| © ICIS HEREN - CEE states make U-turn on Phase III derogation |
| 2010-12-22 |
| CEE states make U-turn on Phase III derogation 22-12-2010 Significantly fewer EU allowances (EUAs) could be handed out for free to central and eastern European (CEE) power producers during Phase III than originally thought, environment ministry sources have indicated to ICIS Heren. The lure of extra revenues from EUA auctioning might have resulted in many countries backtracking from their original plan to apply for an auctioning derogation for power plants. Environment ministries that fought for the derogation clause to be included when the EU revised its emissions directive ahead of Phase III are now being lobbied hard by their own colleagues in economy and finance departments, sources have said. In almost all cases, no CEE environment ministry - let alone government - has made a firm decision on whether it will really apply for the derogation. Sources have said that state treasuries are now arguing that it is more important to reduce the public deficit, rather than subsidise energy efficiency measures. Applying the auctioning derogation would mean governments pass up on EUA revenues from auctions, and would instead have to invest an equivalent sum in clean energy technologies. The volumes at stake If all the eligible countries - including heavy emitters Poland and Romania - apply for continued free allocation to the power sector, a maximum of 246.8m EUAs could be granted in 2013 alone. This is 12% of the current 2013 cap. The maximum would be set as EUAs matching 70% of average Phase I emissions. The final number could be cut by power exports. Out until 2020, the CEE power sector would receive a maximum of 987.2m EUAs for free. The pay-off EU law says that countries that opt out of full auctioning must, in return, upgrade their energy infrastructure to the tune of the market value of the free allocation. There is no clear definition of "market value" in the directive, so it could refer to a spot price at a given time, or an evolving price throughout Phase III. This could prove costly at a time when most governments are looking to cut spending. If the countries were to choose full auctioning, only 50% of revenues would have to be spent on environmental upgrades. More importantly - especially for finance ministers - the other 50% would go straight to the general budget, and could be spent as the government chooses. The derogation rules Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Romania are all eligible to apply for continued free power sector allocation in Phase III, for plants "physically initiated" before 2009. This is because their GDP was less than 50% of the EU average in 2007 and they relied on a single fossil fuel to produce more than 30% of their power output - or because they were connected by a less-than-400MW line to the main European power grids in 2007. Country breakdown To date, only the Czech Republic has publicly said that it plans to push ahead with derogation, although it will only bid for half the possible free allocation. The ratio between gross power consumption and consumption for 2005-2007 prevents the Czech Republic from applying for the full 70% of its Phase I emissions. The EU directive limits free allocation to power consumed within a country, rather than exported. The Czech environment ministry has finalised a draft for government discussion, but a final decision has been delayed. A source at the environment ministry said it now planned to wait until the European Commission published a guideline methodology on how to calculate the free allocation`s value. This is expected sometime in the new year. Even then, there could be further debate on whether the country can afford to lose out on auction revenues. In Poland - the largest CEE emitter - a source told ICIS Heren that very little had been done so far to draw up an investment plan justifying the derogation. The source added that the prospect of revenues from full auctioning was one key reason for the ongoing debate. If Poland eventually seeks auctioning derogation, it would be for the maximum amount. The situation is similar in Hungary, with talks focusing on the cost of derogation. A source in Budapest said the ministry`s final decision was expected by the end of March. A Bulgarian environment ministry source was even more certain that the country would fail to apply: "The current opinion is that we will not be applying for derogation. If there is a possibility to increase the state budget, then the finance ministry will try to go for it." "We had originally assumed any decision would be a political one, but it now appears to be a financial one," the source added. Lithuania is provisionally working to a March deadline for completing its bid, while Latvia is still officially undecided. In both cases, the cost of power sector upgrades is weighing heavily on the decision-making. Environment ministries need to apply for derogation and hand in investment plans to the Commission by the end of September 2011. (THE ICIS HEREN REPORTS - EDCM 5.348 / 22 December 2010) |
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