UK: Ofgems Consultation On The Proposed Use Of NTS Assets For Carbon Capture And Storage

Last Updated: 23 April 2009
Article by Clare Haley and Munir Hassan

On 8th April the Office of Gas and Electricity Markets ("Ofgem") issued a consultation paper on a proposal by National Grid to dispose of part of its National Transmission System ("NTS") assets in Scotland in order to utilise those assets for carbon capture and storage ("CCS") purposes. This is the first consultation on CO2 transportation for CCS in the UK and is another key step towards large-scale demonstration of CCS in the UK. It is envisaged that Ofgem will issue further consultations if National Grid's proposal is to be taken further.

Background

In November 2007 the UK Government launched a competition to partially fund a commercial-scale, full value chain post-combustion CCS project in the UK. Three entrants have been short listed – Scottish Power, Eon and Peel Energy CCS. National Grid has identified that it could offer CO2 transportation services to one of the above parties for its CCS project by using some of the existing NTS assets currently owned by National Grid Gas ("NGG") for onshore CO2 transportation from the source of the CO2 (in this case a power station in the Scottish central belt) to permanent storage in the UK's continental shelf via St Fergus in the North East of Scotland.

The proposal, and therefore consultation, does not cover offshore transportation pipelines.

National Grid's proposed asset disposal requires Ofgem's consent and, to assist its consideration of this, Ofgem is inviting views from interested parties on:

  • whether respondents think the proposal is a good idea in principle; and
  • if so, how arrangements should be set up for the disposal to ensure customers get a fair share of the benefits.

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Full Article

On 8th April the Office of Gas and Electricity Markets ("Ofgem") issued a consultation paper on a proposal by National Grid to dispose of part of its National Transmission System ("NTS") assets in Scotland in order to utilise those assets for carbon capture and storage ("CCS") purposes. This is the first consultation on CO2 transportation for CCS in the UK and is another key step towards large-scale demonstration of CCS in the UK. It is envisaged that Ofgem will issue further consultations if National Grid's proposal is to be taken further.

Background

In November 2007 the UK Government launched a competition to partially fund a commercial-scale, full value chain post-combustion CCS project in the UK. Three entrants have been short listed – Scottish Power, Eon and Peel Energy CCS. National Grid has identified that it could offer CO2 transportation services to one of the above parties for its CCS project by using some of the existing NTS assets currently owned by National Grid Gas ("NGG") for onshore CO2 transportation from the source of the CO2 (in this case a power station in the Scottish central belt) to permanent storage in the UK's continental shelf via St Fergus in the North East of Scotland.

The proposal, and therefore consultation, does not cover offshore transportation pipelines.

National Grid's proposed asset disposal requires Ofgem's consent and, to assist its consideration of this, Ofgem is inviting views from interested parties on:

  • whether respondents think the proposal is a good idea in principle; and
  • if so, how arrangements should be set up for the disposal to ensure customers get a fair share of the benefits.

National Grid's Proposal

National Grid's proposal involves the re-use of existing gas feeder pipelines that are near to or at the end of their regulatory economic life. These feeder pipelines run from the entry point of the NTS at St Fergus to the Scottish central belt. If this proposal is successful and developed further it is possible that it could enable most if not all of Scotland's economically recoverable CO2 to be transported for storage.

The proposal is for NGG to dispose of the assets to a new wholly owned National Grid company ("Newco") whose object is to provide CO2 transportation services. This Newco would be responsible for the operation and maintenance of the assets following their acquisition from NGG, and the tariff for the transportation service provided by Newco would cover capacity and operating costs.

The proposal from National Grid is conditional on a successful outcome of the relevant project in the Government's CCS competition, the results of which are due to be announced towards the end of 2009.

The benefits of the proposal put forward by National Grid are:

  • by re-using existing onshore infrastructure, the initial deployment of CCS in the UK could be considerably quicker, less costly and less risky than if a new, bespoke CO2 transportation network is developed; and
  • there may be some opportunity for gas consumers to extract some residual value from pipelines that are otherwise expected to be relatively under-utilised in the medium term.

National Grid intends to keep current baseline capacity obligations unchanged and has outlined proposals for:

  • commissioning a potential new compressor; or
  • establishing a commercial framework that would share the buy-back risk and project rewards with shippers, more information on which can be found in the consultation paper.

The consultation goes into detail on the physical asset disposal, the regulatory issues surrounding the proposal, considerations for Ofgem in reaching a decision, future network requirements and in particular future requirements at St Fergus (one of the main gas receiving terminals in the UK), security of supply considerations and other network considerations. The consultation also provides information on the proposed means of valuing the assets and the potential commercial options for the sharing of risks and rewards by existing network users and Newco. In addition to lump sum payments for the assets, other possibilities such as royalty payments are addressed in the consultation paper.

The full text of the consultation paper can be found at http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=189&refer=Networks/Trans/GasTransPolicy

Next Steps

Ofgem's consultation is open for response until 22nd May 2009. Ofgem has indicated that this will be the first of a number of consultations on the proposal. The consultation will be of interest to a wide number of stakeholders – gas shippers, existing and new producers both in the UK and Norway, CO2 emitters and proponents of and participants in CCS projects. There is no doubt that CCS is considered an essential technology in the drive to lower CO2 emissions and it is encouraging that steps are now being taken to develop an onshore pipeline network from CO2 source to storage by an experienced network operator.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 21/04/2009.

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