Managing carbon price risk
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The document discusses Centrica's carbon price risk management and exposure related to carbon emissions, highlighting the impact of the EU Emissions Trading System (ETS) on market conditions. It details the overallocation of carbon allowances leading to price collapse and the subsequent expectations for tighter pricing in future phases. Furthermore, it touches on the implications for investment decisions and generation costs in the context of carbon pricing strategies.
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Managing carbon price risk
- 1. Managing carbon price risk Sarwjit Sambhi, Centrica 2 December, 2008
- 2. Centrica’s carbon exposure Fuel Carbon O&M Gas Carbon Spark Spread 9 CCGTs in UK (including Langage and Spalding) 6 million UK retail electricity customers GENERATION COSTS MARKET PURCHASES 12 million tonnes p.a. requirement
- 3. EU ETS Phase I overallocation leads to price collapse, though length not understood until Apr-06 reporting Phase II NAPs tighter - prices driven by other commodities & trading sentiment Phase III still to be finalised but looking tighter again giving more robust pricing signals out to 2020 Trading volumes continue to increase
- 4. Impact of ETS on Investment ABATEMENT COST CURVE LEVELISED COST OF GENERATION (£/MWh) CCGT Coal w/o CC Nuclear Offshore with ROC ROC Capital Costs O&M Fuel Carbon Range of abatement required Nuclear extensions Additional CERs Fuel Switching below €45/t Fuel Switching above €45/t CCS Industrial demand destruction