77© 2012 Society of Chemical Industry and John Wiley & Sons, Ltd | Greenhouse Gas Sci Technol. 2:77–79 (2012); DOI: 10.1002/ghg

Published online at Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/ghg.1281

Is CCS a fully fl edged business proposition or an interesting experiment?

It is probably safe to say that the failure of two European CCS projects – Longannet in the UK and Vattenfall’s €1.5 billion project in Germany – was

still at the forefront of many delegates’ minds as they contemplated the future of CCS and how momentum would be sustained by policymakers and industry; and crucially what fi nancial solutions were available.

Adam Dawson, Chief Executive of the UK’s Offi ce of Carbon Capture & Storage, decided to kick off the Carbon Capture & Storage Forum, organized by Marketforce and the Adam Smith Institute held in London in February 2012, on a positive note. ‘Now is the time to move from demonstration to deployment, we are moving toward a programme to deliver CCS on a competitive footing’, he told delegates. Obviously wanting to leave the diffi culties and disappointment of Longannet fi rmly in the past, Dawson went on: ‘Some of the UK’s existing nuclear capacity is due to come off stream and demand for electricity could double by 2050. Fossil fuel remains a key element in the UK’s energy mix, so decarbonisation is crucial and CCS has to be in the mix.’

His comments were backed up just a few days later by UK Energy Secretary Ed Davey. Speaking at the UK government’s CCS Industry Day, Davey said: ‘Th e UK has a chance to lead the world in CCS and the government is backing its commitment with £1bn. We want to work with industry to deliver a new, vibrant

CCS programme by the 2020s that helps deliver our low carbon targets in a realistic and cost eff ective way.’ Indeed, the fi nal week of February 2012 saw the UK government publish details of its £1 billion pro-gramme to build at least one CCS power plant. Th e tender called for proposals for a range of CCS engi-neering projects including power plants, gas storage, and pipelines. Th e tender, published in the European Union’s offi cial journal, indicated that the UK intends that the projects will start demonstrating carbon capture, transport, and storage by 2016–2020. Propos-als have to be submitted by April 13, 2012.

Th e UK is considered among the leaders in Europe in the fi eld of CCS, with its commitment to meet European Union targets on CO2 emissions reduction as well as seeing it as an opportunity to develop the UK’s ‘green economy’ and generate employment. But even with this positive view of CCS and its benefi ts, the UK was unable to take the Longannet CCS demonstration project forward. So perhaps Swedish state-owned energy company Vattenfall was not too surprised when its plans for a CCS demonstration plant in Germany fell through in December 2011. Putting it down to German politics, Vattenfall com-mented: ‘We must unfortunately accept that there is currently insuffi cient will in German federal politics to implement the European Directive so that a CCS demonstration project in Germany would be possible.

Feature

As delegates have been meeting for the fi rst carbon capture and storage (CCS) confer-ences of 2012, the theme that seems to have emerged in the early stages of this year is: what next for CCS? Muriel Cozier provides an insight into the minefi eld of some of the political and fi nancial challenges facing the commercialization and wide-scale deployment of CCS projects.

M Cozier Feature: Is CCS a fully fl edged business proposition or an interesting experiment?

78 © 2012 Society of Chemical Industry and John Wiley & Sons, Ltd | Greenhouse Gas Sci Technol. 2:77–79 (2012); DOI: 10.1002/ghg

Th is is a harsh setback for innovation, climate change, and the German economy.’

Th e situation in the UK and in Germany goes some way towards underlining the fact that CCS, while having the support of the European Commission, has varying degrees of support among member states and remains something of a regulatory, fi nancial, and public-perception minefi eld.

But as Kai Tullius of the European Union’s DG Energy Renewables and CCS Policy noted, while speaking at the Carbon Capture and Storage Forum, Europe’s policymakers are well aware of the diffi cul-ties involved in moving projects forward but remained committed to developing CCS as part of Europe’s competitive, low-carbon energy sector. Pointing to the European Commission’s Energy Roadmap 2050, Tullius said: ‘We are confi dent that CCS can be part of Europe’s low carbon energy future. Th e Roadmap is the fi rst element of the low carbon 2050 strategy and provides an effi cient pathway to an 80% reduction in emissions of greenhouse gases by 2050. Decarbonisa-tion of the energy system is a technically and econom-ically possible, and the Roadmap analyses the path-ways that can be taken to achieve this.’ Tullius added: ‘Certainly in a cost effi cient electricity mix, the share of coal and gas fi red CCS plants can be around 20% or some 190 GW of installed capacity.’

