The announcement that the total UK carbon price will remain at its current level could signal a resurgence of coal, according to Aurora Energy Research.
A study by Aurora shows that under the price freeze coal output would almost double in the early 2020’s ‘relative to current levels under [Aurora’s] central fuel price assumptions’.
Chancellor Philip Hammond stated during his budget announcement on Wednesday that he intends to target a carbon price close to current levels (£23/tonne).
However, Aurora Energy Research have forecast that a flat carbon price would ‘ramp-up’ coal generation.
The report states that a plateauing carbon price would inflate total carbon tax receipts to £1.1bn per year in the period 2021-25, £0.1bn higher than OBR’s latest estimate for 2021-23
It study concludes that ‘a lower carbon price differential between GB and continental Europe will also reduce arbitrage opportunities, lowering interconnector flows from existing interconnectors by up to 15% in 2025 relative to today. However, power imports to GB will increase overall due to a more than doubling of interconnector capacity by 2025.’
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