ONLY ONE CCS PROJECT MOVES AHEAD IN EU CLEAN ENERGY COMPETITION

Supporters Lament Failure of Scheme to Spur Multiple Projects, Mull Alternative Steps

Tamar Hallerman
GHG Monitor
7/12/13

Only one large-scale carbon capture and storage project has been submitted to the second round of the European Commission’s New Entrants Reserve competition, news that disappointed CCS supporters who had hoped the scheme could catalyze up to a dozen projects and catapult the continent into the role of technology leader. The European Union’s executive arm confirmed late last week that the United Kingdom was the only country to formally submit a bid for a CCS project by the July 3 deadline. The announcement was a far cry from the nine projects member states said as recently as last month that they planned to submit for consideration. The EC said 32 ‘innovative renewables’ projects from countries like Cyprus, France and Slovenia will also be competing for second round funding, a yet-to-be-determined amount that will be earned from the sales of 100 million carbon allowances on the EU’s Emissions Trading System (ETS).

White Rose Emerges

Developers of the U.K. White Rose CCS project quickly confirmed this week that their application was the one submitted to the EC. The 426 MW coal new-build is being run by an industry consortium called Capture Power—comprised of Alstom, Drax Power Limited and BOC—and would include an oxy-fuel combustion system and biomass co-firing capability, which would separate the CO2 for geologic storage in a saline aquifer in the North Sea. The U.K. transmission provider National Grid will be in charge of constructing and maintaining the transport and storage legs of the project, Capture Power said, in the hopes of making White Rose the anchor project for a regional trunk line of CO2 transport and storage infrastructure.

The announcement will likely be a big boost for White Rose, which is also a finalist for U.K. funding under its £1 billion domestic commercialization program. Top EC officials had previously indicated that since renewables swept NER’s first round late last year, CCS projects could hold the edge in the second round, but that EU member countries would also need to provide the EC with an adequate level of financial backing for each project. “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,” European Commissioner for Climate Action Connie Hedegaard said in a December press conference.

Fate of Other Projects Unclear

Meanwhile, the fate of the other large-scale demonstrations that had previously indicated their interest in competing for European funding remains unclear. The future of E.ON’s Rotterdam Capture and Storage Demonstration project (ROAD) remains particularly foggy, some observers said, since it reportedly remains only about €50 million away from financial closure but has for years been unable to secure adequate support. Project officials did not return requests for comment as of press time this week. Meanwhile, plans for MoreCCS, the new Norwegian-Lithuanian project announced last month by Sargas AS and UAB Minijos Nafta, are all but cancelled, one project official confirmed. “As far as I’m concerned, the project is over,” the executive said.

Shell, though, confirmed this week that it will be moving forward with its Peterhead natural gas retrofit project in Scotland despite the fact that it did not submit a bid to the EC. Shell and its project partner SSE plan on retrofitting CCS technology onto a 385 MW portion of an existing gas-fired power plant, transporting the CO2 via an existing underground pipeline and storing it in a depleted gas field in the North Sea. “We will continue to work with [U.K. Department of Energy and Climate Change] on the Peterhead Project as part of the UK Government’s CCS Commercialization Program. This remains the priority,” a project spokesman told GHG Monitor.

CCS Supporters Disappointed by News

The news that only White Rose is being considered in the second round angered CCS proponents who had hoped NER 300 could spur multiple projects. “This makes the funding program—which originally was meant to deliver 10-12 EU CCS projects by 2020—a significant failure for the Directorate General for Climate Change of the EU, the body responsible for the scheme,” the Norwegian environmental group Bellona said on its website. Stuart Haszeldine, a professor of CCS at the University of Edinburgh, said in an interview that last week’s outcome was “certainly not helpful” to CCS. “You can view it in simple terms as a failure, but it’s also a mistake to pin blame on any one party. It’s just a very complicated system,” he said.

