The principle of grandfathering

 

It is obvious that assuming that building new power plant is long-run investment and the lifetime of the new capacities extends for a several decades, the parameter of crucial importance to investors is predictability of the regulatory regime. It looks like the EPS concept on the one side disturbs the regulatory certainty first and foremost for the coal-fired power plants but on the other side brings for them not bright but a stable outlook for the future. White Paper reminds that in the UK any new coal plant is already required to be built with CCS on at least 300 MW (net) of its capacity, the implementation of the EPS would not change the situation in the dramatic way then.


In order to provide sufficient certainty for investment in new plant, the Electricity Market Reform (the EPS being an integral part thereof) proposed a principle of grandfathering for the economic life of a power station. This would mean that the level of the EPS in place at the point that a power station is consented (initially be set at a level equivalent to 450g CO2/kWh (at baseload)) remains at the level which is relevant for its economic life.

 

Consequently, applying this principle from the point of consent, means removing the risk that the EPS applicable to any given plant will be tightened while it is under construction.

 

EPS is minded to be grandfathered on the basis of a clear and pre-determined period (i.e. the duration for which a plant will not be subject to possible changes in the level of EPS).

The ability of new plant to get a grandfathered EPS will however be available at least until the end of 2015.

 

Extensions or upgrades


Power plants which undergo significant life extensions or upgrades will fall under the EPS regime. The White Paper gives an example that this could include upgrading boilers to supercritical status. Upgrades to comply with EU law will not trigger the bringing of a plant within the EPS, nor will retrofit of CCS or conversion works undertaken to facilitate the use of biomass.

 

Other remarks

 

The Government intends to zero rate biomass under the EPS. While biomass is not carbon neutral, it is regarded as low-carbon.

 

The UK Government commented finally on the question of the coherence of the CO2 EPS  with the provisions of EU law. It expressed an opinion that the EU law do not impose any bar in principle to the implementation of an EPS of the kind outlined in the White Paper, provided that it does not, for example, undermine the EU ETS (which in its view it will not).

The extensive consultations with the European Commission are, however, envisioned on this matter.

 

The CO2 emission performance standards and carbon price floor can be seen as an  alternative – as against EU ETS – manner to reduce emissions. The White Paper would like to see them, however, as not alternative but complementary to the emission trading way of decarbonisation of the UK power generation. It seems that if EUAs market price was high enough, such a regulatory intervention wouldn’t be necessary. The coming months will show whether other EU Member States will go in the same – as the UK – direction.

 

 

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