Posts Tagged ‘Carbon’

UK steelmakers face jump in energy costs

The way in which governments choose to price carbon is a sensitive issue. A global price would ensure that there is no damage to the competitiveness of any aprticular region. However, this can only happen through an international climate change treaty. In the mean time differing carbon pricing regimes will lead to differing costs. The UK’s decision to set a minimum price for carbon credits is likely to lead to higher costs for UK steelmakers relative to their European counterparts. Some of this extra cost is likely to be compensated.

SBB 3 August UK wholesale gas prices which influence power prices have risen strongly in recent months and, to a lesser extent, electricity costs also, Jeremy Nicholson, director of the Energy Intensive Users Group tells Steel Business Briefing. This is especially visible for those currently renewing annual contracts. “Although the wholesale gas price is quite competitive compared to continental Europe, it is at a premium to the US, which has a current oversupply,” he adds.

He continues: “From 2013, the carbon floor price will be introduced by the UK government in order to increase competition for renewable; anyone taking out two-year contracts now will see these increases priced in”. Compared to a year ago power costs have increased by 10-20%, depending on when deals were made, he adds.

He continues: “The current trading price of carbon is around €13-14/tonne of CO2 emitted; the carbon floor price will be around £16/t and in addition to raising the costs for coal/gas power generators and therefore steelmakers, this will not be able to be passed on as it is a UK-only tax, leaving a discrepancy with European counterparts, such as Germany which has an exemption”.

Previous government estimates say carbon factors have already added some 20% to costs compared to year ago. However a new analysis says these could reach 31-51% by 2020, which per year is a more optimistic estimate, Nicholson says. He adds, however, that this analysis could be an underestimate.

The current wholesale electricity price for industrial users is just over £50/MWh, with delivery and supply added it is around £70-75/MWh.

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UK Steel condemns ‘crazy’ carbon floor price

The coalition government in the UK promised to be the ‘greenest ever’. After facing much criticism for not living up to this claim, it has recently pushed a number of policies to improve its green credentials. However, according to some, the measures have been rushed, are poorly planned and may not succeed in greening the economy. On top of this, of course, they may add significantly to the costs of steelmakers in the UK.

SBB 10 May The UK government’s planned carbon floor price (CFP) would cost more than necessary to achieve its goal, Ian Rodgers, policy director at UK Steel, tells Steel Business Briefing. Furthermore, it could fail in its goal of providing certainty in carbon credit prices, he adds.

The CFP is intended to guarantee the carbon credit costs of electricity producers in the UK from 2013. These are expected to be passed to consumers, including steelmakers.

The goal is to encourage investment in renewable and nuclear power; investors want to know their future costs in order to estimate when investments will see a return. However, new nuclear capacity will not appear for many years. It is “crazy” that energy intensive industries must pay in 2013 to secure a price in 2020, Rodgers says. It would mean UK steelmakers facing additional costs compared to Europe, he warns.

The scheme may not provide certainty in carbon prices, analysts say. The amount electricity producers pay will be set two years in advance based on exchange-traded futures contracts. The futures contracts price reflects current spot prices plus carry and inflation, not the future spot price, says Emmanuel Fages, head of carbon and energy market analysis at Orbeo. Fluctuation on the spot or futures markets could cause much higher or lower carbon credit costs.

Also, unlike a contract, a tax could be scrapped by a future government. A contract-based approach between government and electricity producers would provide greater certainty, Rodgers says.

The CFP is a signal to investors that it is serious about encouraging investment in low-carbon electricity generation, the treasury insists to SBB.

UK sets minimum price for carbon credits

The UK’s floor price for carbon dioxide is unlikely to have a direct effect on carbon prices. However, it does provide certainty to investors. Even if the market price collapses, there will be a guaranteed saving from emissions reduction investments.

SBB 25 March The UK will become the first country to introduce a carbon floor price for power plants. This would start at £16 (€18.31) per tonne of CO2 equivalent in 2013 and reach £30/t in 2020, Steel Business Briefing understands. Electricity companies are expected to pass on this cost fully to customers.

It will primarily affect EAF steelmakers, who buy a lot of electricity. While the floor price is above the current market price for European Union Allowances (EUAs), it will remain below many forecasts, SBB notes. The price is closely in line with Accenture’s forecast, points out Charles Jans, a manager in its carbon market division.

The price has been well chosen, argues Emmanuel Fages of carbon market analysts Orbeo. It is not so high as to artificially push up prices, but it guarantees they will remain at a certain level, even in a weaker than expected market.

However, some complain that it could drive industry from the UK. Tata Steel estimates that the price guarantees it additional costs of £20m/year.

EUAs are expected to increase in price to €24/t in 2013 and €40/t in 2020, according to Orbeo. In this scenario, the carbon floor price would not affect steelmakers’ costs. December 2011 EUA futures consolidated to €16.96/t on 23 March, from €17.25/t a week earlier.