/*------ACCORDION------*/ /* MAKING ALL ELEMENTS CLOSED BY DEFAULT */

Announced late on Friday evening,[1] the Government’s target for the UK carbon price in the event of a ‘No Deal’ Brexit will result in a major increase in coal burn (Fig.1).

Friday’s guidance document on meeting climate commitments in the event of a ‘No Deal’ Brexit stated the Government’s intention to set a Total Carbon Price similar to the level at the time of the Autumn 2017 Budget (implied to be £24/t[2]). This is a significant decrease from the current actual price of ~£36/t (made up of the EU ETS price of ~£18/t plus the UK’s current Carbon Price Support tax of £18/t) and will lead to a major increase in coal burn.

 

Fig. 1. lower UK total carbon price will significantly increase coal generation over the coming winters (Sandbag calculations). [3]

 

Even at the current total carbon price, Sandbag calculates that UK coal will make a temporary comeback this winter (see Fig.2), due to the extremely high EU gas price suppressing the profitability of gas-fired power stations. However, if the UK returns to the Government’s Total Carbon Price implied in the Autumn 2017 Budget (~24/t), there will be a major increase in coal generation through the coming winters.

Q1 2019 Forecast Coal Gen

Fig. 2. Given current extremely high gas prices, we would expect coal burn to be at least 50% higher than last year in the peak winter months (Dec-Feb).

 

To prevent a return to large-scale coal generation, Sandbag estimates the UK Government must target a Total Carbon Price in excess of £45/tonne in 2019, falling to £40 in 2020 and £35 in 2021.

 

UK coal in 2021

Sandbag looked at the price for gas and coal contracts in 2021. If the UK Total Carbon Price falls from the current level to the Government’s target level, winter 2021 will see 2.5 times more coal burn (from ~1GW to ~2.5GW), taking the UK even further away from meeting our legally mandated fourth and fifth carbon budgets.

If large scale coal generation becomes more profitable, it will make economic sense for coal generators to bid more aggressively in future Capacity Market auctions. This will crowd out investment in cleaner power (including new build small gas generators, demand side response, and batteries). This could leave the UK electricity grid at a cliff-edge in 2025 when coal is phased-out, instead of the smooth transition resulting from a stronger carbon price.

 

Phil MacDonald, Interim Managing Director at Sandbag, commented:

To keep the UK transition from coal to clean electricity on track, Philip Hammond must target a Total Carbon Price at least at the current levels. If we stay in the ETS, we need at least £18/t UK Carbon Price Support. If we leave the ETS we need at least £36/t.

 

The UK coal phase-out is assured, but meeting the 4th and 5th carbon budgets is not. Increasing our reliance on coal in the upcoming winters will raise UK power emissions – requiring deeper decarbonisation in other sectors. More coal now risks crowding out clean investment and a capacity cliff edge in 2025.

 

Brexit or not, the UK’s economic future lies in clean growth.”

 

Update: A coalition of UK environment groups has now written to the Chancellor calling for a strengthened carbon price, and Sandbag looked further at the excess emissions if the total carbon price was lowered.

*Correction* – We now forecast coal generation lower than the initial estimates published in the original version of this article. The running hours of the non-IED compliant coal stations (Cottam, West Burton, Fiddlers Ferry) will be severely restricted from July 2020 – we had not correctly accounted for this. 

Footnotes

  1. Meeting climate change requirements if there’s no Brexit deal (BEIS, Published 12 October 2018)The UK government announced at Autumn Budget 2017 that the Total Carbon Price was set at the right level and that it would target a similar Total Carbon Price until unabated coal is no longer used. In a ‘no deal’ scenario, the UK government will initially meet its existing carbon pricing commitments via the tax system, taking effect in 2019” i.e. a Carbon Price Support (CPS) only of ~£24 https://www.gov.uk/government/publications/meeting-climate-change-requirements-if-theres-no-brexit-deal/meeting-climate-change-requirements-if-theres-no-brexit-deal 
  2. The sum of the carbon price support (£18/t) and the EU ETS (£6/t) at the time of the budget.
  3. Sandbag calculations assume Gas-Coal Spread COP 22.10.2018 [£/MWh] = (Input fuel + carbon of gas @ 50% efficiency) minus (Input fuel + carbon of coal @ 37% efficiency). Total Coal gen excludes Eggborough (closing) + Aberthaw (RWE has changed running profile & future generation role is uncertain).

Charles Moore, Phil MacDonald