Carbon prices in Europe are encouraging European power firms to build cleaner power stations.  The European Union Emissions Trading Scheme (EU ETS) is starting to change the way European power firms make investment decisions, shifting resources toward cleaner generating technologies, found New Energy Finance (NEF).

          "We have known for some time that the EU ETS is having a real effect on operational decisions in European power companies but this is the first time we have been able to show how it is affecting capital investment decisions," said Guy Turner, NEF's director of Carbon Market Research.

          "The answer is clearly that European power generators see that the EU ETS is here to stay and that it is starting to affect how they make multi-billion Euro investments in new generation capacity." The European generating fleet by 2020 will be materially cleaner than it is today, added Turner.

          Based on responses from 13 power firms that account for over 50% of the European power sector's CO2 emissions, the research identified four key findings:

• Five years after the start of the EU ETS, carbon prices are being fully integrated into investment decisions in the European power sector;

• All power generators contacted in the survey factor a carbon price into their investment decisions with most running several future price scenarios;

• About 85% of European power firms only consider a future with a positive carbon price and for these firms a "zero carbon price" scenario simply does not feature in their investment decisions, and

• The 15% of firms that said they did run a zero carbon price scenario were based in Eastern Europe and their responses more reflected a lack of familiarity with EU institutions and policy making than the EU ETS itself.

          Although the carbon price, current and projected, is not sufficient in isolation to justify an immediate wholesale shift to lower CO2 emitting technologies -- fuel prices, power prices and direct government support for renewable are also important.  The carbon price is making power firms alter their investment focus to include more lower carbon technologies including combined cycle gas and high efficiency coal, in their future plant mix.

          The European generating fleet by 2020 will be materially cleaner than it is today, added Turner.