Utility Carbon Reduction Strategies to Drive Commercial Success

Changes in political and public mindsets means European power utilities now face a future where continued high levels of carbon emissions are socially and financially untenable. Given the unmistakable drivers for the energy industry to reduce its carbon emissions, European utilities are increasingly challenged with having to rapidly enact successful long-term carbon reduction strategies.

Report Highlights
Regulation, competition and consumer demand are driving power retailers and generators to develop successful carbon reduction strategies. European utilities must address the need for long-term successful carbon abatement strategies or face prohibitively high compliance costs under a broadening EU-ETS carbon cap-and-trade mechanism.

The most appropriate long-term carbon abatement strategy for a power generator varies from utility to utility and country to country. In the UK and Germany, the few generators with low coal dependency will favor a switch to more energy efficient generation, yet the bulk of all generators will seek to leverage carbon capture and storage.

Since the turn of the century, European utility carbon mitigation strategies have yielded very different results. Today, the same utilities rely increasingly on emerging technologies with wide-ranging and rapidly improving abatement potentials which could reduce power sector emissions by up to 35% by 2030, at a marginal cost lower than EUR40/tCO2e.
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
Regulations to reduce carbon emissions span the entire energy value chain, with an impact on consumers and retailers, but mostly electricity generators 2
Regulation, competition and consumer demand are driving power retailers and generators to develop carbon reduction strategies 2
Current EC support for 100% auctioning of allowances for the power sector from 2013 would hit Europe's largest utilities hard 3
In the next decade, greater demand for power and higher carbon prices will lead to prohibitively high compliance costs for utilities 4
The most appropriate long-term carbon abatement strategy varies from utility to utility and country to country in line with the generator's current mix and the relative cost of abatement 5
In the UK, coal power generation accounts for a comparatively large share of each generators' mix, except for Centrica and BE 5
In the UK, generators with low coal dependency will favor a switch to more energy-efficient generation; others will focus more on CCS 6
Large coal-dependant and carbon-intensive power generation bases are widespread in Germany 7
The prime carbon mitigation strategy for coal-intensive German utilities will focus on CCS and renewable power generation 8
European utilities increasingly rely on emerging technologies with considerable, wide-ranging and improving abatement potential 9
Since the turn of the century, different mitigation strategies across the major European utilities have yielded very different results 9
Today, power utility carbon abatement strategies can rely on three main building blocks underpinned by emerging technologies 10
Six abatement options could decrease power sector emissions by up to 35% by 2030, at a marginal cost of less than €40/tCO2e 11
Power generation technologies at different degrees of commercial maturity currently present varying marginal abatement potentials 12
APPENDIX 13
Glossary 13
Ask the analyst 13
Datamonitor consulting 13
Disclaimer 13
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Figure 1: Three main drivers are forcing power retailers and power generators to develop long-term successful carbon mitigation strategies 2
Figure 2: By 2013, Europe's largest utilities could face annual carbon compliance costs ranging from €90m to €5.5bn*, if unhedged 3
Figure 3: A 2017 carbon allowance compliance cost forecast* shows that utilities must develop robust carbon reduction strategies or face significant profit erosion and competitive displacement 4
Figure 4: CCS and other more efficient power generating technologies do not necessarily deliver the greatest marginal abatement potential 5
Figure 5: Retailers with a comparatively low carbon intensity will derive higher marginal abatement through 'softer' strategies focusing on demand side management (DSM) 6
Figure 7: Large historical coal-fired generation bases in Germany put utilities at the 'dirty' end of the carbon intensity spectrum 7
Figure 7: German power generators will derive higher marginal abatement through the use of large-scale capital-intensive technology deployment strategies (e.g. CCS and energy efficiency) 8
Figure 8: carbon intensity of power generation is expected to evolve differently Across the major European utilities owing to differing power generation profiles 9
Figure 9: Carbon mitigation strategies vary with the utility's position within the value chain, its relative exposure to current and future carbon regulation, and the options and technologies at its disposal to facilitate the transition to a lower carbon intensity at the lowest marginal cost. 10
Figure 10: For utilities, there are six main abatement options with a marginal cost below €40 per tonne 11
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