EU's 550g CO2 cap on capacity scheme power generation plan still divides

Brussels — Setting emission limits on the power plants eligible to receive capacity mechanism payments remains one of the most contentious issues in the EU's draft new power market design rules, as approval talks head into the final stages.

Negotiators from the European Parliament and EU Council have held four rounds of informal talks so far to agree a common text for the draft EU electricity market regulation, with progress in some technical areas, according to documents on the EU Council's website Friday.

These include provisional agreements that the new market rules shall encourage "free price formation and avoid actions which prevent price formation on the basis of demand and supply," as well as more flexible generation, sustainable low carbon generation, and more flexible demand.

That flexible generation and demand is needed to cope with the expected growing share of variable renewable power, as part of EU efforts to cut its carbon emissions to meet climate goals by 2050.

The rise in renewables has prompted several EU national governments to set up capacity mechanism schemes to ensure there is enough back-up capacity available to cover low renewable output days.

This is turn prompted the European Commission to propose limits on higher emitting plants receiving such payments as part of the new market design rules.

So far the council, representing the EU's 28 national governments, and parliament are sticking to their original negotiating positions on this issue.

The council wants to allow existing power plants with emissions either above 550g CO2/kWh or 700kg CO2 on average per year per installed kW to receive capacity payments to 2030.

New power plants with emissions above these limits -- ie all unabated coal plants -- would not be allowed to take part in capacity mechanisms from 2025.

The parliament, however, wants a single 550g CO2/kWh limit to apply immediately to all new plants starting after the new rules enter into force -- which could be around mid-2019, if the approvals go well, and to all other plants five years after that, so potentially around mid-2024.

The issue is not on the agenda for the next round of the technical talks in the council working party on November 20, which are part of preparations for the next round of informal talks with the parliament and EC planned on December 5.

The parliament, council and EC have to agree a common text before the draft rules can become law.

The Austrian EU presidency, which is leading all EU policy debates until the end of this year, is still confident it can broker an informal deal by then, a government official said this month.

The pressure is on to get the deal agreed and voted on by the parliament before it breaks for elections next May.

--Siobhan Hall, siobhan.hall@spglobal.com

--Edited by James Leech, newsdesk@spglobal.com