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EU power plants get options to meet new capacity scheme CO2 limits

The EU's stricter CO2 limits on power plants receiving capacity payments started Jan. 1, but operators of higher CO2-emitting plants still have options to benefit from future payments.

Power plants online before July 4, 2019, that emit both more than 550 grams of CO2 per kWh and more than 350 kilograms of CO2 on average per year per installed kilowatt will be able to receive capacity payments until July 1, 2025, under the EU's new power market design regulation.

After that, operators of these high-emitting plants, such as coal and lignite, will have to limit their run-times or otherwise adapt them to meet the new limits if they want to become eligible for further payments.

EU national governments are using capacity remuneration mechanisms to ensure grid stability as more intermittent renewable generation comes online.

The EU's Agency for the Cooperation of Energy Regulators, or ACER, has recommended averaging a generation unit's annual emissions over the last three full calendar years to determine if it is below the 350-kilogram CO2 annual limit.

This would give "a very good picture" of the unit's CO2 emissions, and would simplify and streamline the overall monitoring process, ACER said in formal technical guidance on calculating power generation CO2 emissions published last month.

A generation unit initially above the 350-kilogram CO2 annual cap could take part in strategic reserves if the operator committed to run the unit for limited full-load hours to keep the emissions under the cap throughout the contracted delivery period. The national regulator would have to monitor this to ensure compliance.

Meanwhile, operators of plants above the 550-gram CO2/kWh limit could submit a "compliance action plan" to national regulators setting out firm commitments to meet the new limit before the proposed capacity delivery period. If the national regulator found the plan convincing, it could allow the operator to take part in a capacity mechanism.

Unit-by-unit emissions

ACER also recommended that national regulators apply the CO2 limits to each individual generation unit that can be operated independently when pre-qualifying power plants for capacity mechanisms.

Regulators should assess complex production unit configurations case by case, looking at the different fuels used and keeping in mind the EU power market design regulation's aim to cut emissions, ACER said. This could impact coal plants which have converted some units to biomass.

ACER said bioliquid- and biomass-fueled units would count as zero emission, but would still need to comply with EU sustainability and greenhouse gas emission saving criteria to be eligible for financial support such as capacity payments.

The new emission limits should not, in principle, apply to energy storage units supplied from the grid, ACER said. But where a unit is directly linked to a particular generation unit — physically or contractually — the operator should show that unit complies with the emission limits. On-site back-up generation units used intermittently should also meet the new emission limits, ACER said.

EU push to cut more CO2

EU power plant operators are set to face more pressure to cut their emissions generally going forward, as part of the European Commission's plans to make the EU carbon-neutral by 2050. The EC plans to propose after the summer a binding 2030 target to cut EU emissions by at least 50% from 1990 levels, up from the 40% agreed in 2018.

ACER said its guidance should not prevent national governments applying stricter limits for capacity mechanism payments. It noted that the French government set a 200-gram CO2/kWh limit in the call for tenders for new generation capacity to be delivered from 2023 to 2029.

Gaining a capacity mechanism contract is also no guarantee that a plant will be built. For example, Poland's 1-GW Ostroleka C coal-fired power project won a 15-year contract in a 2018 capacity market auction for delivery from 2023, which means it can receive state subsidies through to the end of 2037, despite exceeding the 550-gram CO2/kWh limit.

But Poland's former deputy energy minister Grzegorz Tobiszowski, who previously championed the 6.023 billion zlotys project, said in November he now believes the unit will not be built because of financing problems.

Siobhan Hall is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.