U.K. ANNOUNCEMENT COULD OPEN FIELD FOR OTHER CCS PROJECTS TO GET NER 300 FUNDING

Tamar Hallerman
GHG Monitor
11/2/12

Carbon capture and storage projects in Poland and the Netherlands now have a better shot at European Union funding after the U.K. government said this week that it would not back its top project in the EU competition, but some experts said they still expect at least one British project to get money from the scheme. The U.K.’s Department of Energy and Climate Change (DECC) surprised many Oct. 30 when it said it would not financially support 2Co Energy’s Don Valley 650 MW integrated gasification combined cycle project, which was ranked first by the European Commission to receive funding under its New Entrants Reserve competition (NER 300). The move, though, could free up scarce funding for other CCS projects that were ranked lower on the EC’s priority list that are also vying for European support.

While NER 300 currently has more than half a dozen entrants still in the competition, the Commission previously said it only expects to be able to partially fund two to three CCS projects under this round. The European Investment Bank finished selling off its first tranche of 200 million CO2 allowances on the European Union’s Emissions Trading Scheme last month and netted about  €1.6 billion ($2 billion) for the competition, an amount that must be split between CCS and ‘innovative renewables’ projects. Individual CCS projects are not expected to receive more than about €300 million ($388 million) each.

Polish, Dutch Projects Next in Line for Funding

Based on the EC’s preliminary project rankings (ultimately conditional on the support offered by EU member states) released this summer, next in line after Don Valley is a 250 MW post-combustion retrofit onto one of the EU’s biggest CO2 emitters, PGE Elektrownia’s Belchatow power station in central Poland. However, it is unclear whether the Polish government will choose to support the project. In May, a PGE Elektrownia official said the utility is not likely to move forward on the project without significant additional government assurance, and the project still has lots of permitting issues outstanding. After the Belchatow project, Air Liquide’s Green Hydrogen Project in the Netherlands is ranked next for receiving EC funding. That industrial capture project at a hydrogen production facility would share a pipeline and storage site with E.ON’s ROAD project, which is fully permitted and moving forward without NER support. Calls to the Polish and Dutch energy ministries inquiring about their support of the projects were not returned as of press time.

Only after the Polish and Dutch projects do the next British project’s lie on the EC’s priority list. The Teesside Low Carbon Project, a 330 MW pre-combustion coal gasification in northeast England, comes in third on the list, and the White Rose (Drax) project, a 304 MW oxy-combustion capture plant led by Alstom in northeast England, is in the fourth slot. The third NER 300 project being supported by DECC, the Peterhead natural gas capture project, is considered an alternate by the EC and is not likely to receive funding under the scheme.

U.K. Will Likely Still Receive Funding, Experts Say

CCS experts interviewed by GHG Monitor this week said that even with Don Valley out of the running for NER 300, they expect at least one U.K. project to get funded under the European competition. Kieron Stopforth, a CCS analyst for Bloomberg New Energy Finance, said he is “optimistic” that at least one U.K. project will be able to acquire funding under NER 300, even if Belchatow and Green Hydrogen secure funding. “We calculate there will be enough funding through the scheme for three project awards—the current top three in the European Commission rankings [after Don Valley] are Belchatow, Green Hydrogen and Teesside,” he said in an interview. “There’s a good chance that at least one of the U.K. projects will get European funding.” Derek Taylor, a former EC official who is now the director of CCS activity at Bellona Foundation, said in an interview that Teesside “should get the money as it succeeds in the U.K. competition, but that’s still to be negotiated between the U.K. and Teesside.”

But one major issue remains, Taylor pointed out. When DECC announced its short list of projects it could support earlier this week, it offered only conditional support for the three projects still in the running for NER 300. DECC said that it would ultimately only help finance projects under NER 300 that also get selected under its own domestic CCS competition, but the U.K. is not expected to make a final investment decision of its own until months after the Commission. “This is going to be the very tricky part, because basically what the U.K. is saying is that it will support whatever it gets from NER 300 as long as they’re successful in the U.K. competition,” Taylor said. “Basically, it hasn’t said to the Commission that yes, it will definitely support any single project, and this is where the uncertainty creeps in.” He said it would be “disastrous” if the EC gives funding to a U.K. project that ultimately is not funded by the British government and subsequently does not move forward. “The U.K. government should sit down with the Commission and agree which projects they want to support,” he said.

Taylor said that the decision will ultimately lie with the EC about whether it is willing to accept the U.K.’s commitment—or lack thereof. “Now the ball is in the Commission’s court again,” he said. “The Commission now has to decide whether it takes the U.K.’s conditional indications of support as strong enough to go ahead with the financing.”