EU CCS PROJECTS TO VIE FOR MORE GOV’T FUNDING NEXT MONTH

Tamar Hallerman
GHG Monitor
3/8/13

The European Union’s executive arm said it will launch the second round of its clean energy competition next month in what will likely be the last chance for carbon capture and storage project developers to vie for substantial European funding for demonstration plants. The European Commission will begin accepting proposals for the second round of its New Entrants Reserve competition (NER 300) on April 3, the body said earlier this week. “Member States will be invited to submit their proposals for the co-financing of commercial demonstration projects that aim at the environmentally safe capture and geological storage of CO2 as well as demonstration projects of innovative renewable energy technologies,” the EC said on its website. The EC said that it will accept bids from EU member states interested in pitching CCS demonstration and ‘innovative renewables’ projects through the beginning of July, with the ultimate goal of awarding the money by mid-2014.

NER 300’s second phase is the last known chance for the EU’s 27 member states to apply for public funding for CCS demonstration projects on the European level. While the United Kingdom has announced its own plans for a £1 billion ($1.5 billion) CCS funding competition, few other countries have made similar pledges domestically. On the European level, funding opportunities have appeared to dry up following a sustained economic crisis there, so the pressure is on for at least one CCS project to be funded under NER 300’s second round. The competition’s first round resulted in no CCS demonstrations being funded after the EC said that member governments had not provided the financial assurances required. Instead, €1.2 billion was awarded to 23 renewable energy demonstration projects in late 2012. The only CCS project that had been allotted NER funding, a “green” steelmaking pilot in France, was withdrawn last-minute by developer ArcelorMittal due to unspecified “technical difficulties.”

European Commissioner for Climate Action Connie Hedegaard indicated following the first round announcements in December 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 in a December press conference.

Second Round Pot TBD

The amount of funding made available for clean energy projects will ultimately be determined by the going rate for the 100 million carbon allowances set to be gradually sold off on Europe’s Emissions Trading Scheme (ETS) by the European Investment Bank in the coming months. However, the amount earned is expected to be relatively meager given the record low carbon prices that have stubbornly plagued the ETS in recent months. The sale of 200 million allowances during NER’s first round was initially expected to earn upwards of €6 billion ($7.8 billion) and co-finance at least eight large-scale CCS demonstration projects. But that estimate was based on the assumption that carbon prices would remain high at around €30 per ton. But the recession and subsequent crash of the EU’s carbon market enabled the EC to sell off carbon allowances at an average price of only about €8 a piece, leading the body to earn only a small fraction of the money it initially anticipated for clean energy projects. The sale of the 200 million NER allowances ultimately netted the competition only €1.5 billion ($1.95 billion) last year.

The 2014 award date is slightly later than Hedegaard had initially announced for the second round of the competition—she had initially hoped to award co-financing by the end of the calendar year. While the delay further puts on hold the development of a CCS industry in Europe, it does give EU leaders some time to approve a scheme to prop up carbon prices on the ETS. Stakeholders are currently considering a last-ditch ‘backloading’ proposal that would temporarily remove 900 million carbon allowances from the ETS over next three years and reinsert them back into the market in 2019 and 2020 with the hope that it will prop up carbon prices in the near term. The price of emissions allowances sunk to an all-time low of €3 ($3.90) in January, and any increase in the carbon price could help earn more money for clean energy projects under the scheme.