BRITISH power generators could make windfall profits of up to £2 billion a year from the new Emissions Trading Scheme.
The generators are emerging as the main winners from the scheme because they are able to charge higher prices for wholesale power while receiving free allowances to produce energy.
Industry analysts have calculated that the generators would receive a total windfall of £580 million this year at current carbon prices of €7 per megawatt hour. If the price of carbon rises sharply, as expected, the windfall profits could be as high as £2 billion a year.
The generators that stand to benefit from this windfall include ScottishPower, Scottish and Southern Energy, the German utility giants RWE and E.On and the French-owned EDF Energy.
The industry group complained this week that it was being sold short by the Department of Trade and Industry after it emerged that allowances for generators under the national allocation plan would be less generous than expected.
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However, analysts have argued that the generators are being disingenuous. “When you argue about the allowances all you are arguing about is the level of windfall the generators are going to get,” Tony White, founder of Climate Change Capital, a boutique merchant banking company, said.
The windfall arises because generators are able to add the market value of the carbon to wholesale power prices without fear of being undercut by non- EU producers. Other industry sectors such as steel and cement cannot add it on because they would be uncompetitive relative to producers outside the EU, for instance in China or the US.
Analysts at UBS believe that carbon trading has added £3 per megawatt hour to the price of power. Wholesale electricity spot prices are about £26 per megawatt hour, with forward prices for next winter at £35.
David Porter, chief executive of the Association of Electricity Producers, said: “Generators face real reductions in carbon emissions — even more than they originally expected. Many generating companies will have to buy allowances in an immature market where carbon prices are likely to go up and make those allowances very expensive.”
Mr Porter said that uncertainty caused by the Government’s “dodgy” arithmetic and its row with Brussels was undermining generators’ investment decisions.