UK carbon floor price offers co-firing boost
November 12, 2012, London, UK — The implementation of a £16/t CO2 equivalent (€19.99/t CO2e) carbon floor price in the UK in April next year will make it economically viable for large UK coal-fired generators to switch to a minimum 50pc biomass co-firing at new renewable obligation (RO) banding levels, according to Argus data.
November 12, 2012 By Argus Media
Despite factors such as a low coal price and increasing wood pellet prices working against biomass generation economics, the large jump in the emissions floor price, which will continue to rise to £30/t CO2e by 2020, will favour biomass co-firing and encourage generators to follow in UK firm Drax's footsteps and increase biomass consumption.
Current EU allowance (EUA) December 2012 prices stand at €8.32/t CO2e, but average €7.58/t CO2e this year. Prices hit their lowest this year on 4 April, hitting €6.16/t CO2e, and rose to a high of €9.50/t CO2e on 27 February. The UK carbon floor will more than double current emissions prices, making it more profitable to burn biomass than coal.
Generators could expect to receive at least €5/MWh more for co-firing 50-85pc biomass — with a subsidy of 0.6 renewable obligation certificates (Rocs) per MWh — instead of coal, based on today's Argus prices and a generating efficiency of 34pc. This increases to more than €11/MWh when efficiency is increased to 38pc.
Full unit conversions from coal to biomass in the UK, which will receive a subsidy of 1 Roc/MWh, could receive more than €26/MWh more for burning biomass over coal at 34pc efficiency, rising to €33/MWh at 38pc efficiency. But unit conversions, although very favourable for generators on an operational basis, come with significantly higher capital expenditure, which could potentially put some generators off.
Without the UK carbon floor, generators would struggle to be profitable against coal from April 2013, even when co-firing at 85pc or more.
But co-firing at less than 50pc biomass will still favour coal despite a higher carbon price, according to Argus figures, as the subsidy will be cut from 0.5 Rocs/MWh to 0.3 Rocs/MWh from April 2013 until March 2014.
Generators considering converting units from coal to biomass include Eggborough Power's 2,000MW plant, Rio Tinto's 330MW Lynemouth plant — which is expected to be sold to RWE — and International Power's 1,000MW Rugeley plant.
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