Capturing Carbon, Capturing the Market

Capturing Carbon, Capturing the Market

Location: New York
Author: James Griffin
Date: Monday, November 5, 2007

The UK 's development of carbon capture and storage (CCS) technology, increasingly regarded as the single best technology to reduce significant CO2 emissions, has recently taken both a step forward and a step back. The direction depends on the standpoint of each utility. There has been positive news for those looking to develop post-combustion technology, but for those leading with pre-combustion technology, recent announcements have been a setback.

The basic background to this combines two points. Firstly, the UK government has been keen to promote CCS as part of its efforts to mitigate climate change. Given that the Intergovernmental Panel on Climate Change (IPCC) states that CCS has the potential to meet 15 to 55 per cent of the global CO2 mitigation effort by 2100, it is easy to see why.

And secondly, the government also sees CCS as a potentially profitable export if UK companies can develop a commercially viable plant before anyone else.

It appears that the combination of these two issues has led the government to come out in support of aiding the development of post-combustion and not pre-combustion technology. This was emphasized in a recent letter to the UK 's Daily Telegraph newspaper, in which the UK 's energy minister Malcolm Wicks said the decision to exclude pre-combustion methods was because “post-combustion technology is the most globally relevant technology.” He said the decision “complements, rather than competes with, the developments in Norway and the U.S. ,” which are looking at pre-combustion.

Wicks' comments on complementing, rather than competing, as well as the government's belief that the capture technology can be retro-fitted to existing coal-fired plants, such as the huge number being built in China, underscores the logic behind the decision. The upshot is that the government has come out in favour of projects that remove CO2 after coal is burnt in power plants and then store it underground, rather than integrated gasification combined cycle (IGCC) technology that removes the gas responsible for climate change before combustion.

However, many companies who have backed the IGCC technology believe the decision reneges on previous government promises that both technologies would be supported, and phrases such as “short-sighted” have been bandied around. In comments carried by Reuters following the government's announcement, Jake Ulrich the managing director of Centrica Energy said: “Supporting just one carbon capture technology risks losing a golden opportunity to realize the Prime Minister's vision of the UK as a global pioneer of carbon capture.”

He added: “Excluding pre-combustion capture technology in favour of post-combustion capture technology means bypassing a cheaper method for capturing carbon that will have more international application in favour of a technology largely used to retro-fit existing coal plants... many of which will soon be retired.” In addition, it also begs the question: will this decision provide power companies with the signal to keep building conventional high emitting coal-fired plants?

It means that government funding for pre-combustion projects has now been cut off. For some projects, it could effectively mean the end. This is possibly the case with Scottish and Southern Electric's (SSE) hopes that the Peterhead gas-fired power plant could pump CO2 into the depleted North Sea Miller field. It is the latest setback for the US$2 billion plan, following the summer withdrawal of BP, owner of the Miller field, amid claims that it could no longer wait for the government to make a decision on monetary support. Though overseas, BP, in a joint venture with Algeria 's Sonatrach and Norway 's Statoil, is currently developing the In Salah CCS project, which focuses on a natural-gas processing plant in the Sahara desert in Algeria , 1,200 km south of the capital, Algiers .

The Peterhead situation also offers a snapshot of the broader picture, as the decision risks ruling out the massive potential storage opportunities available in the North Sea . Yet, all may not be lost. There does appear to be a feeling amongst developers that if the government takes a tough line with EU countries during talks on Phase 3 of the Emissions Trading Scheme (ETS) then there may be some hope for projects to be commercially viable, without government help. Many support a move to full auctioning of allowances to emit CO2 from 2012, when Phase 3 is due to be implemented, rather than free handouts and a commitment from all EU member states to emission cuts and the ETS, as well as tighter National Allocation Plans for distributing carbon permits.

These measures would help carbon prices move upwards, with €40-a-tonne thought to be the level that carbon capture projects could pay for themselves. However, agreement at the EU level is never easy, and it seems likely that countries with a high concentration of coal-fired plants would resist such a move.

On the other side of the coin, RWE npower has recently announced plans to design and build the first CO2 capture pilot plant at a UK coal power plant. An initial ₤8.4 million investment will focus on a 1MW capture plant, with further investment planned to support a capture and storage demonstrator plant of at least 25MW. Both plants will be designed using post-combustion technology and RWE npower said that the pilot will enable it to develop a full understanding of both the technical and commercial issues relating to CCS, as well as allow the CCS concept to be tested in as close to real operational conditions as is possible. The first phase could be fully operational by 2010 and will be located at Aberthaw power plant in South Wales .

The RWE npower announcement also coincides with news from the United States that the Department of Energy (DOE) has awarded the first three contracts for large-scale CCS projects as part of its plan to invest almost $200 million in the technology over the next ten years. The DOE said the three projects will conduct large volume tests for the storage of one million or more tonnes of CO2 in deep saline reservoirs.

The UK government's announcement has certainly shifted the goalposts, but whether a utility prefers post- or pre- combustion technology, CCS remains an important option, perhaps a necessity, in helping ensure energy needs are met and emissions reduced. Going forward, the keys to its success lie in making a project commercially viable, whether with government subsidies or stand-alone, further enhancing the understanding of the technology, as well as clarification of regulatory issues, such as who owns the underground CO2 and is therefore liable for it.

There is a much at stake, both from the environmental and commercial perspective. Expect to hear much more about CCS in the future.

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