The UK carbon floor price

Gordon Moran, writing for the European Energy Centre, explores the beneficial impact of the UK’s carbon floor price on the renewable energy sector

Whilst the makeup of the next UK government will have various implications for the renewables sector depending on its constitution, another legislative change recently came into effect that will also have very tangible effects.

In 2013 a ‘carbon floor price’ was introduced, meaning that businesses using fossil fuels to generate electricity are required to pay ‘carbon price support’ rates. The measure was designed to set a minimum price, relating to emissions from fossil fuels, which would rise on an annual basis to encourage lower carbon sources of electricity generation.

The carbon floor price recently doubled from £9.54 to £18.08 per tonne of CO2, which is likely to affect the profitability of the most carbon intensive form of electricity production – coal – which provides a substantial proportion of the UK’s overall electricity production. The rising price of carbon factoring in the cost of the pollution from dirty power plants means that it is likely that most UK coal-fired power plants will be taken offline this year. This will lead to increasing demand for new power generation from low carbon sources to fill the gap in energy generation, plenty of which will come from renewable sources.

It is also unlikely that any new government will repeal the rules. This is because ensuring continuity in UK energy policy is vital to maintaining investor confidence in the UK energy sector.

All of these factors mean that the carbon floor price will help ensure strong demand for renewable energy and reduce carbon emissions, whatever the political stripes of the next UK government.