Viewpoint
CCS would add security and flexibility to energy supply W
hatever your views on fossil fuels, burning them provides us with over 70% of the electricity we
take for granted in the UK. And our reliance on coal and gas will continue for the short to medium term as we transition to a low carbon economy. Our growing consumption of electricity and the urgent need to reduce emissions can only be eco- nomically reconciled by wide-scale deploy- ment of carbon capture and storage (CCS) technologies. CCS has not been advancing as quickly as
it needs to. CCS technology is proven, but the policy and incentives framework is uncertain. The Department of Energy and Climate Change’s (DECC) CCS Roadmap originally due in the spring is now due in the autumn. Without greater certainty, investors, backed by pension funds and global money markets that will finance CCS, will not deliver. According to DECC we need to have installed 40GWof CCS capac- ity by 2050 if we are to meet Climate Change Act commitments – and that is extremely challenging given the current trajectory. However, I’m encouraged by the nine
UK CCS bids that have been received under the EU’s New Entrant Reserve (NER300) scheme; more than from any other Member State and about half the EU total. The UK government is active in a number of multilateral and bilateral inter- national CCS fora. The UK is the CCS leader in Europe, with some of the best potential storage sites and with the first commercial-scale CCS retrofit, to Longannet in Scotland, we are also leaders in the global CCS arena. I’m also encouraged that the UK govern-
ment’s energy policy sees CCS, together with nuclear and renewables, as a key part of its low carbon energy triumvirate. Fossil fuels are still a vital component of our ener- gy mix. Unlike renewables, they are not restricted by the intermittency of thewind, or the inflexibility of nuclear, and are able to respond rapidly to changes in electricity demand. Even with improved demand-side management, fossil power will be required to respond to daily, weekly and seasonal variation, and especially to the regular January anticyclone as well as to consumer demand during the ad break in Coronation Street.
Governmentsupportfor CCS So what is the government doing to make CCS happen in the UK? Its approach is Electricity Market Reform (EMR) incorpo- rating Feed-in Tariffs (FiTs), Capacity Payments, Carbon Price Support (CPS) and Emissions Performance Standards (EPS).
Energy World April 2011
Jeff Chapman is Chief Executive of the Carbon Capture & Storage Association (CCSA),
www.ccsassociation.org
EMR is badly needed, but there are consid- erable risks of unintended consequences if the detailed implementation is not put together carefully. Technology-specific FiTs have the poten-
tial to be the only mechanisms required to incentivise investment in low carbon tech- nology. They will reward generators for providing a higher value product, namely low carbon electricity. The level can be set to present the right reward to attract investors but without subjecting the con- sumer to excessive cost; especially given that low carbon power from fossil genera- tion with CCS is set to be very good value. But if the government selects a Contract for Difference (CfD) FiT as proposed, there will need to be some mechanism that adjusts to fuel price variation for fossil generation, otherwise investors will likely run scared of the fuel price risk. In an energy market with more intermit-
tent renewables on the grid, a much greater proportion of fossil fuel capacity will need to shift from providing baseload to swing capacity. With attendant low load factors, there would not be economically viable to build. The risk here would be of insufficient investment in generating capac- ity to meet fluctuations in demand. In prin- ciple, targeted Capacity Payments provide a workable mechanism to compensate gener- ators for this new era of lower load factor capacities, but much needs to be done to deliver the detail of the mechanism. What is the Treasury’s CPS going to deliv-
er? The carbon price under ETS is too low, and looks likely to remain too low, to drive low carbon investment.We do need a pre- dictable and higher carbon price to make CCS (and other low carbon investment) happen, but CPS does risk undermining UK competitiveness and could be unsustain-
able if it gets too far away from the ETS market price. Onemajor opportunity for the CPS is that
it could provide a much needed investment pot to fund CCS. Rather than competing with other calls on the proceeds of general taxation, the CPS could provide a steady stream of predictable income to fund first- of-a-kind CCS investment costs as an alter- native to the CCS Levy, which was introduced in the 2010 Energy Act but which is now under question. This option would be attractive to potential CCS investors concerned about the security of public funding. It would also be a mecha- nism according with the ‘polluter pays’ principle, enabling fossil fuel generators to pay to clean up their own emissions. There seems little doubt that an EPS will
be introduced. It may be a popular move with some, but is an EPS necessary? It is argued that it provides a ‘backstop’ for emissions but, if we get FiTs and Capacity Payments right then it’s superfluous. An EPS just adds extra complexity and bureau- cracy. It is consistent with the currentmora- torium on unabated coal, which already limits the number of new coal plants to only those that will get CCS demonstration support; that is probably a maximum of two out of the proposed four, as the first is retrofit and one will likely be gas. Certainly, an EPS won’t, of itself, deliver CCS projects if the EPS can be met by unabated gas.
Show on the road Let’s be clear about CCS and fossil fuels. The real barriers are policy-based, not technical. Tackling climate change will be more expensive without CCS, according to the International Energy Agency (IEA) and the Stern Report. According to the IEA, CCS could contribute up to 29% of 2050 reduc- tions in greenhouse gas emissions from industry and electricity generation. It would also be 70% more expensive to reduce emissions without, and I believe both of those are underestimates. The IEA reckons the global market in CCS will be worth $5 trillion by 2050, comparable with the oil and gas industry. TheUKis in a great position to continue to be a global leader in CCS, creating jobs and prosperity and harnessing the UK’s natural and human resources. Fossil fuels with CCS add security and
flexibility to our energy supply. So what are we waiting for?We urgently need positive and certain instruments of policy – then we can get the CCS show on the road.
The views and opinions expressed in this article are strictly those of the author only and are not necessarily given or endorsed by or on behalf of the Energy institute.
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