CO2 limits amendments to Capacity Market

Importantly, the regulation has introduced new requirements for capacity mechanisms regarding CO2 emissions limits.

The new requirements

Any generation capacity that started commercial production from 4 July 2019 that emits more than 550g of CO2 emissions per kWh will not be eligible to receive payments or commitments for future payments under a capacity mechanism.

In addition, from 1 July 2025, generation capacity will be ineligible for payments and commitments for future payments under capacity mechanisms if it;

  • began commercial production before 4 July 2019 and emits;
  • more than 550g of CO2 emissions per kWh and
  • more than 350kg CO2 of fossil fuel origin on average per year per installed kWe.

Member States of the EU will be required to adapt their capacity mechanisms to comply with the new rules by 31 December 2019.

What will be affected?

The emissions limits are expected to affect coal, diesel and potentially older inefficient gas generation. The changes will also prevent existing diesel and other generating components that do not meet emissions limits from being utilised as part of a DSR (Demand Side Response) CMU (Capacity Market Unit).

The Government will be consulting on the following points:

  • Whether emissions limits for existing generation should take effect on 1 July 2025, or 1 October 2024.
  • What length of agreements should be awarded in the upcoming T-3 and T-4 auctions to refurbishing fossil fuel generation that will not meet the emissions limits.
  • How best to deal with false or inaccurate Fossil Fuel Emissions Declarations and the recovery of capacity payments in such cases.

The consultation will run from 22 July 2019 until 6 September 2019.

Ongoing Capacity Market issues

The Capacity Market continues to be under suspension, following the ruling from the European Court of Justice in November 2018. The investigation by the European Commission is expected to conclude by the end of the year. Until a final decision is reached, National Grid are running the scheme as normal, short of making payments, to ensure that capacity providers may be eligible for deferred payments after the standstill period.

In the short-term the Capacity Market charge will still be levied on customer’s bills, currently accounting for 0.3p/kWh, approximately 2.5% of a bill. This means that consumers will likely see little immediate change.

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EU temporarily suspend UK carbon permit processes

EU temporarily suspend UK carbon permit processes

The European Commission has implemented a “no-deal” Contingency Action Plan across specific sectors to help mitigate the continued uncertainty in the UK surrounding the ratification of the Withdrawal Agreement.

The main talking point, regarding energy policy, is the Commission’s plans for the UK’s access to the EU Emissions Trading Scheme (EU ETS).

EU carbon allowances, or European Allowances (EUAs) serve as the unit of compliance under the EU ETS. EUAs are auctioned for use by energy-intensive industries that fall under the scheme, namely power generators, oil refiners, and steel companies, entitling them to emit one tonne of CO2.

How this affects the EU ETS in the UK

The Commission has adopted a number of actions in the area of EU climate legislation to “ensure that a “no-deal” scenario does not affect the smooth functioning and the environmental integrity of the Emissions Trading System.”

This involves a decision to temporarily suspend the free allocation of emissions allowances, auctioning, and the exchange of international credits for the UK effective from 1 January 2019.

The Commission has also elected to allow an appropriate annual quota allocation to UK companies for accessing the EU27 market, until 31 December 2020. This will be supplemented through regulation to ensure that the reporting by companies differentiates between the EU market and the UK market to allow a correct allocation of quotas in the future.

The full Contingency Action Plan can be read here.

Stay informed with EIC insights

Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the most timely updates you can find us on Twitter and LinkedIn Follow us today.

Visit our website to find out more about EIC Market Intelligence and how we keep our clients informed at a frequency to suit them.