Europe ramps up fight against coal, but questions arise about timing

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21 September 2017. By Laurel Henning

When the EU announced plans to overhaul the bloc's electricity market, policymakers said the revamp was a reminder that those governments relying on coal-fired plants to produce power had a duty to cut emissions.

This pointed to the fact that the European Commission wasn't mandating that EU members reduce their use of coal, but was hoping that standards to be introduced under the overhaul would nudge them in that direction.

Yet almost one year later, questions are being raised as to whether the EU regulator should be using these policy updates to put the nail in the coffin of coal plants in Europe.

The reason for the concern is that the bloc's transition from coal toward renewable power will be underpinned by the use of natural gas as a stopgap measure, while producers of renewable energy gear up for the challenge that lies ahead.

What this means is that, in the short term, the EU's reliance on natural gas could rise. And an increase in the bloc's reliance on gas from Russia comes at a time when Europe is wringing its hands about energy security in the wake of Moscow's 2014 annexation of Crimea.

So, while environmental groups may welcome the perfect storm being faced by Europe's coal industry — which includes the falling prices of renewable energy — there is evidence to suggest that the transition from coal to renewables won't be a zero-sum game.

Market updates

When unveiling the electricity-market design initiative last November, EU climate chief Miguel Arias Cañete said he would "never advise" countries on their energy mix. But in the same breath, he warned that coal-dependent countries "have a duty to achieve a reduction of emissions."

These comments resonated in Poland in the east, as well as Germany in the west. These are two large countries relying on coal-based energy, which the EU's executive may not want to antagonize. Poland, Europe's primary coal user, has announced plans to develop nuclear power, as part of a move away from coal.

The EU's revamp is designed to encourage the move away from coal. The measures restrict the use of national programs, which allow energy companies to bid for the right to provide backup electricity supply.

The standards, if approved by government representatives and the European Parliament, would mean that any plant used for a capacity mechanism five years after the new rules enter into force cannot emit more than 550 grams of carbon dioxide per kilowatt hour.

Some industry experts have criticized the standard as the wrong tool for the right cause: to cut the bloc's emissions. Critics fear the move could push Europe into a corner in terms of how it should ensure lights stay on across the bloc. A sudden move away from coal could threaten power supplies and lead to greater use of natural gas — another fossil fuel.

Gas increases

According to a monthly monitoring report by Russian energy giant Gazprom, released this week, new EU standards for coal-fired power plants are "likely to result in increased natural-gas demand for power generation."

MLex has learned that the increase in Europe's demand for gas, as a result of the emissions standard attached to capacity mechanisms, could be as much as 40 percent.

This amounts to a big spike in the EU's energy dependence on Moscow. Europe gets roughly a third of its gas from Russia, with about half of entering the bloc via Ukraine.

Efforts to cut the bloc's coal use could lead to greater reliance on Russian energy imports if Europe fails to make drastic cuts in its overall energy use and ramp up efforts to use more renewable power.

Environmental perspectives

At first sight, new emissions standards for coal under the bloc's electricity-market design, coupled with tighter pollution limits rubber-stamped by the commission in August, amount to a regulatory death knell for coal-fired generation in Europe.

Under new pollution laws, exemptions are made for coal plants that are only functional for 1,500 hours each year — about 20 percent of the year. These plants could be eligible for the exemption if they function for this short period of time to provide "emergency power" to the bloc's network.

But plants could fail to make the cut for that exemption from pollution limits if the rules surrounding backup power programs under the bloc's new market-design measures introduce the 550g rule.

RWE's Niederaussern and EPH's Jänschwalde facilities in Germany are just two examples of coal plants that would be running up against EU pollution and emission laws. Their possible shutdown as a result could again exacerbate reliance on gas.

Not every country in the bloc has a capacity market, but more than half of EU states use national remuneration programs to shore up energy supplies — and that figure is set to rise.

All this means that countries investing in renewable energy need to get their act together — fast.

For example, Poland will need to get its nuclear plant online and investors in Polish nuclear power will have to act quickly. Observers also say that the country will need to increase its wind-energy use to make up for any possible power shortages.

Today's policy climate looks like the move away from coal is speeding up, with the fossil fuel being attacked by the plummeting price of renewable energy, governments beginning to introduce policies to deliver on UN climate goals and, now, stricter air-quality requirements.

The market has dealt coal a blow and regulation looks to be stepping in to deal a final knockout punch.

But Europe should tread carefully. If legislative efforts to cut coal prompt a short-term rush on gas, increasing the EU's dependence on foreign imports before renewable power is ready to fill the fossil-fuel gap could see the bloc throwing the baby out with the bathwater.