Applying the 550 g CO2 per kWh emissions performance standard (550 EPS) rule proposed by the European Commission as part of the Clean Energy Package may have significant unintended economic and systemic consequences for the clean energy transition. That is the main conclusion of a study commissioned by Eurelectric ( media/340094/impact_assessment_of_an_ eps_550_on_cm_by_compass-lexecon-2017- 030-0623-01-e.pdf).

Although commissioned by Eurelectric the study is described as independent.

As part of its proposals for a new framework for electricity regulation, the European Commission proposes to introduce the EPS 550 rule as a minimum requirement for generation capacity wanting to participate in capacity markets. The threshold would apply to existing plants five years after entry into force of the new regulatory framework and to new plants immediately at the entry into force.

“Utilities across Europe are investing billions in renewables and other transition- critical solutions”, said Eurelectric secretary general, Kristian Ruby, noting that conventional assets are necessary for security of supply in the transition.

“If this rule is applied to existing assets, it will divert investments and do a disservice to Europe’s efforts in delivering the clean energy transition.”

The study has been carried out for Eurelectric by Compass-Lexecon, an economics consultancy.

It compares a reference scenario with one that applies the 550 g rule in capacity markets across Europe.

The results show a number of impacts that risk adding significant costs to the energy transition.

Key findings of the study include:

  • The intended effect of this measure, which is boosting the EU’s emissions reduction efforts, will be negligible as the electricity sector’s emissions are already capped under the EU ETS (Emissions Trading System). Due to early retirement of existing assets and investments in new conventional generation, it will however lead to additional abatement costs for the power sector of around €50 billion over the period 2020-2040, which translates into 30€/ton additional costs on top of the EU ETS.
  • The application of the 550 g rule will make almost all existing thermal peaking capacity in Europe ineligible for capacity mechanisms such as strategic reserves, leading them to be replaced by new thermal power generation assets, on the eve of the large scale deployment of batteries and demand side response measures.
  • Applying the rule in the middle of the next decade will force baseload assets to leave the market earlier. Resulting security of supply issues risk locking-in new, conventional power generation assets.
  • This new conventional capacity, which will consist of gas assets, will lead to a 40% increase in gas consumption in the power sector between 2020 and 2040, with a major impact in Eastern Europe.
  • This investment in new conventional power generation assets will divert investments in the region of €20 billion away from renewables and other clean transition enabling technologies.