Study: Commission's 550 EPS rule will add costs to the energy transition

Applying the 550g emissions performance standard 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 an independent study commissioned by EURELECTRIC.

"Utilities across Europe are investing billions in renewables and other transition-critical solutions", said EURELECTRIC Secretary General, Kristian Ruby, adding 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 is carried out by Compass-Lexecon, a world-leading consultant on electricity markets. It compares a reference scenario with one, which applies the 550g 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:

I. The intended effect of this measure in terms of boosting the EU’s emissions reduction efforts will be negligible as the electricity sector’s emissions are already capped under the EU ETS. 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 €50bln over the period 2020-2040, which translates into 30€/ton additional costs on top of the EU ETS.

II. The application of the 550g rule will make almost all 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 batteries’ and demand side response’s large scale deployment.

III. Applying the rule in the middle of the next decade will force baseload assets to leave the market earlier. Arising security of supply issues risk locking-in new, conventional power generation assets.

IV. 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.

V. This investment in new conventional power generation assets will divert investments away from renewables and other clean transition enabling technologies in the range of €20 bln.

The study will be presented on Tuesday 26 September at a high level conference in Brussels.