A Double Whammy for Coal Power in Europe

Coal generation in Europe was walloped—twice—in April. Early in the month, members of EURELECTRIC, a pan-European power sector association of more than 3,500 companies, announced that it would cease investing in new coal plants after 2020. And on April 28, members of the European Union (EU) approved new air pollution limits for large combustion plants that will require utilities to invest in new technology to retrofit coal plants, limit operations to 1,500 hours a year, or shutter facilities by 2021.

The EU’s new round of controls on air pollution, which strengthens its 2011-established industrial emissions directive, are described in a “best available techniques reference document” (known as “BREF”) for large combustion plants. Backed by 20 countries—and predictably, opposed by countries that still rely heavily on coal (Figure 1)—the BREF includes new emission limits, expressed as wide, ambiguous ranges, for sulfur dioxides (SOx), nitrogen oxides (NOx), mercury, and particulate matter. It requires large thermal power plants in Europe to comply with those limits by 2021.

Figure 1_EuropeVotingCoal_IEEFA
1. A continental divide. New power plant air pollution limits agreed to by a committee of European Union member states—including the UK—on April 28 could create more headwinds on the continent for coal power, which has already seen fierce competition from renewables and natural gas. The Institute for Energy Economics and Financial Analysis (IEEFA) noted that member country voting outcome was split between many former Eastern-bloc countries that still depend heavily on coal—along with Germany—and the rest of Europe. Courtesy: IEEFA

According to a May 2017 report issued by the Institute for Energy Economics and Financial Analysis (IEEFA) scrutinizing the impact of the new round of pollution controls, of 600 installations that comprise all of Europe’s main power plants that are larger than 50 MWth, and which burn coal, lignite, and biomass, about 108 installations (of more than 300 MWth) are responsible for the majority of SOx and NOx emissions in the EU. Nearly all of these large plants, which are concentrated in Eastern Europe but also include plants in the UK, Spain, Italy, and Germany, are well above the relevant BREF limits and will face costly air pollution upgrades or closure, the think tank suggests. Of the 600 facilities, meanwhile, “Some 69% of installations were non-compliant with the upper end of the NOx range (175 milligrams of NOx per normal cubic metre of flue gases [mg/Nm3]). Some 43%–61% were non-compliant with the upper SOx range (180–320 mg/Nm3),” it said.

“The cost of compliance will be prohibitive for many of these installations, given the market outlook and other headwinds,” said Gerard Wynn, a London-based IEEFA energy finance consultant and co-author of the report, on May 8. “Owners will either have to make significant investment and technical changes in just four years, or decide to close the plants altogether or significantly restrict their operating hours. Whichever way they turn, additional cost is unavoidable.”

Wynn noted that the regulations could further undermine and in many cases “shatter the fragile economics” of coal generation across the EU, which have already been weakened by natural gas and renewables. Major markets, including Poland, and leading utilities, such as ENEL, EDF, Drax, and CEZ, will more prominently face what Wynn called a “cough-up, wind-down or shut-down” compliance choice.

Even before the bloc voted on the new rules, however, European power generators were already determined to “lead the energy transition and back [a] commitment to the low-carbon economy with concrete action,” as EURELECTRIC President and CEO of the Portuguese energy group EDP, António Mexia, said on April 5, the day that the trade group pledged to deliver on the Paris Agreement and cease investment in new coal after 2020. EURELECTRIC Secretary General Kristian Ruby said the challenge for European policy makers will now reside in ensuring policies are “complementary and advance decabonisation and electrification at the same time.”

In an interview with POWER in March, Ruby noted that EURELECTRIC anticipates that the energy sector will “basically transform” over a 30-year period through 2050. Yet, he pointed out, the energy transition has been costly to generators, and it required careful consideration when being implemented. “Over the last five years, we have seen European-listed utilities write off €115 billion worth of value. That’s a significant amount of money this energy transition is costing, and it’s basically underscoring the point that this is not a walk in the park,” he said.

One reason for the impact on profitability is a “collapse of wholesale power prices” in Europe, he said. Power generators, he added, were “eager” to see a balanced regulatory framework that ensures “a good mix of investor incentives to make the right investments in new technologies, but also protections so that existing assets get a fair deal and are treated in a fair way.” EURELECTRIC is working with European governments to help “recalibrate the power market and make it work better than it does today,” he said. “One of the things we’re looking at is basically to make sure that the services provided by conventional generation assets are valued in the market.”

Ruby specifically urged more European support for hydropower, which he said was an attractive source of energy for the energy transition owing to its cost-effectiveness, flexibility, and storage capacity. He called attention to the potential for improving the efficiency of Europe’s existing hydropower fleet, and exploiting the continent’s resources via new large- and small-scale installations.

But because it was one of the first technologies to produce power, and its expansion happened in waves throughout the 20th century, it is generally seen as an older source of conventional power generation, Ruby said. “I think it’s not unfair to say that people may have forgotten a bit about it.”

Sonal Patel is a POWER associate editor