UK: The Challenges Facing Carbon Capture And Storage

Last Updated: 25 September 2013
Article by Malcolm Dowden

The UK government has confirmed funding to take two Carbon Capture and Storage (CCS) demonstration projects to the next stage of development. For the Peterhead project in Aberdeenshire and the White Rose project in Yorkshire, the next step is "Front End Engineering and Design" (FEED), leading to full-scale and integrated projects which aim to prove the technology and also the business and regulatory models required to deliver a cost-competitive CCS industry by the 2020s. However, significant legal and economic challenges remain, both at project and industry level.

Project level challenges

The White Rose project in Yorkshire involves the construction and commissioning of a new 426MW (Gross) coal-fired power plant with the ability to co-fire biomass. The new plant is to be fully equipped with oxfuel combustion technology and would aim to capture approximately 90 per cent of its annual CO2 emissions.

The power plant would depend on the success of a separate project, led by National Grid, to construct and operate a CO2 transport pipeline leading to permanent geological storage facilities approximately 2km offshore.

Although proceeding as separate projects, the development consent processes are inextricably linked. In its Scoping Opinion on the White Rose Project the Planning Inspectorate emphasised the potential need to carry out a full assessment under the Habitats Directive, and endorsed Natural England's consultation response by stressing that any Environmental Statement relating to White Rose must include full consideration of the whole scheme, extending to:

Existing completed projects (e.g. the Drax power plant adjoining the White Rose site)

  • Approved but uncompleted projects
  • Plans or projects under consideration, and
  • Plans or projects which are reasonably foreseeable (i.e. projects for which an application has not yet been submitted, but which are likely to progress before completion of the development and for which sufficient information is available to assess the likelihood of cumulative and in-combination effects).

The Scoping Opinion specifically refers to the proposed Yorkshire and Humber CCS Pipeline proposals, underlining the fact that in considering whether to grant consent for the power plant and onshore elements of White Rose the cumulative and combined impact of the transport and offshore storage elements must be taken into account.

Given that the precise details of key elements remain uncertain, any development consent application must adopt the "Rochdale Envelope Principle", under which an applicant seeking flexibility should assess and present the maximum potential adverse impacts. This requirement creates two distinct risks:

  • Increased risk of challenge prompted by presentation of the "worst case scenario", and
  • Increased risk of challenge from opponents arguing that the applicant has, in fact, failed to disclose the worst case scenario.

Local press coverage since 2011 has tended to emphasise the scope for disruption and to highlight the potential need to exercise compulsory purchase powers, particularly in respect of the cross country pipeline. The potential for opposition during the development consent order process is significant.

The overall scheme also depends on successful navigation of the licensing regime applicable to offshore storage established under Energy Act 2008, s 18, which includes criteria for establishing technical feasibility, financial viability and environmental protection. The promoters must also obtain a Crown Estate lease of the undersea storage formations.

Industry challenges

The two projects selected as preferred bidders for the FEED stage of the government's competition are full-scale demonstration projects. Their purpose, perhaps over and above their intrinsic value, is to prove the concept and to test the investment case, business structure, legal and regulatory framework for CCS.

Business structures may prove to be particularly challenging. CCS requires integration of carbon capture, CO2 transport infrastructure and permanent storage facilities. The expertise relevant to each element differs, and the risk profiles widely diverge.

From the transport and storage perspective, there is a significant risk in initial reliance on a single source of CO2. For that reason, Capture Power Limited (the joint venture behind White Rose) and National Grid are working with the developers of the Don Valley CCS project to promote the development of an integrated "CO2 cluster" providing a transportation and storage network for the energy-intensive region of Yorkshire and Humberside. Necessarily, that requires National Grid to "oversize" the initial construction to allow for potential future volumes. Successful development at industry scale would be needed to vindicate that approach.

Risk allocation among elements of a CCS scheme may prove difficult. Particular concerns stem from the significant, uncapped and (currently) uninsurable liabilities relating to the transportation and storage infrastructure. For a power plant, viewed in isolation, the principal risk may be of carbon capture technology failing, underperforming or requiring maintenance at a level or with a frequency that affects availability and utilisation rates. That risk may be dwarfed by the "integration risk" when carbon capture is linked with transportation and storage, whether within the same business structure or through contractual arrangements.

Transport and storage risks are, initially, wholly borne by private sector operators. The EU CCS Directive (2009/31/EC) provides for risk to pass to member state governments, but only "if and when all available evidence indicates that the stored CO2 will be completely and permanently contained". In its November 2012 report, Mobilising Private Sector Finance for CCS, the Energy Technologies Institute (ETI) observed that while the sector is reasonably confident about its ability to manage or prevent seepage risks, there is much less clarity or confidence about the risk of catastrophic escape. Consequently, the point at which responsibility for permanent storage risks might be passed on to national authorities must remain uncertain. That, together with the uncapped future of EU carbon credit (EUA) prices, means that insurers are currently finding it difficult to provide products to underwrite CCS storage liabilities.

In any event, operators cannot look forward to a cost-free transfer of risk. The EU CCS Directive notes that after a transfer of responsibility national authorities would have to bear the costs of maintenance, monitoring, control and corrective measures (which may include substantial remediation costs). To mitigate that risk to the public purse the Directive provides that before any such transfer the operator must make a financial contribution. The level of that contribution would have to be set at the time of the proposed transfer, and would reflect the degree of risk being assumed by the public sector. Even though, by that stage, "all evidence" must indicate that CO2 has been completely and permanently contained, it is unlikely that national authorities could prudently regard the risks, and the required level of financial provision, as de minimis.

Policy risks

The ETI's November 2012 report also highlighted investor concerns about the government's continuing commitment to CCS. CCS is policy dependent, so potential investors are highly sensitive to mixed signals from government, either to CCS itself or to broader carbon emission targets.

There is also a potential risk of conflict between the UK government's view of CCS and EU policy. CCS is an attractive technology in part because it offers a way to keep fossil fuels within the energy mix. White Rose has the potential to co-fire biomass, but is predominantly a coal-fired plant. CCS is therefore crucial to its viability. It reconciles the measures required to meet emission reduction targets with the pressing need for energy security. However, there may be a risk that the current UK government, under severe back bench pressure, may fall foul of the terms of the EU Directive. The Directive emphasises that CCS is a "bridging technology". It "should not serve as an incentive to increase the share of fossil fuel power plants. Its development should not lead to a reduction of efforts to support energy saving policies, renewable energies and other safe and sustainable low carbon technologies". CCS is a valuable addition to the mitigation toolkit. It is not a complete answer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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