Government sets out long terms plans to develop carbon capture technology

Out-Law News | 04 Apr 2012 | 12:11 pm | 3 min. read

The Government has published details of its plans to encourage the development of Carbon Capture and Storage (CCS) technology in the UK including funding packages and investment incentives.

As part of its CCS Roadmap (50-page / 1.5MB PDF), the Department of Energy and Climate Change (DECC) has announced a second competition for a share of £1 billion funding and additional support. The CCS Commercialisation Programme will award funds to support the upfront costs of early projects, with potential longer term support available through the use of low carbon Contracts for Difference (CfDs). Interested applicants must register by 13 April.

The Government's original CCS competition limited entries to designs for power stations burning coal, not gas, and only allowed systems that trapped carbon dioxide after the fuel was burned.

Energy Secretary Ed Davey said that the potential rewards of the technology were "immense". The UK must reduce its CO2 emissions by 80% by 2050.

"What we are looking to achieve, in partnership with industry, is a new world-leading CCS industry rather than just simply projects in isolation – an industry that can compete with other low-carbon sources to ensure security and diversity of our electricity supply, an industry that can make our energy intensive industries cleaner and an industry that can bring jobs and wealth to our shores," Davey said.

He added that CCS projects could by worth up to £6.5 billion a year to the UK economy if the country was able to export expertise and products abroad.

The purpose of CCS technology is to prevent CO2 from being released into the atmosphere when fossil fuels are burned to generate electricity, capturing the carbon dioxide produced.

The Government intends to make £1 billion capital funding available, subject to state aid clearance, for CCS full chain projects, or part chain projects capable of being part of a full chain project in the future. Full chain projects comprise those that will be capable of carrying out all steps in the process including capture, transport and storage.

Eligible power and capture facilities must be located in the UK, with storage sites located offshore. Projects should also be capable of being operational by 2016-20 at the latest and able to deal with commercial levels of CO2 production.

A further £125 million funding will be made available for research and development up until financial year 2014/15, including a new £13 million UK CCS Research Centre. The Government said that this investment would fund university research, the development of cheaper components and pilot projects to test those components.

Energy law expert Paul McQuillan of Pinsent Masons, the law firm behind Out-Law.com, said that the new competition should provide a "welcome fillip" to the development of UK CCS projects.

"The Energy Act 2011 has already helped prospective CCS applications by reducing the prospect of existing offshore pipeline operators retaining liability for decommissioning pipelines after handing control to CCS operators," he said. "The Roadmap appears to build on this."

Last month Davey announced that the Government's Electricity Market Reform (EMR) legislative proposals, due to be introduced in the next Parliamentary session, will include measures designed to provide "long term certainty" to investors looking to build new gas power plants benefitting from CCS technology. Plants with CCS facilities can generate "significant quantities of low-carbon electricity", the Government said, and will make up a "vital part" of the UK's plans to deliver affordable and secure low-carbon energy.

The Government has claimed that the EMR programme will bring about the widest reforms to the electricity market since privatisation. The EMR White Paper (142-page / 1.8MB PDF), which was published in July 2011, proposed several measures aimed at decarbonisation including the introduction of a 'price floor' on carbon emissions and an annual limit on emissions of 450g CO2 per kilowatt hour (kWh).

Various incentives will be on offer to CCS promoters, including exemptions from carbon reporting and emissions standards commitments for plants that install CCS technologies. Proposed CfDs, which will be set up between energy providers and a central counterparty, will offer energy providers a fixed price for their electricity established by reference to a technology-dependent 'strike price' and market reference price.

The Office for CCS, part of DECC, has been established to support the delivery of the demonstration programme and to devise the policy and support that will underpin private sector investment in the UK.

Editor's note 04/04/12: This article has been amended to include comment from Paul McQuillan.