Emissions trading scheme will increase assets in energy industry

Many assets owned by electricity utilities will appreciate in value by more than 90% with the introduction of the forthcoming European Union-wide cap-and-trading system for greenhouse gas emissions, according to a new study.

There will be losers, however, says ICF Consulting, the firm that carried out the research, with a devaluing of less efficient fossil fuel power stations. The study examined a number of different scenarios to examine the scale of risks and gains.

“The introduction of greenhouse gas emissions constraints into the European power sector will have the most dramatic impact on the industry since the single market was launched,” said Simon Allen, President of ICF Consulting Europe. Emission constraints will accelerate the shift to natural gas from other fossil fuel alternatives in many regions, and will improve the value of existing gas-fired assets by more than 90% in many cases, predicts Allen.

“In the short term, coal-fired plants in a number of countries may benefit from the forecast upward trend in wholesale electricity prices arising from the internalisation of the value of greenhouse gas emissions,” he admitted. However, in the longer term, inefficient coal-fired plants will be at risk, so that by 2010 more than 38 gigawatts may be forced into early retirement.

Abyd Karmali, ICF Consulting’s Director of European Climate Change Services recommends that players in the European power sector should become engaged in discussions on how member states should allocate greenhouse gas emission allowances. “Our analysis demonstrates that each company has significant value at stake under different regulatory and emissions market development scenarios,” he said.

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