New EU Rules Will Preclude Coal from Being Used as Reserve Electricity

The big plan to save coal energy in Poland - which is dying here as it is all over Europe - includes plans to allow coal plants to receive subsidies while they are not operating, just so they will be available when needed.

This is a terrible plan on many levels, i.e. coal plants have slow "ramp-up" times and cannot quickly respond to peak power demands. They also are very uneconomic to run at lower than 75-80% utilization rates. U.S. studies showed even at higher prices a few years ago, that energy storage was more cost-effective than fossil-fuel peak plants.

And now the EU seems poised to set a CO2 limit on plants used for reserve power that would preclude coal altogether. "Capacity mechanisms will not be used as a backdoor subsidy of high-polluting fossil fuels; that would go against our climate objectives," EU Commissioner for Climate Action and Energy Miguel Arias Canete told Reuters"It is necessary to include strict environmental criteria in such mechanisms to avoid giving wrong incentives that might lead to stranded assets as our emissions target gets more strict."

There is a five-year phase-in period contained in the proposal, but that is still problematic for Poland. First, many of the coal-plants that are operating now in Poland will close in 2020. Newer blocks will be more efficient and the operators will want to run them as much as possible. So where will the back-up coal-fired plants come from after 2020? New construction will take more than the next five years, so when they open they would be disqualified from being used as back-up. The myth is that there are enough coal-plants in Poland that meet the current emission limits to keep everything going after 2020 and also provide back-up capacity. 

This is also a form of state aid and must be notified and approved. Technically, the aid can only last ten years without re-approval. So the use of coal plants would be capped at ten years, since at the end of that period, they would be banned by the CO2 limit from continuing. That means construction of a new plant for this purpose would have to be profitable with ten years of part-time utilization. This will never be the case. That leaves us with existing plants in Poland to be potentially used. With many of those closing in 2020, the ones that remain - including newly constructed plants - will be slotted to provide the base load of demand.

It is hard to find a business model for a coal plant in Poland to be used as reserve power in light of this proposed rule.


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