey ply contracts is not good enough,” Amelung said. election. “I don’t think anything will be to date, plans to spend further $900m - page 5 Persistently negative spark spreads give decided before the election, he said, suggesting power producers an incentive to close down policy makers are more prepared to revise the “No investment in new fossil plants in Europe gas-fired plants. Asked if Statkraft’s power renewable law at short notice. without capacity mechanism” - page 6 plant Knappsack-1 is lossmaking, Amelung said the plant was profitable in the first years “Renewables need Interview: CCGT repowering allows Senoko of operation but it does not pay back its Capex to grow up” to cut generation costs - page 8 under current market conditions. Amelung called for a revision of preferential “If the capacity utilisation of a plant is not regulation for wind and solar capacity through Gas To Power Journal guaranteed, the plant cannot earn back its oper- reducing feed-in tariffs and subsidies. 2nd Floor, 8 Baltic Street East London EC1Y 0UP ating costs and does not have any chance to “Renewables need to grow up and should be United Kingdom recoup its long-term capital costs,” he said, treated like other power generation technolo- www.gastopowerjournal.com pointing out that Statkraft’s gas-fired Emden gies,” he stressed. +44 (0)20 7253 2700 power plant, which was shut down and put in Asked how spark spreads could be improved, Publisher Stuart Fryer the status of ‘cold reserve’, is “very unlikely to Amelung advocates a tightening of the Euro- come back to the market anytime soon”. pean Emissions Trading System (EU ETS) as a Editor Anja Karl harmonised pan-European approach to support Tel: + 44 (0) 7017 3417 Statkraft on track to start-up gas-fired power generation, with less risk to dis- [email protected] Knappsack-II this summer tort energy-only-markets that national regulatory Reporter This summer, Statkraft plans to commission support schemes for fossil capacity. Michal Zuk [email protected] Knapsack II, a 430 megawatt gas-fired com- Withdrawing carbon emission allowances Advertising bined cycle power plant. But beyond this proj- (EUAs) in the third phase of the European Narges Jodeyri ect no further investments in conventional Emissions Trading System (EU ETS) could help Tel: + 44 (0) 7253 3406 plants are planned in Germany, Amelung said. improve the profit margins of gas-fired plants. [email protected] Although power demand in Germany has “By reducing the eligibility of EUAs, thus driv- Events stabilised and recovered since the 2008 eco- ing up the carbon price one could incentivise the Kamil Hussain Tel: + 44 (0) 7017 3404 nomic crisis, this gives little relief to fossil plant use of cleaner-burning gas-fired plants,” he said. [email protected] operators. “You have to subtract the renewable The European Commission plans to backload Subscriptions power supply from total power demand, so fos- up to 900 billion EUAs by restricting their usage Stephan M. Venter sil plants can only compete to supply the re- before putting them back in the market in 2029. Tel: + 44 (0) 7017 3407 [email protected] mainder and get dispatched less,” he said. Apart from EUA backloading, the Commis- sion also considers setting tougher carbon Production Vivian Chee General election in September reduction targets for 2030 and reduce carry Tel: +44 (0) 20 8995 5540 delays new power market design over quotas of EUA form the third to fourth [email protected] Even if calls for the introduction of some sort trading period of the ETS. 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