CAPTAIN IGCC PROJECT UNLIKELY TO MOVE FORWARD WITHOUT U.K. FUNDING

Tamar Hallerman
GHG Monitor
1/25/13

If Summit Power Group does not receive substantial funding from the U.K.’s carbon capture and storage demonstration program for its Captain Clean Energy Project in Scotland, the company is unlikely to move forward with the 570 MW gasification project, an official said this week. During a Jan. 23 speech in Washington, Summit’s Director of Project Finance Chris Tynan underscored that winning U.K. government support for CCS is vital to the financial success of the project. Captain is one of four remaining projects vying for the £1 billion ($1.6 billion) in prize money being offered under the U.K. Department of Energy and Climate Change’s (DECC) CCS demonstration contest. The Captain project “needs to win the competition. If it doesn’t win, it doesn’t go,” Tynan said. “Right now we’re 110 percent focused on winning that competition.”

In addition to vying for a slice of demonstration funding to help cover the project’s capital costs, Summit and its main project partners National Grid and Petrofac are also looking to take advantage of a longer-term financing mechanism currently being floated in the British Parliament, Tynan said. That mechanism, a feed-in tariff with a contract for difference, is being proposed as part of comprehensive electricity market reform legislation and if passed would help provide long-term operational support for the developers of CCS and other clean energy projects. It would do that by allowing producers to negotiate a ‘strike price’ with the government for the power produced at their facilities. The government would then pay developers the difference between the actual price for power on the U.K. market and the strike rate, providing a more stable income for projects over time.

Different Economics Than Sister Project in Texas

In his remarks, Tynan said that the economics of Captain should work if the project does get funding from the U.K.’s demonstration project competition and long-term support via a contract for difference (CFD). “We believe the combination of the CFD and the capital grant that we applied for will be enough to make the plant economic,” he said. Without it, the project will likely not be able to move forward, he added, because Summit will not be able to rely on selling products from a poly-gen IGCC facility as it plans on doing with its sister project, the Texas Clean Energy Project. That smaller 340 MW venture will make money by selling the CO2 captured at the facility for enhanced oil recovery in the region, as well as the power, urea fertilizer and sulfuric acid produced at the plant to local markets. But in the U.K., the urea market is more crowded and the EOR market is far behind that in the States and is just now starting to be developed offshore in the North Sea. Until that market is developed, the 3.8 million tonnes of CO2 expected to be captured annually from Captain will be treated as a waste and will be stored, at least temporarily, in a deep saline reservoir in the North Sea, according to Tynan. The project, though, plans on utilizing an existing natural gas pipeline owned by project partner National Grid for transport.

Under the £1 billion CCS competition, Captain is currently competing against another new-build IGCC project in the U.K.’s industrial area of Teesside, as well as a natural gas post-combustion retrofit in Scotland known as Peterhead and an oxy-combustion capture project in northeast England called White Rose. DECC is expected to soon announce which projects have been selected for front-end engineering and design work. Only after that point will final decisions be made about which projects DECC will ultimately fund, the government agency previously announced. It remains unclear how many projects DECC will choose to finance under the competition.