AFTER NER 300 DECISION, ADVOCATES WORRIED EUROPE LOSING ITS EDGE ON CCS

Commission Confirms CCS has Missed Out on €1.5 Billion in EU Clean Energy Funding 

Tamar Hallerman
GHG Monitor
12/21/12

Carbon capture and storage proponents in Europe fear the region is slipping behind in the deployment of the technology after the European Commission confirmed this week that no CCS projects are being funded under the first round of its clean energy competition. The EC on Dec. 18 announced the first round winners of its New Entrants Reserve Competition (NER 300), a contest initially aimed at spurring the deployment of large-scale CCS and ‘innovative renewables’ projects. But on its list of winners that included 23 renewables projects across Europe sharing a pot of €1.2 billion ($1.6 billion), no CCS demos were chosen for funding. “Most CCS projects put forward were not confirmed by the [European Union] member states concerned, and could therefore not be considered for funding awards,” an EC fact sheet stated. “Member states were unable to confirm the projects for various reasons: in some cases there were funding gaps, while in others the projects were not sufficiently advanced to allow for confirmation within the timeframe of the first call for proposals.”

While NER 300’s results were not news—Chris Davies, a member of the U.K.’s delegation in European Parliament who was an early political ally of CCS, reported that CCS lost out earlier this month—this week’s announcement cemented the fact that governments dropped the ball on their best shot at receiving European funding, CCS proponents interviewed by GHG Monitor said this week. “This round certainly was the big shot, and the fact that none of [the CCS projects] have come through is very worrying indeed,” said Stuart Haszeldine, a professor of carbon capture and storage at the University of Edinburgh. “This shows that the process and funding model for NER 300 are flawed in the present climate.”

EC Hoped to Fund Up to 12 Projects with Competition 

The competition’s first round results are a far cry from what the European government intended when it established NER 300 several years back. The EU was initially hoping to spur 12 large-scale CCS projects when the European Parliament took up the measure in 2008. At the time, CCS proponents like Davies had pushed for a CCS-only funding scheme that was nearly twice the size of the current NER competition, but political pressure led to a downsizing and the inclusion of renewables. The legislation passed by European Parliament paving the way for NER ultimately set aside 300 million carbon allowances to be sold off on the EU’s Emissions Trading Scheme in two rounds. However, initial estimates for the scheme—which were made before the recession—were based on the assumption that carbon prices would remain high at around €25 to €30 per ton. The economic downturn, though, hit markets hard. The European Investment Bank ended up selling the first round’s 200 million allowances this year at an average price of €8 a piece, leading the competition to earn only a small fraction of the money it initially had planned for.

After it became clear that NER raised only about €1.5 billion for CCS and renewables projects, the EC estimated that only two or three CCS projects would be able to receive funding in the first round, and with less EU support that initially announced. The Commission released its preliminary rankings of preferred CCS projects in July and asked EU member states to decide whether they would financially back their finalist projects in October. After the U.K. abandoned support for its highest-ranked project and provided only conditional support to its other three, reports began to emerge that a French industrial capture project on a “green” steelmaking facility would be the only CCS project receiving funding under NER. But earlier this month, ArcelorMittal, the company behind that project, announced it was pulling the site out of the competition due to “technical difficulties.” EC officials later confirmed that the steelmaking project was the only CCS demo that would have received funding under the first round, adding that the €275 million ($364 million) it would have won would be rolled over to the second phase of the competition.

In an interview this week, Kieron Stopforth, a CCS analyst at Bloomberg New Energy Finance, said the crash of Europe’s carbon market and the relatively small amount of money raised for the first round was likely what caused member states to back away from guaranteeing their CCS projects. “The two main reasons why CCS projects did not receive support were first, low levels of European funding compared to CCS costs and second, a lack of member state support to cover the gap in cost,” he said. “Unless Europe provides significantly more funding to projects in the second round, it’s hard to see member state governments stepping forwards with large grants. Overall, prospects for CCS are bleak in Europe.”

