Windfall profits for European utilities in liberalized markets are likely to continue throughout the first phase of the EU Emissions Trading Scheme (EU ETS), according to Standard & Poor’s new annual credit survey on Climate Change and its impact on the European Power Industry.
It also judges that cash flow and credit quality will continue to benefit in the short term for European generation companies in fully-liberalized power markets.
The Low Carbon Kid says - time for a windfall tax, with the proceeds spent on energy efficiency projects.
Was this supposed to happen when carbon trading was introduced? The big emitters squealed that it would hurt their profits when the UK NAP version 1 was introduced. The subsequently pro-industry version 2 is still the subject of ongoing court action between the UK and the EC because the EC judged it to be too lenient.
Other EC countries' NAPs are also subject to much suspicion as being too lax.
Standard & Poor go on to say that despite pressing governments for greater certainty, the lack of long-term direction of global and EU climate-change policies is likely to cause delays in utilities' investment decisions and expenditure.
Flexibility mechanisms incorporated in the Kyoto Protocol are expected to have only a small impact on the price of carbon and power prices up until 2008.
New-build of low-carbon infrastructure will continue to be heavily influenced by the price of oil and gas.
None of this is good news for those hoping for an acceleration in building new low carbon projects.
On the nuclear side, there is some good news. "In order for significant new build investment to take place in nuclear energy, Europe would require fossil fuel prices, carbon dioxide emission reduction requirements, and market concentration to all increase further, as well as planning and operating conditions to become more amenable."
In the medium term, investment in new nuclear capacity is expected to remain limited in most EU markets, except for France and Finland where new reactors are already now being built.
"Instead, most new investments in nuclear generation is likely to be directed at extending the lifetime and incrementally increasing the capacity of existing plants. This is considerably less costly and involves significantly fewer risks."
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