FATE OF POLAND’S ONLY PROPOSED CCS PROJECT REMAINS IN QUESTION

Tamar Hallerman
GHG Monitor
06/01/12

Poland’s only proposed carbon capture and storage project is not likely to move forward as planned without significant additional government assurance, according to an official from PGE Group, the utility pursuing the project. Expectations that PGE’s proposed CCS project at Belchatow was being suspended began circulating late last week following a series of local media reports on the issue. In subsequent statements to the press, PGE remained vague about whether it would be explicitly abandoning or halting the project. In a statement provided to GHG Monitor, PGE’s Chief Financial Officer Wojciech Ostrowski said that constructing a CCS project without government support would be “unprofitable.” “As long as such support is not ensured, we are in no position to launch this project fully,” Ostrowski said. PGE would not respond to additional requests for clarification.

The two-phase project as planned would initially capture 100,000 tons of CO2 per year from a 250 MW retrofitted unit at PGE’s Belchatow power station, which at 5,053 MW is Europe’s largest CO2 emitter. The project would then ramp up to an 858 MW full-scale demonstration a year later, capturing 1.8 million tons per year of CO2 using Alstom’s advanced amine post-combustion capture technology. The project is considered by many in the industry to be one of the most promising CCS projects planned in Europe due to its relatively low price tag of €600 million ($742 million) compared to other demonstration projects. The project also is considered favorable due to the amount of funding already formally committed to the project—Belchatow was awarded €180 million ($223 million) in 2009 under the European stimulus bill and €137 million ($170 million) from the Norwegian government. PGE initially aimed to pay for the remaining €283 million by entry into the European Union’s New Entrants Reserve CCS competition, which will provide funding to several large-scale CCS projects from CO2 allowances sold on the European Union’s Emissions Trading Scheme.

Ostrowski’s remarks reflect comments made by another PGE official last year, when then-CEO Tomasz Zadroga was quoted as saying that the project would not move ahead unless it got nearly 100 percent financial support from the Polish and European governments. The utility, Poland’s largest, has reportedly been lobbying the Polish government continually for more financial and regulatory support. Ostrowski said this week that the cost of capturing and storing a ton of CO2 at Belchatow is €60 to €65, roughly 10 times higher than the cost of a carbon offset allowance on EU’s ETS, which has been trading at less than €7 each for the last several months, representing a price decrease of nearly two-thirds since last year. “Power companies will be interested in the implementation of the CCS technology when the cost of storing CO2 underground is lower than the cost of emission allowances,” he said.

No Decision Expected Until Q4

Several European CCS experts said this week that they expect the final decision on Belchatow to be tied to whether the project is awarded funding under NER 300. Announcements on competition winners are expected in the fourth quarter this year. “There’s no reason for anybody to make a decision now because nothing is happening with any of these projects until the NER decision in the fourth quarter,” one former European Commission official told GHG Monitor. Earlier this spring, the European Investment Bank completed a financial due diligence test on the 11 remaining CCS projects in the competition, a benchmark which the Belchatow project passed. The European Commission is now conferring with the governments of member states to see if they are willing to guarantee the funding to pay for at least 50 percent of candidate CCS projects’ costs. If the Polish government does not agree to guarantee the project funding, Belchatow will be effectively cancelled. “The decision will ultimately be with the government depending on whether or not the project will move forward,” according to one CCS expert based at an energy trade association in Brussels who asked not to be quoted due to the speculative nature of the comments. “Talking to PGE, there’s no indication that the project is not going to happen. They seem to be kind of progressing.”

In the meantime, groups that monitor global CCS projects said they are having a difficult time classifying the status of Belchatow. Kieron Stopforth, a CCS analyst at Bloomberg New Energy Finance who helps compile the company’s semi-annual rankings of the furthest-along CCS projects (see related story), said that the project was initially classified in Bloomberg’s top 10 list. However, he said analysts chose to reevaluate last week following PGE’s remarks. “For now we’re kind of putting that project on hold on our list because it doesn’t look certain,” he said.