MorganEnergy

Yesterday the European Union took a major decision on the future of its Emissions Trading System (ETS). The big issue has been the question of whether companies would have to pay for their permit allocations in future, or whether they would continue to have them handed out for free. Karsten Neuhoff made a strong case for auctions, and it seems that the EU agreed with him, because broadly speaking that is what they opted for.

Reactions have been mixed. The Times thinks this is a disaster for the UK energy industry and suggests that electricity costs will rise steeply. Sandbag is broadly optimistic. And Deutsche Welle is furious that we have to wait until 2013 for the auctions to take place.

Of course it could all be moot, as the decision has to be ratified by both the European Parliament and member states. Doubtless much lobby will take place between now and then.

The generally accepted wisdom in the West tends to be that China is industrializing on the cheap, and spewing out vast quantities of pollution from poorly built power stations. A new study from MIT takes aim at that idea. New Chinese power stations, they say, are often very modern and efficient. What they lack is not technology, but economic incentives. Because China has no emissions markets, power station owners choose to burn the cheapest coal that they can find, regardless of how much pollution this generates. And although their power stations come with expensive gadgets like smokestack scrubbers, they don’t use them because that costs money. The full paper is available here.

Since February of this year the UK energy regulator, Ofgem, has been conducting an inquiry into the prices charged to retail customers. Their report was released today. The text is available online here. Ofgem has not found any evidence of price fixing by retailers, but it has raised a number of concerns about the market. Here are a few highlights.
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At EU Energy Policy Fereidoon P. Sioshansi talks about how the turmoil in financial markets might affect the energy industry. The article is mainly about the sudden collapse of Constellation, but other companies may also get into difficulties. Reliant is already making noises that sound a bit like a sports coach saying that he has the full backing of the owners.

Meanwhile Forbes looks at how the collapse in investment will affect the renewables industry.

To make matters worse, the collapse of investment bank Lehman Brothers has become a liability for many solar energy companies. In recent years, Lehman had become a principal underwriter for solar energy companies raising money or financing debt to build factories and solar farms.

Double Plus Ungood would appear to be an appropriate comment.

As expected, regulatory authorities in both the UK and EC will be taking an interest in the purchase of British Energy by EdF. Interestingly EdF has announced that any deal with Centrica, who are supposed to be taking a 25% stake in the deal, will have to be put off until after regulatory approval is granted. Presumably EdF is much more worried about Centrica’s potential dominance of the UK retail market than about its own potential dominance of the UK generation market.

Now wait for British MPs to tell Gordon Brown that the deal can’t go to Brussels unless some UK ownership is involved.

That has to be the question that everyone is asking right now. OK, so the banking sector is in meltdown, but what about me? Or, in our case, what about energy?

Despite the regular panics about price spikes, market failure, environmental regulations and so on, it appears that the energy industry is weathering the storm. Last week Platts reported that the US energy sector was still seen as a good investment. Of course that was last week, but it does help to be producing a product that just about everyone needs. The demand for energy may tighten, but it will never go away.

On the other hand, the nature of investment in energy may change. Today the California PUC has warned that lack of investment capital may put the brakes on the state’s green agenda. Platt’s reports that Commission member John Bohn has been voicing concern about the ability to finance development projects. Even major utilities are likely to be hit, but smaller companies will feel the pain much more deeply.

That, I suspect, will be a major problem for the burgeoning renewables industry. Right when it was about to take off in a big way, investment is going to come to a grinding halt. Instead new investment will have to come from other sources, and there will probably be government involvement in many cases. We can’t afford to let the lights go out, so government will feel the need to Do Something. And, as is the way of government, they will eschew multiple small and innovative projects, and go instead for something big and flashy that will appear to solve all of their problems in one go. Building nuclear power stations may prove to be a lucrative career over the next few years.

Today’s BBC news includes a story about a plan for a massive tidal power project planned for Scotland. But this is not a wave-power system like that in Portugal, or even a tidal reach system like the WaveGen system. Rather it is an underwater wind farm using turbines very much like those used on land to extract power from ocean currents.

This is not a new idea. Similar systems are currently being tested in New York’s East River. On the other coast, PG&E is looking at possibly siting turbines on the sea bed underneath the Golden Gate bridge. Wind turbines are proven technology, and the problem of bringing power ashore from offshore installations is also well understood, so putting the turbines themselves under water is hopefully a relatively small step.

In the wake of EdF’s (planned) purchase of British Energy, Oliver Morton tackles the issue of whether nuclear energy will indeed lead to a reduction in CO2 emissions. He notes that between 1977 and 2003 the amount of nuclear generation in France grew by 4000%, and yet:

According to the Stern review fossil fuel emissions in France during the 25 years of that 4000% increase fell, on average, by less than 1% a year. Emissions from the generating sector dropped 6% a year, which is about 80% over the 25 years, which is great — but the rest of the economy kept growing and burning fossil fuels in cars and heating systems and factories and all that.

Looking at the chart he used for generation data, it appears that the growth in nuclear generation accounted for all of the growth in electricity consumption, while other fuel sources remained roughly constant. Obviously if nuclear were to replace existing generation then things would be rather different.

But then again, nukes are not very flexible plants. You have to have some flexible generation in your mix. Looking at Morton’s data (which is from Wikipedia and which I haven’t checked), less than 20% of France’s generation comes from non-nuclear sources. How much lower could that go, and still have the system remain manageable?

The world’s first commercial wave-power generating station was officially opened for business in Portugal today. Manuel Pinho, Portugal’s Economy Minister, performed the ceremony at Aguçadoura where the generating station floats 5 km offshore. The plant has been built by Pelamis who have hopes that the technology will take off elsewhere in the world. Initial attempts to get wave power to work in Scotland foundered because the machines proved too fragile for the Scottish weather, and perhaps due to a lack of enthusiasm on behalf of the UK government. However, Ross Henderson of Pelamis told the BBC that similar machines will be installed in Orkney and Cornwall next year, and the company is looking at projects in Norway, Spain, France, South African and North America.

More information has been emerging about the Centrica deal to take a 25% share in the new nuclear power company being created by EdF from British Energy. EdF is buying BE through a subsidiary called Lake Acquisitions, and Centrica will take a stake in that company. According to EasyBourse:

The acquisition by Centrica would be at the same implied price per share as EDF pays for British Energy, subject to certain costs to be agreed. Under the deal EDF would retain control of British Energy through its 75% interest in Lake Acquisitions and be responsible for running all British Energy’s power stations.

Centrica’s 25% interest in Lake Acquisitions would give Centrica the right to offtake at least 25% of the uncontracted output of British Energy’s existing generation fleet. Profits of Lake Acquisitions would be distributed to EDF and Centrica in proportion to their equity interests. Centrica would also be entitled to participate in EDF’s nuclear new build activities in the U.K. on a 75/25 (EDF/Centrica) basis, with EDF leading the developments and being responsible for the building and operation of the new nuclear power stations.

It is also apparent that despite yesterday’s fanfares there are still rocks on which the deal might founder. Centrica may yet face an inquiry into the share of the UK generation market it controls with the addition of 25% of BE’s output. The Times talks about a “furious backlash” of patriotic Brits, none of whom have presumably been reading the newspapers over the past few months and have been taken completely by surprise by the news. And the Scots have finally woken up to the idea that British Energy is actually their national champion (BE’s head offices are in East Kilbride. Unfortunately for them, the SNP government has set itself firmly against any new nuclear build north of the border, so Alex Salmond is going to have to work very hard to make EdF think it worthwhile sticking around.