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The Topic: Funding decarbonisation FUNDING DECARBONISATION THE TOPIC 14 | 16TH - 22ND SEPTEMBER 2016 | UTILITY WEEK GREEN GAS T he development of the deal designed to see the construction of the Hinkley Point C nuclear power station has been far from easy. The £18 billion project has seen rumours that the French government, which is a majority stakeholder in EDF, was looking to sell prized assets, including car manufac- turer Peugeot, to free the capital to fund the project. Even so, the deal was too much for EDF and France to take on alone. The energy giant began searching for an investor to help boost its balance sheet and make the project viable. Getting the 3.2GW power station built is seen by many as essential. It will meet 7 per cent of the UK's electricity needs and will help fill some of the baseload power gap le when coal-fired power stations close – expected no later than 2025. Coupled with meeting demand, nuclear power is a low-carbon option, with emis- sions of 29 tonnes per gigawatt-hour, much lower than coal (888 tonnes/GWh) and gas (499 tonnes/GWh). There is an argument that other tech- nologies can fill the Hinkley Point gap. The Methane-rich biogas, commonly referred to as "green gas", is produced through anaerobic digestion. The resulting gas can be used for various applications including renewable heat and power, either directly on site in conventional boilers or combined heat and power systems, or through injection into the national gas network. The Renewable Heat Incentive (RHI), intro- duced in 2011, is the primary policy supporting biomethane projects in the UK, propelling the UK forwards as the fastest growing biomethane market in the world in 2015. Supported by the scheme, 64 projects were completed by the end of 2015, injecting around 2.5TWh of biomethane into the gas grid, enough to meet the heating and cooling needs of more than 150,000 homes. One concern to the industry is the digres- sion mechanism built into the scheme, which is resulting in dramatic, unintended reductions Does the UK need a new nuclear plant? The Cameron government, eager to get Hinkley Point C off the ground, came up with an intricate deal, including a £92.50/MWh strike price. However, questions remain over the project's necessity and relevance in a changing world.. THE EU EMISSIONS TRADING SYSTEM The EU Emissions Trading System (EU ETS) is the cornerstone of the European Union's drive to reduce emissions of man-made greenhouse gases. The system works by putting a limit on overall emis- sions from high-emitting industry sectors, which is reduced every year. Within this limit, companies can buy and sell emissions allowances as needed. This cap-and- trade approach gives companies the flexibility they need to cut their emissions in the most cost-effective way. The EU ETS covers more than 11,000 power stations and manufacturing plants in the 28 EU member states as well as Iceland, Liechtenstein and Norway. In total, around 45 per cent of EU emissions are covered. Under EU legislation at least half of auctioning revenues, and all of the revenues from auctioning allow- ances to the aviation sector, should be used to combat climate change in Europe or other countries. Member states are obliged to inform the Commission of how they use the revenues. Some of the EU ETS funds have gone towards the establishment of an innovation fund, NER400, which acts as the successor to the NER300 fund, which was origi- nally planned to be used to help fund the UK's develop- ment of carbon capture and storage. The NER400 fund could award and disburse €10.7 billion to pilot clean technology projects by the end of the next decade. The Innovation Fund will be filled by the sale of 400 million carbon allowances from the free allocation portion of EU ETS Phase 4 (2021-30), plus 50 million of unallocated emissions allowances from the current trading phase. The proposal aims to use the 50 million Phase 3 emissions allowances to support projects before 2021, which could generate €685 million if sold over the pre- ceding three years, according to analyst projections. Cutting greenhouse gas emissions: EU targets and dates 2020: Down by 20% (or 30% if other major economies commit to undertake their fair share of a global reduction effort) 2050: Down by 80-95% compared with 1990 levels £92.50/MWh – CfD strike price for just Hinkley Point C £89.50/MWh – CfD strike price if Sizewell C is built 35 years – length of the contract £29.7 billion – estimated bill for subsidies (NAO) £18 billion – estimated construction costs NUMBERS AVERAGE COST OF REDUCING FOSSIL FUEL EMISSIONS TO 18 GIGATONNES OF CO 2 IN 2015 The red lines give uncertainty bounds around the central estimate. These have been calculated using Monte Carlo analysis. For each technology, the full range of possible costs (typically ±30% for new technologies, ±20% for established ones) is specified. Similarly, future oil prices are specified as probability distributions from $20 to more than $80 a barrel, as are gas prices (£2-6/GJ), coal prices and future energy demands (to allow for the uncertain rate of uptake of energy efficiency). This produces a probability distribution that is the basis for the ranges given. 150 100 50 0 -50 -100 $/tCO 2 2000 2010 2020 2030 2040 2050