John Gale, general manager of IEA’s Greenhouse Gas R&D Programme, said European politics and the “unforeseen consequences of different policy measures impacting each other” were likely the biggest factors that contributed to the outcome. “The fact that only one project has been put forward reflects the market uncertainty in the EU caused by low ETS carbon prices,” he said. “I would like to think this will force the EC to intensify action to develop CCS in Europe. But at the end of the day I am not hopeful that many countries will play ball.”

EU Leaders Had Hoped for 10-12 Projects

The outcome of NER 300 to date is a far cry from what the European government intended when it established the clean energy competition several years ago. The EU was initially hoping to spur 12 large-scale CCS projects with upwards of €6 billion in funding when the European Parliament took up the measure in 2008. At the time, the technology’s proponents 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 paved 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 Europe’s ETS hard, effectively ending any incentive for investment in an expensive technology like CCS.  The European Investment Bank ended up selling NER’s first round of 200 million allowances last 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. The first round only netted about €1.5 billion for CCS and renewables projects. That money, following a due diligence phase, was awarded late last year to 23 renewables projects. The EC had said at the time that member states did not provide the level of financial backing the EC wanted to move forward with any of the 11 CCS projects proposed. While some analysts at the time said the round one results showed that the EU had already missed the boat on CCS, others said there was still hope for the second round. But given that prices on the ETS remain stubbornly low and that NER rules stipulate that no project can receive more than 15 percent of the total amount of money earned, some have said they are not optimistic that White Rose will be able to win much, if any, money in the second round.

Haszeldine said he does not anticipate any more chances for CCS projects to receive major chunks of EU funding in the near future. “There doesn’t seem to be any easy prospects for the EU bringing together a big funding package for CCS given the lack of willpower in the European Commission, and that’s a mistake,” he said, adding that the lack of action could disadvantage the 28-nation bloc in the long term. “The European Union is a major carbon emitter and a major manufacturer of equipment. So what the EU is failing on is developing the skills and capacity to do CCS. It’s losing out on the ability to embed that into established electricity markets.”

EC Looks for Alternatives to Incentivize CCS

The round two announcement comes as EU lawmakers are slowly beginning acknowledge that the EC must change its game plan for CCS in order to drive more substantial RD&D work. A white paper released by the EC in March acknowledged that the policies currently in place to drive CCS investment are not doing enough to spur development of the technology. The ‘consultative communication’ asks stakeholders about potential ways to boost the technology. It notably pitches the idea of establishing a greenhouse gas emissions performance standard for power plants—similar to the proposal currently being promulgated by the U.S. Environmental Protection Agency—as well as launching a CCS certificate system similar to the clean coal portfolio standard in place in Illinois, which requires 25 percent of the state’s electricity to be generated from ‘clean coal’ facilities by 2025.

In comments to the EC about the white paper, CCS proponents generally stood in support of both proposed regulatory measures. The Norwegian NGO the Zero Emission Resource Organization (ZERO) recommended “regulations mandating or providing a pathway for CCS deployment.” “Performance standards for particular types of facilities, for example, can safeguard against market failures and provide a clear pathway for CCS deployment that provides the needed certainty for the large capital investments needed,” ZERO’s Camilla Svendsen Skriung said in an written response. Bellona focused a portion of its comments on the need for the EC to “ensure privileged grid access for CCS electricity generation in the same way that priority grid access for renewable energy and cogeneration facilities is mandated by EU law.” “Such access is necessary to ensure CCS investors that their plants will actually be run once they are built,” Bellona said. It also supported a tradable certificate system.

The U.K.’s Department of Energy and Climate Change, though, notably spoke out against the idea of a CCS certificate since it is not technology neutral. Instead, it said the EC needs to work to reform the ETS and continue support for CCS RD&D, through pilot projects and other efforts. “The U.K. believes it is important to consider longer term measures required to support CCS beyond the first early projects, but believes further detail and consideration of options is required before reaching decisions on longer term measures,” the Department said in its comments.