French carbon price ‘could cut UK imports by a third’

The introduction of €30 per tonne carbon price floor in France could cause the volume of power being imported into the UK via interconnectors to fall by a third, according to an analyst at Thomson Reuters.

Senior modelling analyst for the Point Carbon team Yan Qin told Utility Week the firm’s calculations had indicated that if the price floor was implemented, it would push up French wholesale prices by €3 per MWh, making the country’s exports less attractive.

She said exports to neighbouring countries would likely be halved, falling from around 60TWh each year to just 30TWh.

“The impact on exports to the UK would be small given the UK has implemented a carbon price floor already,” said Qin. She said the power price in Britain is “much higher than in the French system”, adding that the average annual price differential between the UK and France currently stands at around €16/MWh.

Despite this, she said, a €3/MWh increase in French wholesale prices could result in annual exports to the UK falling from 15TWh to 10TWh. In May National Grid reported an increase in profits in its full-year results, in part because of improved earnings from the French interconnector which it operates.

French president Francois Hollande announced plans to unilaterally introduce a carbon price floor for power generation towards the end of April, after failing to find support amongst other countries for the introduction of a ‘price corridor’ for the EU emissions trading scheme (EU ETS), whereby a price cap would be set as well as a price floor.

Earlier in the month French energy minister Ségolène Royal appointed a high-level task force to examine carbon pricing following the Paris climate change agreement, and to look at the proposals for a European price corridor. A meeting of the taskforce took place on Friday.

Low prices

The EU ETS has faced widespread criticism for failing to provide a sufficient incentive for decarbonisation because of the low price of the allowances, which are currently trading at just over €6 (£4.80) per tonne.

The price has been kept low by a chronic oversupply of allowances which came largely as a result of reduced economic activity following the 2008 financial crisis. The EU has attempted to reduce the oversupply by postponing the auction of hundreds of millions of allowances – a process known as ‘backloading’.

Last year it also agreed on plans to create a balancing mechanism called the market stability reserve, which will be established in 2018 and will become operational the following year.

All the allowances which have been backloaded up until that point will be transferred into the reserve. Allowances will then be transferred to and from the market in order to keep supply and demand in balance.

At the end of May Conservative MEP Ian Duncan published draft proposals on reforms to the EU ETS during its fourth phase (2021-2030).

They included increasing the annual emissions reduction rate, and giving countries the power to retire allowances in response to the closure of power plants.

Earlier this year analysts on Thomson Reuters’ Carbon Point team predicted that the price of allowances will average €6.60 per tonne in 2016. As things stood, they said, the price was on course to reach €10 per tonne in 2020 and €26 per tonne in 2030 (2015 prices).