Out-Law News 5 min. read
15 Aug 2022, 2:24 pm
Businesses could soon have new UK incentives to invest in technology that generates energy from sustainable biomass while storing the carbon released in the process.
The UK government said it is minded to introduce a new contract-based business model to support investment in BECCS (bioenergy with carbon capture and storage). It has opened a consultation on its plans (46-page / 430KB PDF) which it said fit with its target of delivering an economy that produces ‘net zero’ greenhouse gas emissions by 2050 in comparison to 1990 levels.
BECCS is one of a number of greenhouse gas removal (GGR) technologies that the government hopes can be deployed to achieve its ‘net zero’ ambitions. It previously indicated that it expects GGR technologies to be able to remove five million tonnes (Mt) of CO₂ per year by 2030, rising to between 75 and 81 Mt CO₂ per year by 2050.
In its new consultation paper, the government said that, of the various GGR technologies, “power BECCS is best positioned to begin delivering on the 5Mt CO₂/year of engineered removals required within this decade”.
The government said: “There are biomass plants currently providing bioenergy, with a potential capability of converting to power BECCS projects within this decade by installing carbon capture and storage equipment. By harnessing the opportunity to re-utilise existing infrastructure and expertise, there is potential to accelerate progress in supporting the existing contribution to energy security and the scaling-up of engineered greenhouse gas removals this decade.”
However, the government said commercial incentives are needed to support deployment of the technology: “Power BECCS requires a specific framework to ensure correct behaviours are incentivised, both in relation to the grid, and to the wider societal benefit of negative emissions,” it said.
What is clear is that the government considers that power BECCS will be needed as part of the UK’s overall net zero strategy
In its consultation paper the government outlined various potential business models that it said it has considered for supporting investment in BECCS. It said its favoured option is a business model consisting of a contract for difference (CfD) for electricity combined with a CfD for carbon.
CfDs mitigate the risk associated with price fluctuations by ensuring remuneration at a pre-agreed "strike price". CfDs have been used before to incentivise investment in other energy technologies, perhaps most notably offshore wind power in the UK. Under that model, if the electricity price achieved by the wind farm operator on the market falls short of the agreed strike price, the state compensates for the difference. If the electricity price achieved is higher than the strike price, the operator pays the surplus back to the state. An additional profit or "surplus profit" is thus excluded.
The business models for both carbon capture and low-carbon hydrogen production are also based on the principles of CfDs, so its proposed use in relation to BECCs is not surprising, said low carbon energy projects expert Stacey Collins of Pinsent Masons.
The details of the government’s plans to implement CfDs for BECCs have still to be finalised, but it said its plans to combine a CfD for electricity combined with a CfD for carbon would provide “a dual payment mechanism under one CfD contract framework” and “value both the electricity output and the negative emissions” that could be achieved from sustainable bioenergy generation and use of carbon capture and storage technology, which the government said could help offset emissions from sectors such as agriculture and aviation where decarbonisation is expected to be more difficult.
“The dual mechanism values low carbon power and negative emissions separately, allowing separate cost distribution of these value streams,” the government said. It said a strike price and a pay-back mechanism would exist on both sides of the mechanism.
The government said providing support for BECCS can also improve the UK’s energy security.
It said: “Power BECCS also contributes to the continued efforts to boost system resilience. Standard sustainable biomass combustion for power generation was first used to reduce the UK’s reliance on coal power generation. Biomass has since proven to be a reliable source of baseload generation. Adding power BECCS technology to existing or new sustainable biomass combustion power stations would continue to support a source of low-carbon generation into the future that is non-intermittent and can contribute to security of energy supply in a net zero world.”
Collins said: “It is great to see the government’s current thinking on how the power BECCS business model might operate. There are a number of power BECCS projects in development, and it is important for those projects to have their say in response to the consultation.”
“The government’s current ‘minded to’ model is inevitably complicated, but fundamentally it will need to represent a ‘bankable’ proposition to attract financial investment into the projects. What is clear is that the government considers that power BECCS will be needed as part of the UK’s overall net zero strategy, so it may be willing to compromise on any perceived blockers to deploying these projects successfully,” he said.
The government’s new consultation, which is open to 7 October, follows its announcement earlier this month of £37 million of funding for innovative biomass projects across the UK.
Separately, the government has also published details of the 20 projects that have made its shortlist for obtaining its backing as carbon capture, use and storage (CCUS) clusters. The technology is intended to extract CO2 from industrial processes before it is emitted into the atmosphere with the intention of storing it underground for thousands of years.
CCUS clusters have been identified by the government as important for concentrating the efforts of businesses in set locations in the UK on investing in CCUS technology to help decarbonise the economy. The government is aiming to support the development of various clusters across different phases.
Last year, the HyNet and East Coast Cluster initiatives gained the backing of the government in the first phase of its initiative. Those clusters are expected to be operational by the mid-2020s. The Scottish cluster was given a reserve status in case a backup becomes needed. The government subsequently received applications from ‘power CCUS’, ‘industrial CCUS’ and ‘hydrogen CCUS’ projects to connect onto a track-1 or reserve cluster as part of the second phase of the cluster sequencing process.
The government announced in the spring that a number of projects had met the eligibility criteria for the second phase of its initiative, in which the government intends to provide support to two further clusters which it envisages would become operational by 2030. The 20 projects to have made its shortlist will now be subject to due diligence before the government announces which of those projects will receive its backing.
Collins said: “It is fantastic to see the announcement of the phase two shortlisted projects – we’ve been waiting since May for progress, and there was a concern that the political backdrop would delay things further. Pinsent Masons are fortunate to be advising in relation to a significant number of those shortlisted projects, and it’s exciting to be at the forefront of such an interesting and innovative new market. The government has made clear that the 20 projects selected are not the final list of projects that may get support, but nevertheless it’s a welcome boost for those projects which have been investing significant sums of money in maintaining their development timetable.”
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