UK CCS Demonstration: The End of the Beginning

Todays news that Drax have withdrawn from the White Rose CCS project because of “critical reversals” in government support raises inevitable questions about the future of CCS in the UK.  Whilst both the Shell/ SSE Peterhead project and the Capture Power White Rose project are approaching the end of their FEED programmes, the news about Drax has highlighted that there is still some distance to go to reach Final Investment Decision (FID) on these projects.  If these projects fail to go ahead, there are significant implications for CCS and UK carbon reduction efforts. This paper highlights the importance of successfully delivering these two projects.

The recent thinking in CCS is that both the Shell/SSE Peterhead project and the Capture Power White Rose project would go ahead.  Developers of both projects have invested a huge effort to progress to the current position and have just completed Front End Engineering Design (FEED).  Future UK CCS scenarios are based on the assumption that both projects go ahead.  The enthusiasm of the CCS community for CCS projects makes it difficult to contemplate it any other way.  However, we have been here before.  In the first DECC CCS Competition (Demo 1) ScottishPower and EON reached the same FEED stage, only to end up with no projects when neither project could be progressed.

What if the projects do not go ahead?  To consider what the factors are that could lead to this outcome, it is useful to look back at Demo 1.  The National Audit Office produced a report “Carbon capture and storage: lessons from the competition for the first UK demonstration” which outlines some of the reasons.

“The Department decided that the project could not be funded within its agreed £1 billion capital limit.  It also could not agree with ScottishPower how to offset the additional cost of the new carbon price floor (a minimum charge for emitting carbon dioxide) to secure the availability of Longannet power station for the duration of the demonstration project.  Furthermore, there was no prospect of agreeing contract terms that would be mutually acceptable to all members of the consortium and the Department.”

Some of the key issues which could prevent either or both Demo 2 projects proceeding could include:

  • Loss of investor confidence in government policy around low carbon projects
  • FEED illuminates a show stopper issue (technical or commercial).
  • Participants or DECC are not satisfied that FEED has reduced project risk to a reasonable level.
  • DECC are not satisfied that a projects meets its value for money criteria.
  • Contractual arrangements within the project cannot be resolved.
  • Project contract/risk allocation with DECC cannot be resolved to the satisfaction of all parties.
  • DECC funding in terms of capital grant or CfD cannot be agreed.
  • Project funding needs (project finance or internal funding) cannot be met.
  • Commercial return/benefit needs of project developers not met.

These are significant and complex projects.  Now is the time to retain focus and commitment to overcome these hurdles.

If either the Peterhead or White Rose projects fail to go ahead it will be a significant setback for CCS in the UK.  The stated DECC objective of Demo 2 was to enable “private sector investment in CCS equipped fossil fuel power stations in the early 2020s without capital subsidy, at an agreed CfD Strike Price that is competitive with other low carbon generation technologies”.  More specifically the DECC website indicates this includes:

  • Generating learning that will help to drive down the costs of CCS.
  • Testing and building familiarity with the CCS specific regulatory framework.
  • Encouraging industry to develop suitable CCS business models.
  • Contributing to the development of early infrastructure for carbon dioxide transport and storage.

Clearly if neither project was approved, these objectives would not be met.

Furthermore, any further potential CCS projects in the UK will be significantly delayed as the implications of the outcome are assessed and confidence in CCS suffers a further setback. If Demo 2 failed to deliver a project, after the same outcome in Demo 1, CCS in the UK would suffer a critical if not fatal blow.

Commitment must exist from all involved to push these two projects through the Final Investment Decision. The implications of not reaching FID on both these projects will be a significant setback for CCS in the UK.

This article was written by Sam Gomersall.

Written by Pale Blue Dot Energy

Management Consultants for the Energy Transition, delivering support in three key areas: 1. Carbon Capture and Storage 2. Oil and Gas Transition 3. Emerging Energy Systems

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