Outside of NER 300, there are few other initiatives in Europe aimed at providing support for CCS projects. A program that provided funding to a handful of demos in 2009 under the EU’s stimulus bill, the European Energy Program for Recovery, is winding down, and two out of six large-scale demos have folded and at least one has been put on hold. Most other support systems are on the national level, but those are also far between. Romania has a feed-in tariff for CCS, but next to no one has stepped up to claim to that incentive. Most of the action in Europe has occurred in the U.K., which continues to move forward on its own £1 billion ($1.6 billion) CCS competition. An electricity market reform package introduced in Parliament earlier this month could also provide long-term operational support for CCS projects through feed-in tariffs with contracts for difference, if passed.

CCS Advocates Express Disappointment in First Round Results

CCS proponents called the first round results a let down for the technology in Europe. “It’s a disappointment, and it isn’t where we expected to be. We had all expected there would be some awards for CCS projects in this first round,” said Royal Dutch Shell advisor Graeme Sweeney, who also chairs the Zero Emissions Platform, a consortium that advises the EU on CCS-related issues. Davies equated the first round results as a “major failure by Europe to step up to the mark” on CCS. “We talk big about the need for action yet fail to deliver,” he said in a Dec. 6 statement.

Stopforth said NER’s round one results have helped illuminate the high capital costs of CCS projects, a reality he said could cause some member states to balk at the technology’s price tag. “The NER 300 competition has shone light very clearly on what these projects cost. It must be an unappealing prospect for countries that are struggling economically to contribute hundreds of million euros to CCS,” he said, adding that Bloomberg New Energy Finance now has a “pessimistic” view for CCS’ future in continental Europe.

Hedegaard: Money Available in Phase Two for CCS

In a Dec. 18 press conference announcing NER’s round one results, European Commissioner for Climate Action Connie Hedegaard said CCS projects can apply for NER funding under the second round of the competition, when the EC will sell off the remaining 100 million carbon allowances. Hedegaard indicated that since renewables swept the first round, CCS projects could have more of a chance in the second. But she also underscored that it is the responsibility of member countries to “do their homework” and provide the EC with the level of financial certainty that it requires. “I know that there are some CCS projects in the pipeline that are very good, but it also goes without saying that we have our requirements,” she said. Hedegaard added the Commission would like to “proceed swiftly” with the second phase, ideally announcing awards by the end of 2013.

Some experts said the second round of NER funding could be the last chance for CCS projects to get funding on the European level. “This second round of NER funding is it. If it fails to get some CCS away now, then it will be highly unlikely that anyone at the European level will be wanting to make a similar effort on CCS again,” Chris Littlecott, a senior policy advisor for the London-based E3G, said in an interview. Others interviewed, though, said if member states could not provide enough support for CCS projects in 2012, it is unlikely they will be able to do so in 2013, especially if carbon prices stay low. “It’s very difficult to see how projects are going to reconfigure themselves to fit Hedegaard’s wish to close this off by next year,” Haszeldine said. “If the money’s not there now, it’s very difficult to see how the money’s going to get there by a year’s time.”

Second Round Opportunities Possible, Some Say

Sweeney said he is more hopeful that CCS projects could win money in the second round. “We are optimistic about the quality of the projects. We think there are five or six good ones in Europe that are all executable,” he said. “The reasons why they haven’t progressed so far are specific to the projects, but they’re all close and the things that need to be done to make them work are all things we think could be done relatively quickly.”

John Scowcroft, general manager for Europe at the Global CCS Institute, said he does not think CCS is dead in Europe. “Everyone’s going through a difficult phase at the moment with the financial and economic difficulties throughout Europe, so it’s not surprising that there are difficulties,” he said in an interview. “But we don’t regard this as the end for CCS in Europe. The money is there and it’s a question of seeing whether you can get all the parties together and pointing in the right direction at the right time.”