Allocation of EU Greenhouse Gas Emissions Trading Permits Will Significantly Change Values of European Power Plant Assets

European Power Sector's Competitive Landscape
Set to be Transformed

LONDON, UK, 13 February 2003 - Today, ICF Consulting released a new multi-client study Competitive Implications of Greenhouse Gas Emissions Permit Allocation on the EU Power Generation Sector. The study illustrates how the different choices made by each EU Member regarding emissions permit allocation plans will drastically affect power plant asset values and the competitive landscape in the European power sector from 2005. Member State governments must submit allocation plans to the European Commission for vetting by late 2003.

European Carbon Market Outlook 2003 Study Table of Contents

According to Simon Allen, Managing Director of ICF Consulting's London Office, "On 9 December 2002, the European Council of Ministers forwarded the proposed directive on emission trading to the European Parliament for its second reading, making the finalisation of the directive a near-certainty. Our analysis demonstrates that power sector participants in the EU Emissions Trading Scheme need to plan in earnest for operating under carbon constraints. The scheme will fundamentally alter the marginal costs of generation. Some assets will see significant changes in value depending upon the allocation of permits. Using ICF Consulting's proprietary Integrated Power Model® for Europe, we estimate increases in average EU-wide, base-load, wholesale power prices of 19% versus a case without carbon constraints. This average, however, masks a significantly higher swing in several national markets, including some of the largest EU countries. Power generators should note that the differences in revenue among scenarios for non-baseload power stations are far greater than the change in the baseload price."

Abyd Karmali, ICF Consulting's Director of European Climate Change Services, adds, "Our analysis is designed to enable each participant in the scheme to identify the design of the allocation plan that will maximise its shareholder value based on its own individual portfolio of assets. We examined each of the most likely scenarios for allocation being debated by Member State governments. Our study demonstrates that the critical determinants of value for most companies are the choice of referencing year, the timing and frequency of emission permits granted, and the price of emission permits. While some plants will see increases in value of up to 87%, others should now be considering premature retirement. One thing is for certain. This will be a transformational year for players in the European power sector."