Merkel gives optimism to carbon traders as UK embraces new nuclear

It’s been one month since the German election, yet all eyes are still on Europe’s biggest economy as it seeks to form a government. And clean energy investors and carbon traders both feel they have a stake in the outcome of coalition negotiations between Chancellor Angela Merkel’s Christian Democratic Union and the Social Democratic Party.

Carbon permit prices spiked 8.5% last Wednesday – the biggest jump in more than three months – after Chancellor Merkel voiced her support for a European Union plan to strengthen the region’s emissions trading market. Her comments, in a speech to a labour group in Hanover, were her most explicit yet in support of the proposal to temporarily delay sales of permits, an emergency solution known as backloading, to address an oversupply in the market. “We need a certain degree of backloading of CO2 emissions so certificate prices return to a sensible level,” she said. It is still unclear how quickly Germany could announce its official support of the plan – whether before or after the new coalition takes power.

As well as playing a key role in the future of EU emissions-trading system, Merkel’s government will need to take on big challenges at home. Somewhere near the top of the chancellor’s list is likely the country’s future energy landscape.

The reform of the Erneuerbare-Energien-Gesetz (EEG) will become a priority once a coalition is formed. Under the EEG, the government guarantees above-market prices for wind, biomass and solar power generators. The difference between the rate paid to clean-energy producers, which get priority access to the grid, and the market price, is offset by a charge added to every household bill. The overall cost to consumers will increase from EUR 20.4bn this year to EUR 23.6bn in 2014.

Merkel is looking for ways to reduce the rising cost of renewable subsidies without stunting the growth of clean energy capacity after Germany decided to close its nuclear power plants in the wake of the Fukushima disaster in Japan.

However, other European countries have not acted so hastily against nuclear. Indeed, on Monday it was announced that Electricite de France, together with partners Areva and two Chinese nuclear companies, will build the UK’s first nuclear reactors since 1995 after reaching a deal with the government on guaranteed prices for the power they’ll generate. The project will cost about GBP 16bn (USD 26bn) and take 10 years to build. “This marks the next generation of nuclear power in Britain, which has an important part to play in contributing to our future energy needs”, said UK Prime Minister David Cameron.

 

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