Renewables are reducing power sector emissions in the EU ETS by around 15 million tonnes annually, with the industry’s steady growth posing one of the biggest risks to demand for European carbon allowances, analysts said.
Renewable capacity across Europe is responsible for displacing some 700 million tonnes of power sector emissions since 2008, or nearly 100 million tonnes per year, London-based Energy Aspects said in a research report published late Tuesday.
That includes new capacity added since then, which itself has cut 317 million tonnes or around 50 million tonnes annually.
“While the fundamentals have played second fiddle to policy developments in the EU ETS, these will have their day and the rate of decarbonisation of the power sector holds some of the biggest risks,” Energy Aspects said, referring to the drafting of, and subsequent political wrangling over, new laws and reforms to the 10-year old market that have taken centre stage for participants over most of the past three years.
“For the coming six years, a similar level of uptake is our base assumption, but some issues around dropping levels of subsidies mean the renewable additions could be lower, with year-on-year emissions reductions just from renewables likely to be in the 10-15 Mt range,” the analysts added.
Renewables shrink both current and future demand for EU Allowances. That causes carbon prices to fall, which in turn incentivises higher-polluting fuels like coal to be burned while making shifts to lower-carbon fuels less economical.
Last month the EU’s top climate official Jos Delbeke said the EUA price impact of complementary policies such as renewable subsidies would be managed through the MSR.
The European Commission last month said the EU is on track to meet its 2020 target of having renewables provide 20% of the bloc’s primary energy use, estimating that 15.3% of 2014’s consumption has been decarbonised.
Energy Aspects disagreed, saying Europe is likely to miss the goal by two percentage points.
“Within the renewable power generation technologies, a number are overshooting the 2020 targets, with solar PV being the stand-out performer and hydro also likely to come in above target,” it said.
“Despite those, most other technologies are on a lower trajectory than the target, with offshore wind disappointing the most amongst technologies expected to make a significant contribution, expected to fall some 77% short. Onshore wind should meet its ambitious targets, while some other technologies with smaller contributions are expected to fall short, for example geothermal, tidal and ocean.”
CAPACITY CLIMB
In spite of this and reduced growth in countries like the UK and Spain, where recent policy changes triggered by so-called “subsidy fatigue” are squeezing the industry, the Energy Aspects analysts said renewables capacity will continue to grow through the rest of the decade.
“The emissions implication is that, in total, renewable generation would be reducing power sector emissions by around 235 million tonnes per annum. The additional capacity added since 2014 would lead to around an additional 300 million-tonne reduction in CO2 emissions across the 2015-2020 period,” they said.
“By 2020, the cumulative nature of the capacity would mean an added 90 million tonnes per year of power sector emissions would be abated from the use of renewables compared to 2014 levels.”
Energy Aspects noted that existing estimates regarding capacity increases may be overly optimistic, as the policy landscape may change further given the high cost of renewables subsidies to European taxpayers.
However, this could be partially offset by capacity increases elsewhere, for example as part of Germany’s Energiewende programme or as countries try to wean off dirty coal and controversial Russian gas.
“Given all of that … we would assess more risks to the downside than the upside on capacity additions over (2015-2020),” the analysts added.
By Mike Szabo – mike@carbon-pulse.com
Not yet signed up to CP Daily? Subscribe to our free newsletter here
