London (Platts)--29May2008

Industry must shoulder a share of the burden of financing demonstration
carbon capture and storage projects because with carbon risk will come reward,
EC Energy Commissioner Andris Piebalgs told participants at a May 27 Friends
of Europe round table event in Brussels.

"We are still not aware of the real costs of CCS, and there is a need for
additional incentives," Piebalgs said, noting that rough estimates for 12
demonstration projects of perhaps 400-MW each had risen to around Eur12
billion. "But we must not take away all commercial risk. Industry must come
forward. This is a business opportunity so risk is needed."

Piebalgs supported the UK's approach of tendering for a CCS demonstration
project, "but I don't see this happening much elsewhere [outside the EU,
Gassnova of Norway is tendering for various CCS-related services for Karsto
and Mongstad]. How are we to get these projects built? How are we to use the
Emissions Trading Scheme? Auctioning of CO2 allowances in the third phase
would support a higher price."

He said the European Commission "had a support scheme in mind", but would
not elaborate. MEP Chris Davies was more forthcoming. "The Commissioner knows
how to fund these flagship projects, but there is no agreement in the college
[group of all EC commissioners]."

Delegates at the conference believed this was a reference to Davies' own
proposal to award double CO2 credits under the EU Emissions Trading Scheme to
the flagship projects for CO2 stored. The double credit system would be
limited by volume and time, so as not to disrupt the ETS, where the overall
cap would be unchanged. "The scheme would specify that CCS demonstrations
could qualify for a fixed amount of CO2 credits--2.5% maximum volume of the
ETS," the MEP said.

Davies is acting as the European Parliament's rapporteur on the EC's
proposed CCS directive, being considered by the EP's environment committee.
With a draft directive on geological storage of carbon dioxide and amendments
to the emissions trading scheme also working their way through the Brussels
policy machine, Davies said CCS was entering a critical period: "the French
presidency [starting July 1] is committed to the CCS action plan and wants to
accelerate development, but we must raise our sights and exert maximum
pressure over the next seven months--time is short."

MANDATORY ROW
Davies said CCS-readiness (suitable for the retrofit of CCS) should be
mandatory for new coal projects in Europe. Piebalgs, however, said he was not
convinced of the appropriateness of this. The technology was not advanced
enough, and may not be suitable for all future projects.

MEP Davies responded: "Alstom says that by 2015, no new coal plant need
be non-CCS-ready. I expect other suppliers to say the same. A mandatory
element is crucial to drive the demonstrations forward. Maybe a secondary
outcome would be to drive more money to renewables; that would be fine. Making
CCS readiness mandatory simply says that there is no cheap coal opportunity
out there."

European power equipment suppliers told Platts they want CCS-readiness to
be obligatory. Building plants capture-ready would accelerate the
opportunities for widespread and fast implementation of CCS in the period
after the first demonstrations are operational, they said. Building plants
that are not capture-ready would serve to lock-in carbon emissions for 40-year
life cycles.


EUR50-100/TON CO2
Several discussants noted the need to 'bridge' CCS over to the likely
higher carbon prices of phase 3 of the ETS, with a view to commercialization
in 2020 and widespread, large scale deployment by 2030.
Early starters would need support because of high capital costs, said
Olivier Appert, vice chair of the Zero Emission Platform (ETP-ZEP). The latest
cost estimates depended heavily on local circumstances, but ranged between
Eur50-100 per metric ton CO2 stored, Appert said.

"The capture equipment is the main cost area, accounting for Eur30-60/t
CO2. Transport is costed at Eur3.5/t CO2 per 100 km, injection and storage at
Eur20/t for 1 million tons per year, dropping to Eur7/t for 10 million tons
per year."

Added to capex costs are higher fuel and operational costs, Appert said.
"Capture reduces plant efficiency from around 42% to 33%. We estimate that
this would add Eur13.5/MWh to production costs of a coal- or lignite-fired
conventional plant of around Eur31.5/MWh, so approaching 50%. This cost
increase would be more for gas-fired plant."
Appert said ETP-ZEP expected significant cost reductions over 15 years,
aiming for 2020 commercialization at Eur20-30/t CO2.
Henry Edwardes-Evans, henry_edwardes-evans@platts.com