It’s a lovely business being in European power.
Like producers everywhere, Europe’s utility companies are shielded from international competition by the need to produce electricity near their customers. Many get extra protection from authorities’ foot-dragging on structural reform. And, since 2005, most have enjoyed an additional fillip. Under the European Emissions Trading Scheme, customers have paid for the permits the utilities require to produce carbon, despite the fact that, so far, the companies have received them for free. Between now and 2013 the overall number of permits granted will fall, and the proportion of free permits will be reduced to two-thirds. But Centrica, the UK’s biggest residential energy supplier, estimates the windfall from free permits will still be worth €110bn for the European utilities.
Last week, though, spelled the end of this cosy arrangement. From 2013, the European Commission has proposed that power suppliers will have to buy all the permits they need at auction, while overall emissions volumes will be cut. By 2020 , it hopes, emissions covered by the scheme will fall by 21 per cent from 2005 levels. Suppliers will thus not only have to cut emissions but will no longer receive any windfall gains from free permits....MORE