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Page 1: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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www.coalimp.org.uk

EuropeanRegulation and

Nigel Yaxley

Managing [email protected]

the Physical Coal Market

CoalImp Members

ABP Clydeport DB Schenker Drax Power EDF Energy

E.ON EnergyTrading

Fergussons Freightliner GB Railfreight Hargreaves

InternationalPower

Network Rail Oxbow Coal Port of TyneRio Tinto

Alcan

Rudrums RWE Trading Scottish CoalScottishPower

SSE EnergySupply

Coaltrans Geneva31st March 2011

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Page 2: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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Is coal being left behindby EU regulation?

Coaltrans Geneva31st March 2011

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“Safe, secure, sustainable and affordableenergy contributing to Europeancompetitiveness remains a priority for Europe”

“In order to further enhance its security ofsupply, Europe's potential for sustainableextraction and use of conventional andunconventional (shale gas and oil shale) fossilfuel resources should be assessed)”

Coaltrans Geneva31st March 2011

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Page 3: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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European Regulation andthe Physical Coal Market

Background and Introduction

Industrial Emissions Directive

Climate Policy – Emissions Trading

New Stations – Kick-Starting CCS

Other Regulatory Initiatives

UK Policy – a Challenge to Europe?

Coaltrans Geneva31st March 2011

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2,340

695

406 378

152 146 136

646

0

500

1,000

1,500

2,000

2,500

China United

States

India EU27 Russia Japan South

Africa

Others

Million

To

nn

es

Co

alEq

uiv

ale

nt

2008 2009

6

India’s coal consumptionovertook the EU in 2009

Source: IEA Coal Information 2010

Coaltrans Geneva31st March 2011

Page 4: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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Coal supplies 28% ofEurope’s electricity

EU-27: 3 341 TWh (16.6%)

sources: IEA Key World Energy Statistics 2010 and IEA databases (© OECD/IEA, 2010)

coal 41.0%

other

hydro

nuclear

gas oil

coal 28.1%other

hydro

nuclear

gas

oil

World: 20 181 TWh

Coaltrans Geneva31st March 2011

(2008 Figures)

EU

India

China

Others

0

500

1,000

1,500

2,000

2,500

3,000

20082020

2035

434

314

193

373 551 781

2,019

2,788 2,822

1,910 2,012

1,825

Mill

ion

Ton

nes

Co

alEq

uiv

ale

nt

IEA foresees major demandreduction in Europe…

Coaltrans Geneva31st March 2011

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Source – IEA World Energy Outlook 2010

World Coal Demand Outlookin New Policies Scenario

Page 5: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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EU IndigenousHard Coal

110.328%

EU IndigenousLignite128.933%

Imported HardCoal

151.939%

61% of EU’s 2009 solid fuelsupply was indigenous

Mtce Based onEstimatedCalorific Values

Coaltrans Geneva31st March 2011

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Russia53.7

Colombia32.0

South Africa27.8

USA24.3

Australia13.8

Indonesia12.8

Canada2.5

Others10.4

2009Million Tonnes

Russia and Colombia arenow the major suppliers

Coaltrans Geneva31st March 2011

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Page 6: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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80% of EU steam coaldemand is in 6 countries

Poland

28.2%

UK

18.6%Germany

16.2%

Spain

7.5%

Italy

7.0%

France

4.7%

Netherlands

3.6%

Denmark

2.9%

Others

11.3%

Coaltrans Geneva31st March 2011

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Coal market has severalEU regulatory drivers...

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Coal MarketPlant Capacity

(CCS Directive)

IndigenousSupply

(State AidRules)

Carbon Prices

(EUETS)

EmissionsRegulation

(IED)

Foreclosure byRenewables

Coaltrans Geneva31st March 2011

Page 7: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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… and generators havesome key challenges

• Is coal pricing itself out of the market?

• Will UK-style policies spread acrossEurope?

• How will CCS regulation develop?

Whether to investin new coal plant

• Will payback be achieved on oldstations?

• Are there other technical solutions?

Whether to investin SCR

• Buying coal to minimise NOx

• Limiting indigenous coal for SOx

How to managecoal supply underthe IED opt-out

Coaltrans Geneva31st March 2011

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Competitiveness

Security ofSupply

SustainableDevelopment

Energy for a ChangingWorld 20-20-20 by 2020

Policy challenges for coal Carbon pricing

Phase 3 auctioning

CCS policies

New coal without CCS?

Renewables targets

Market foreclosure

Industrial EmissionsDirective

EU policies are based aroundthe energy ‘trilemma’

Coaltrans Geneva 31stMarch 2011

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Page 8: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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Proposed by European Commission mid-2009and supported by European Parliament butamended in Council

Replaces LCPD on January 1, 2016 Further tightens limits on SOx and NOx emissions

In order to comply with lowered NOx levels from2016 onwards, operators would have to install SCRequipment

Emission Limit Values (mg/Nm3)

Coaltrans Geneva31st March 2011

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The proposed IED was amajor threat to coal…

LCPD IED

SO2 400 200

NOx 200 200

Implement Emission Limit Values (ELVs) from2016 Derogation for ‘peaking plant’

