CAPTURING THE MARKET

1 May 2010 Carbon capture and storage might just be the next big thing. Chris McGarvey, senior associate, McGrigors reports.
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Storing carbon dioxide emissions safely is going to be a key part of making Britain a greener place. And the project that will make that happen will draw heavily on the experience and successes of the partnerships industry.

The government has pledged to reduce emissions of carbon dioxide by 80% against 1990 levels by 2050. Carbon capture and storage (CCS) is an important technology in the race to achieve this ambitious target.

The government recently published its strategy document for developing CCS, in which it puts the industry’s value to the UK economy at £3bn-6.5bn a year by 2030. As CCS technology has not been commercially proven on an industrial scale, projects will probably require governmental support until the technology is proven enough – and the price of carbon dioxide emissions sufficiently stable – to justify the capital investment and operational expenditure to install and operate this technology.

The Department of Energy and Climate Change (DECC) is running a competition for a CCS demonstration project, and ministers recently announced they wanted to run a second competition for an additional three demonstration projects in the UK.

Both competitions will be publicly procured and will build on the experience gained through government procurement of capital-intensive and complicated infrastructure using public private partnerships. The Conservatives have also made a claim that they support CCS technology.

But what is carbon capture and storage? It can be separated into three discrete activities:

 the separation and capture of carbon dioxide from the source point, i.e. thermal electricity generation and carbon-intensive industrial processes such as cement kilns and steelworks;

 transportation of the captured carbon dioxide from the point of emission to the storage site by pipeline or by shipping in purpose-built vessels;

 injection and storage of the carbon dioxide in a geological formation such as depleted hydrocarbon reservoirs or saline aquifer.

The capture process can take a variety of forms: pre-combustion, where input fuel is processed prior to combustion to remove the carbon dioxide; post-combustion, where flue gas emissions are processed to separate the carbon dioxide prior to venting of the emissions to the atmosphere; and oxy-fuel combustion, where the input fuel is burned with pure oxygen instead of air, facilitating the separation of carbon dioxide from the flue gas.

The first demonstration connotation aims to demonstrate post-combustion CCS on a coal-fired power station with carbon dioxide stored offshore, capturing carbon dioxide from the 300Mw net electrical output of the power station. For the first competition, the proposed contract will be based on standard PFI contract, SoPC4.

On March 12, DECC awarded front end design and engineering contracts to the two shortlisted bidders, Scottish Power and Eon, to refine their initial designs, reducing technical risk and cost uncertainty, so that a preferred bidder can be selected.

In the 2009 Pre-Budget Report, the Government announced a further three demonstration projects would be procured as part of a second competition. Further details of this second competition round were given in the recent strategy document for CCS and include:

 all demonstration projects will be on coal fired power stations;

 the programme will try to demonstrate both pre- and post-combustion capture technologies (including oxy-fuel) with a maximum of two projects (for both the first and second round competitions) demonstrating post-combustion technologies;

 all projects will be reimbursed through a single payment linked to performance and output (e.g. electricity generation or carbon abated) and will be funded by a new UK CCS levy.

It is clear from the CCS strategy document that, for the second competition, the government wants to see projects that could allow "co-location" or "clustering" of multiple emission sources so as to create a transportation network serving individual or linked storage sites. The strategy document also says the government will consult with industry on the best procurement method for the second round competition later this year.

But while the government announcements are to be welcomed, there are still significant challenges to the successful deployment of CCS technology on a commercial basis.

Uncertainty over future carbon pricing does not help create the right political and economic environment in which long-term investment decisions can be made with confidence – particularly given the outcome of the Copenhagen climate change talks.

Challenges also arise the uncertainty over the licensing and regulatory regime for this nascent industry, particularly the implementation of the EU directive on the geological storage of carbon dioxide, on which the government intends to consult later this year. It will be important to ensure that a regulatory regime is put in place that allows the industry to develop while ensuring the directive’s objectives are met.

As a result of its geology and its decades of experience in offshore oil and gas exploration and production, the UK is well placed to lead the world in the development of CCS. It is to be hoped that the government's stated commitment to the technology will ensure that the obstacles to its commercial deployment can be overcome. That will make it much more likely that the UK can meet its emission reduction targets for 2050 and realise the significant economic benefits that this technology is estimated to bring.

This page was last updated on:
11 May 2010.

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