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UK Power Market Encounters True Cost of Green Energy
September 02 , 2011

Late last week, the Dutch Government’s Central Bureau of Statistics announced that the country experienced the first increase in CO2 emissions in seven years despite consistent efforts to reduce its use of dirty fuels.  Emissions in 2010 were 6% higher than in 2009, but remain 1% below the level of 1990 at the time government agreements were made under the Kyoto protocol.  Based on those agreements, the Dutch need to cut their emissions by 6% between 2008 and 2012.  The increase in emissions was attributed to one of the coldest winters on record and the recovering economy.

The European Union (EU) had announced earlier this year that CO2 emissions were up 3.5% after having fallen by 11% in 2009.  The EU, like the Dutch, acknowledged that the emissions rise was the result of a cold winter and improving economic activity.  It appears that only the southern tier of European countries that are members of the EU escaped higher emissions.  Both Portugal and Spain saw their 2010 emissions fall by 15% and 12%, respectively.  In the UK, emissions were up 2.8%, the largest increase in the past 20 years.  Given the economic problems of the southern tier of Europe, we are not surprised to see them post lower emissions totals.

With emissions on the rise and facing the prospects of failing to meet the Kyoto protocols, the pressure is growing for EU member countries to more rapidly embrace green energy and carbon capture.  Late last month, the UK Department for Energy and Climate Change (DECC) estimated the potential increase in electricity rates over the next two decades.  Unfortunately, DECC’s estimates did not spell out all the assumptions in their determinations so many industry representatives remain skeptical about the conclusions.  If natural gas prices fall, DECC says that green taxes will increase industry’s electricity price by 29% to 58% as expensive renewable energy accounts for a greater share of power generation.  If gas prices rise, then green energy becomes more competitive and may only boost prices by 14-16%.  In the case where natural gas prices remain flat, the rise in electricity costs will approach 7-30%. 

These green energy taxes may become quite significant according to one energy consulting firm.  It believes green energy taxes now account for £15 ($24) out of a £82 ($134) per megawatt-hour (MWh) average cost for power.  The firm estimates that further green taxes and infrastructure costs will lead to these charges accounting for nearly 38% of the total cost of power in 2020.  At that point, the consultants estimate power will cost £130 ($212) per MWh and the various green taxes will account for £50 ($81) of that MWh cost.

For British businesses, however, the scary thing is the requirement they partake in the Carbon Reduction Commitment initiative.  This means they must declare their energy use and be subject to a charge for every ton of greenhouse gas.  The declaration must be made by September 30th, although the existence of this body and its reach into the business community has not been well publicized.  Under the program, any company or public sector organization that consumes 6,000 MWh of energy per year must register its power usage.  Beginning next April, the companies will need to buy permits for each ton of carbon they emit.  If a company uses only 6,000 MWhs, its fee will be £38,000 ($61,900).  Companies and organizations using larger amounts of power will pay fees higher with the largest users reaching fees of £100,000 ($162,895). 

Estimates are that there are about 4,000 companies and organizations that need to register by September 30th.  As of about two weeks ago, only 1,229 had registered.  If a company misses the registration deadline, there is an immediate fine of £5,000 ($8,145) and £500 ($814) for each day after that, up to a maximum of £45,000 ($73,303). 

At a later date, another 15,000 companies and organizations will need to register and be subject to fees in the future.  Since the CRC program’s existence has not been well publicized and it is complex, there are estimates that upwards of 35% of all companies and organizations needing to register will miss the deadlines.  The fees from failing to comply could make this program a huge moneymaker for the British government.  We fully anticipate the UK will be held up as Exhibit Number One when, and if, a carbon tax and credit program is created in this country.  In many states in this country, we are already on the road to exploding electricity bills due to renewable mandates designed to create a green energy world but with little to show for them.

Source: Parks Paton Hoepfl & Brown

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