OR Transitional National Plan to end-June 2020 Straight line reduction based on 2001-2010 fuel use

and operating time NOx trading between ‘TNP’ plants

OR Opt out 17,500 hours or close end-2023 (25% load factor for

full period) To be declared by 1 January 2014

Derogation in meeting SOx ELVs on burningindigenous coals given a desulphurisation rate of96% (aimed at Eastern European lignite burners)

Coaltrans Geneva31st March 2011

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…then final compromisegave further concessions

Page 9: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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Energy for a ChangingWorld foresees‘20-20-20’ by 2020 20% reduction in

greenhouse gaseson 1990 levels

20% improvementin energy efficiency

20% share ofrenewables in totalenergy

30% GHG targetdependent oncomparableinternational action

Coaltrans Geneva31st March 2011

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Energy Roadmap 2050 willbe published this Autumn

European Council's target of an 80-95%reduction in EU greenhouse gas emissionsbelow 1990 levels by 2050

Energy Roadmap 2050 will present differentpathways as scenarios

Will address established objectives –sustainability, energy security andcompetitiveness

Will focus on how energy security andcompetitiveness can be improved throughoutthe transition to a low-carbon energy system

Coaltrans Geneva31st March 2011

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Page 10: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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Emissions trading wasintended to be the keyinstrument for reducing CO2

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EU Emissions Trading System (EUETS) is a cap andtrade scheme for CO2 emissions

Bad for coal Emissions from coal typically twice the emissions

from gas Switching to gas one of the easiest short term

options

Prices have so far been insufficient to driveinvestment

Key determinants of price Level of cap Level of Kyoto Instruments allowed

CDM/JI

Coal/gas price differential

Coaltrans Geneva31st March 2011

Will the third phase finallydeliver what was intended?

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2005: EUETS First Phase – launch and initial(over)allocation

2008: Second Phase – undermined by therecession

2013: Third Phase – 17.5% cap reduction 2012 to2020 Consistent with 20% emissions reduction by 2020 100% auctioning for power sector

NB derogation from full auctioning in some countries

Auctioning phased in for industry (carbon leakage) Limitation on JI/CDM credits that can be used

But fuel switching to gas remains a key emissionsreduction tactic rather than investment in low-carbon generation A new dash for gas may be triggered

Coaltrans Geneva31st March 2011

Page 11: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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EU attempts to kick-startCCS…

EU Council agreed12 CCSdemonstrationsby 2015

CCS Directive Regulation for CO2

storage

All plants carboncapture ready

CCS to qualify forcarbon permits

Coaltrans Geneva 31stMarch 2011

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…and provides somefunding Economic Recovery package

€1 billion for 6 projects (including Hatfield)

Original scheme – 300 million free carbonallowances for up to 12 projects Now 8 CCS projects envisaged

Invitation for bids Q310 Assessment by EIB Q111 Recommendations Q411 Announcements end-2011

Commercial operation by end-2015 But will require top-up funding from member

states e.g. UK…..

22Coaltrans Geneva31st March 2011

Page 12: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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Will renewable energyforeclose the market?

Target of 20%energy fromrenewables by2020

But what willprovide the back-up?

What further policyinstruments maybe required?

Coaltrans Geneva 31stMarch 2011

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EU state aid rules nowallow subsidies until 2018 Package finally agreed in December 2010

All member states approved except Denmark

Closure aid permissible until 31 December2018 (instead of Commission proposal of2014)

Aid must be degressive Member states must provide a plan to mitigate

environmental impacts of coal production Subsidies permitted until December 2027 for

exceptional costs of closure not related toproduction E.g. social welfare benefits and site

rehabilitation

Coaltrans Geneva31st March 2011

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Page 13: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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Further policy initiativesemerged in 2010…

EU Energy Strategy2011 to 2020

Priorities mainly inenergy efficiencyand infrastructure

EU InfrastructurePackage definessix priorities forthe next twodecades

Coaltrans Geneva31st March 2011

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… including a priority fora CO2 infrastructure…

CCS could contributeto abating 13% of theEU’s greenhouse gas

Public engagementbeyond the nationallevel is needed.

Limited storagepotential in someEuropean countries A European, rather than

a national approach tobe taken

Coaltrans Geneva31st March 2011

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Page 14: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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Coaltrans Geneva31st March 2011

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…with a vision of a CO2

network - 2020 to 2050

Does new UK policy showleadership for Europe?

Carbon price floor

Targeting €85 per tonne CO2 by 2030

Feed in tariffs for low-carbon generation

Based on contracts for differences

Coaltrans Geneva31st March 2011

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Emissions performancestandard

Allows grandfatheringof unabated gas

Capacity payments

Page 15: European Regulation and the Physical Coal MarketGeneva+31-03-11.pdf · Lignite 128.9 33% Imported Hard Coal 151.9 39% 61% of EU’s 2009 solid fuel supply was indigenous Mtce Based

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Conclusions

Europe’s coal consumption becomes lessimportant in a global context

Industrial Emissions directive will force closureof some older power stations

EU has ambitious climate change targets for2020 and 2050

Policies will impact coal through carbon pricesand through market foreclosure

EU is positive about CCS and a CO2 network

But funding is uncertain

New policies may be needed to deliverobjectives – e.g. UK model

Coaltrans Geneva31st March 2011

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www.coalimp.org.uk

Thank [email protected]


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