Soaring CO2 emission right costs experienced over the past year as well as the target model’s expected delay, made apparent during the current bailout negotiations, are unfavorable developments for the main power utility PPC’s bailout-required disinvestment of lignite assets but, on the other hand, offer tremendous support to the RES market and ease the pressure on supporting mechanisms.
CO2 emission right costs reached 15.05 euros per ton yesterday, according to the Leipzig energy exchange, from 6.96 euros in December and just 4.68 euros last May. The rise has been particularly steep since the beginning of this year, increasing CO2 emission right costs by over 116 percent.
This is extremely good news for the renewable energy market as the RES special account managed by LAGIE, the Electricity Market Operator, stands to gain from a higher-than-expected influx. Subsequently, this boosted input should lead to an even greater RES-supporting supplier surcharge reduction than has been calculated.
However, PPC’s sale of lignite-fired power stations and mines, a package representing 40 percent of the utility’s overall lignite capacity, will be challenged as the extremely higher CO2 emission right costs increase the operating costs and profitability of lignite-fired power stations. The sale procedure has just been launched. Due diligence will be staged amid unfavorable conditions for PPC.
Current fourth-review bailout talks have made clear that the target model, aiming to harmonize the electricity wholesale market with EU standards, and the launch of the energy exchange, will be delayed until the end of 2019.
In practical terms, this means that buyers of the PPC units will need to operate them through a mandatory pool without the ability to establish bilateral agreements with energy-intensive industrial consumers.
This target model delay, combined with the new CO2 emission right cost market conditions, places further doubt on the future of lignite’s prospects. Investors considering the lignite assets offered by PPC can be expected to take a step back.