BREF represents a significant new source of additional financial stress for much of Europe’s coal power fleet, which is already under pressure and struggling to remain profitable.
The implementation of BREF is therefore of major interest to investors as they consider whether utilities should invest instead in new and emerging opportunities in the European market rather than investing in and defending their increasingly exposed coal assets.
Based on our analysis of the costs to comply, we conclude that, BREF should force a decision to shut down older plants among the “low hanging fruit.” In some cases, even though owners of these polluting plants have already invested billions of euros to keep them online, operators should realize they simply cannot catch up with forward-moving regulation. The sooner these plants close, the better.
In Europe, as elsewhere, coal-fired power plants face growing regulatory pressures to lower greenhouse gas emissions and reduce air pollution tied to heart and lung diseases. Coal-fired power plants also face increasing market headwinds from growing renewable-power capacity and from cheaper natural gas, trends that are developing against a backdrop of stagnating demand.
This report focuses on the impact of a new round of controls on air pollution agreed to by a committee of European Union member states on April 28.
These limits will be the new reference for permitting large thermal power plants in Europe. They follow a “best available techniques reference document” for Large Combustion Plants, or LCP BREF, under the European Union’s Industrial Emissions Directive (IED). The LCP BREF (henceforth termed “BREF”) includes emissions limits for toxic pollutants including oxides of sulphur (SOX) and nitrogen (NOX), as well as mercury and particulate matter (PM). Large combustion plants will have until 2021 to comply with BREF, meaning that they will have to make investment decisions in the near term, where they have to retrofit pollution control technologies. The BREF limits succeed similar pollution limits agreed to in 2010 and implemented from January 2016.
This study is intended as a first take on the implications of BREF.
Our initial assessment here is of nearly 600 installations, comprising all of Europe’s main power plants larger than 50 megawatts thermal capacity (MWth) that burn solid fuels, i.e. coal, lignite (a very low-quality form of coal intermediate between bituminous coal and peat) and biomass. We use 2014 data, from the European Environment Agency, for NOX and SOX emissions by power plant.
We then focus on the most polluting power plants, in terms of SOX and NOX emissions, which we term “low hanging fruit.” These 108 installations are some of the largest polluters across the European Union, responsible for the majority of SOX and NOX emissions. They are all at least 300MWth in size, and at least 40% above the relevant BREF limits.
Our research suggests a major opening now for European policymakers and the European electricity-generation industry to embrace BREF as a catalyst for transitioning profitably from coal-fired to clean-energy business models. While the temptation no doubt remains for utilities and energy companies to resist change and defend the old order, the most profitable strategies will acknowledge that the electricity-generation economy across Europe is in transition and that old electricity-generation models are becoming increasingly unviable.
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