Maintaining the carbon price at current levels, as indicated by the Budget, risks a substantial resurgence of coal generation in the early 2020s, according to analysis by Aurora.
The consultancy says by then the current global glut of LNG will have been burned through, driving up gas prices, and recent restrictions on coal production in China will have eased, reducing coal prices.
In a research note, the firm’s central forecast suggests power generated from coal would almost double, from 17TWh today, to 32TWh in the early 2020s, before unabated coal plants are currently scheduled to close in 2025.
The total UK carbon price, made up of the EU Emissions Trading System (EU ETS) and the Carbon Price Support (CPS) top up, stands at around £23/tonne.
Aurora suggests a total price of around £40/tonne would be required to kill off coal, which accounted for around 50% of generation in early 2013, but which fell to just 2% in July this year.
By contrast, coal represents about 40% of generation in Germany, which does not add a carbon tax above the EU ETS, currently just €6/tonne.
See the research note here and some more detail here.
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