While the Roadmap is aimed at decarbonizing Europe, Tullius pointed out that the CCS directive had not been transposed in most member states hosting a CCS demonstration project but urged that greater cooperation was a key element of meeting the 2050 goals. ‘We need the close cooperation of the member states so that we can share best practice on technical and legislative issues. Cross border coopera-tion will increase the speed at which we can develop integrated CCS concepts’, Tullius said.

Addressing the issue of fi nancing for CCS projects, Tullius indicated that the European Commission was set to announce, within days of the Forum, which CCS projects had passed the EIB’s technical, fi nancial due diligence assessment for funding under the NER300 project. Th is was probably the issue that generated the most questions from delegates. But Tullius would not be drawn on the criteria used by the EIB for assessing the projects or how the fi nancing was set to be allocated. Indeed, fi nancing proved to be a major area of discussion.

While fi nal investment decisions were being waited for on projects such the Peterhead CCS project, Allan

Baker, Global Head of Power at Sociétié Générale, pointed out that, going forward, such projects could not be funded solely by government and industry. ‘CCS should be an attractive option for the fi nancial sector’, Baker said, ‘but at present banks and fi nancial institutions only see risks and not opportunities’. Highlighting some of the potential stumbling blocks, Baker said: ‘We see strong fundamentals for CCS, but in the minds of many lenders a technology that is not expected to make a major impact until 2020 does not represent a positive investment. Most bankers just don’t look that far forward so to many in the fi nancial sector it is not an industry to get involved in.’ Along with the timeframe, risk emerged as another issue for the fi nanciers. ‘Project fi nance looks at risk allocation, and CCS has risks that banks fi nd unacceptable, so there is a sense that the fi nancial sector is waiting for these risk issues to be resolved. Regulation, public buy-in, and defi ned risk allocation is what bankers feel most comfortable with,’ Baker said.

Baker posed the question: is CCS a fully fl edged business proposition or an interesting experiment? ‘Banks work with businesses, and the idea of a demon-stration plant does not feel to us like a business. Th ere are still a lot of unknowns. Th is is “fi rst of a kind” and CCS isn’t the only low carbon technology available’, Baker said. ‘Th e problem we face is that in this uncer-tain economic climate will government funding dry up if the focus shift s to other areas and technologies.’

So it was left to government in the UK, to reassure industry and fi nanciers alike that CCS was a fully fl edged business proposition. Speaking at the 6th annual Platts Carbon Capture and Storage Conference held in London at the end of February, Minister of State for the Department of Energy and Climate Change Charles Hendry laid out the UK government’s framework for taking CCS forward. Explaining that a lot had been learned from Longannet and that com-mercial-scale CCS was technically feasible, Hendry said: ‘Th e focus of our new CCS programme will be to reduce the costs of CCS and enable commercial deployment in the 2020s. Th is means we need to create certainty around the levels of investment needed to get CCS operational, and also the addi-tional running costs.’ Addressing the need for long-term confi dence, Hendry said that the UK would overhaul its electricity to market. ‘Confi dence is the key to delivering the investment we need in the UK electricity sector. Technology developers and investors will require confi dence that there is a long-term future

Feature: Is CCS a fully fl edged business proposition or an interesting experiment? M Cozier

79© 2012 Society of Chemical Industry and John Wiley & Sons, Ltd | Greenhouse Gas Sci Technol. 2:77–79 (2012); DOI: 10.1002/ghg

for their technology. Th at is why the UK government is implementing the biggest reforms in the electricity market for a generation – to provide the certainty investors require.’ As well as highlighting the UK’s innovation programme and commitment to tackling barriers to deployment, Hendry stressed that global cooperation presented the best opportunity for sharing best practice leading to the rapid deployment of CCS technology. ‘I off er a challenge to other

projects being developed around the world. We have made valuable information freely available to every-one, so that it can be put to use helping to speed CCS toward commercialisation. I challenge you to take the same steps. With a global eff ort we can ensure that CCS is ready more quickly, and at lower cost.’

Muriel Coziermuriel@cozierwrites.co.uk