UK carbon policy may boost Irish fossil fuel plants

UK CARBON policy may push investment in fossil fuel-burning capacity to the Republic, the policy director of utility SSE, which this month bought an under-construction gas-fired power station and three sites for plant development in the Republic, has said.

SSE is now Ireland’s third biggest energy company after it bought Endesa’s Irish assets, including four existing fossil fuel-burning plants.

Keith MacClean believes the UK’s decision to implement unilaterally a “carbon price floor” could push investment to jurisdictions connected to the UK grid, such as the Netherlands and Ireland.

Under EU rules, all energy plant operators must pay for their carbon emissions by purchasing carbon allowances.

But from April next year, UK utilities will also have to pay a top-up price for carbon, so that even when EU carbon prices are low, as they are at the moment, the UK government will penalise its energy sector for its emissions.

The UK treasury has set the carbon price floor at £16 (€19.83) per tonne of carbon for next year, rising incrementally to £30 per tonne by 2030.

By contrast, the benchmark EU carbon contract settled at €8.17 per tonne on Friday on the ICE Futures Europe energy exchange.

“If we’re having to pay £15 a tonne [of carbon] for burning the same amount of gas, then clearly there’s a point at which it becomes more economical to do that in Ireland than in the UK,” Mr MacClean said.

The fact that the carbon price floor is a tax which can be “easily changed at every budget” also adds to uncertainty for utilities, making UK investment decisions harder, he added.

The UK carbon price floor will also pose major problems for fossil-fuel generators in the North, analyst Brendan Cronin of consultancy Pöyry said.

Fossil-fuel plants in the North will be far less competitive when selling into the island’s single electricity market because they’ll have to price in the UK carbon tax.

“It will damage the competitiveness of thermal generators [in the North] when they bid in. It’s an interesting moment, because we have a single market on the island but half the market will have a different carbon price to the South,” Mr Cronin said.

Earlier this year, a UK parliamentary committee warned that the carbon price floor could lead to “carbon leakage”. Carbon leakage occurs when environmental policies in one jurisdiction lead to higher emissions of a greenhouse gas in another jurisdiction.