[image_library_tag 0da37992-9b44-49cc-9042-deeb6cf08a13 200×200 alt=” eorge ay head of economic strategy ” width=”200″ border=”0″ ] George Day, head of economic strategy, ETI
The hiatus over Hinkley Point C only throws into sharper focus the question of how the UK can produce reliable low carbon power. Yes, solar and offshore wind are coming down in price, but to meet its carbon targets the country is going to need large scale, round the clock low carbon power generation.
Despite last autumn’s eleventh hour cancellation of DECC’s CCS commercialisation programme, the case for urgently looking again CCS is now building. The challenge CCS has to overcome has always been of cost and credibility.
David Cameron (remember him?) couldn’t have been clearer when he told the Common’s liaison committee:
“As things stand you put the £1 billion in .. and then you have to pay… a full £80 more than nuclear, and more than twice as much as gas…and that money will go on bill payers bills..”
When it came to the crunch, Ministers thought CCS was simply too expensive, compared with other low carbon power options. But – if we focus on the fundamentals – recent work suggests that, even now, CCS could deliver competitive low carbon power on the bars by the mid-2020s. This could be crucial in expanding our national portfolio of low carbon energy options and reducing the risk of over-reliance on any one technology.
The ETI has built an unrivalled knowledge base on the underlying engineering challenges of delivering low carbon energy in the UK. We contend that gas power stations fitted with CCS can deliver competitive low carbon power into the UK market in the 2020s – providing that the right strategic choices are made about the scale, location and technology for early projects, with a deal that shares risks (and benefits) sensibly between investors and government.
“Fitting CCS to at least a proportion of new gas capacity would enable both security of supply and generation of low carbon power.”
The government is currently wrestling with the challenge of how to make new unabated gas power capacity investible – essentially by increasing capacity payments. But there is also a case for incentivising the fitting of CCS to at least a proportion of new gas capacity. This would enable both security of supply and generation of low carbon power. Strike prices comparable to those for new nuclear and offshore wind look eminently achievable from the mid-2020s, provided the right enabling policy is developed.
So how could this be done? What would the first project investments look like?
Location: Sites close to the coast in Teesside or the Humber region offer easy (and low cost) access both to the most promising and cost-efficient CO2 storage sites in the Southern North Sea, and to grid connections and populous regions with demand for power. Coastal sites would reduce the cost of onshore pipelines and make consenting easy. And new CO2 infrastructure in these areas would also offer scope for capturing industrial emissions too.
Scale: Developing a 1GW-scale (or larger) CCS power station or power ‘cluster’ would deliver a major slug of low carbon capacity into the grid, and crucially unlock economies of scale. CCS has to rely on underpinning investments in pipeline and storage infrastructure, so economies of scale are strong, unlocking lower strikes prices without materially increasing project risk.
Technology: Latest cost assessments point to gas CCS technologies as being better placed than coal in terms of levelised costs. This, along with the greater flexibility to run plants unabated, points clearly to strategic advantages in early investment in gas CCS.
Early CCS projects will be risky enough as it is, so it makes sense also to choose lower risk, more proven capture technologies like post-combustion amine solvents. This will reduce technology and operational risks, particularly in the crucial early stages of a project, and help to make the project investible at an acceptable cost of capital. Compared to coal, nuclear and offshore wind, gas CCS also offers by the far the lowest capital costs, making it more palatable to investors.
Risk-sharing: a consensus emerged from the experience with DECC’s UK CCS Commercialisation programme that cross-chain risks and risks at the storage end of the value chain were particularly problematic for investors. The key to making early CCS investible at an acceptable cost of capital will be an offer to private sector players which takes away the risks they cannot manage (as it has done for nuclear waste disposal, or stranding risk for offshore transmission), but maintains the discipline and incentives on operators.
So what needs to happen now? We are living in interesting times and change and challenge are everywhere. The challenges for investment in the UK energy sector are likely to grow and interconnectors and new nuclear, in particular, may become more challenging to deliver.
Offshore Wind still has a long way to go in cost reduction, and can only provide intermittent capacity. This provides a chance to challenge and reconsider the received wisdom that CCS is too costly and only likely to play a role after 2030.
The ETI’s work has consistently pointed to the high potential value of CCS to a low carbon future. But our recent analysis means that we can now also identify a more specific strategy to deliver low carbon power at a competitive price, using strategically located gas power stations fitted with CCS. What is needed now is for both potential private sector investors and the government to work collaboratively through the issues and assemble a credible business framework to deliver real projects and real investments.
As the debate about new nuclear demonstrates, the option of developing gas CCS in the 2020s is potentially too valuable to be discarded.
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