Buoyant EU carbon price means renewables now competitive with existing coal and gas

The price of a tonne of carbon dioxide in the European Union Emissions Trading Scheme (EU ETS) is, at the time of writing, continuing to rise, having passed the symbolic €20 per tonne mark in late August – a level last seen in 2008.

The high price and its effect on coal and gas power prices means that, for the first time, new onshore wind and solar power can compete with the short-term costs of generating electricity from existing coal and gas plants, according to analysis by Sandbag, which describes the current cost per tonne as ‘a new tipping point’.

Sandbag says that the ETS price rise is adding to separate factors increasing the cost of generating electricity from coal and gas in Europe since the start of 2017. Over that timescale year-ahead coal prices have increased by around 72% to €46/MWh, and gas prices by 43% to €49/MWh.

Costs for renewables, on the other hand, are going in the opposite direction, points out Sandbag. In Germany two recent renewables auctions for wind and solar power saw prices of around €38/MWh achieved.

High EU ETS prices and high commodity costs for coal and gas have contributed to the rise in generation prices for the technologies.

Separate analysis by Carbon Tracker indicates that carbon prices may continue to rise further, to €25 per tonne by the end of the year, and to €35 per tonne in 2019, as the EU ETS’ Market Stability Reserve mechanism – designed to hold back allowances and bolster the price further – comes into effect. Carbon Tracker says that prices could average €35–40 per tonne over 2019–2023.

This will mean the externalities of fossil fuel generation – or the social costs that are not properly accounted for by current market mechanisms – are more forcefully taken into account, says Sandbag.

The organisation also says that the difference in prices between renewables and coal and gas means that moving from coal to gas as a ‘bridge’ fuel doesn’t make logical sense – instead gas should be leapfrogged to go straight to renewables.