U.K. GOV’T LISTS PETERHEAD, WHITE ROSE AS ‘PREFERRED’ CCS PROJECTS

Tamar Hallerman
GHG Monitor
3/22/13

The U.K. government announced this week that a natural gas retrofit and a new-build oxy-combustion project are the two “preferred bidders” in its national carbon capture and storage commercialization program. The Department of Energy and Climate Change (DECC) said March 20 that the developers of the Peterhead and White Rose CCS projects will get the first chance to negotiate front-end engineering and design (FEED) contracts in the coming months under the next phase of the government’s £1 billion ($1.52 billion) demonstration competition. DECC said it hopes to award 18-month FEED contracts to two CCS projects, ahead of making final investment decisions for the construction of “up to two” projects in early 2015 that can be up and running by the end of the decade. Here’s more information about the “preferred” projects:

• Peterhead—Developed by Shell and SSE, the project would retrofit a post-combustion capture system onto a 385 MW portion of an existing natural gas-fired power station on Scotland’s east coast; CO2 transport via an existing underground pipeline to a depleted gas field in the North Sea for storage;
• White Rose (Drax)—Run by an industry consortium that includes Alstom, Drax Power Limited, BOC and National Grid, the project would construct a new 426 MW coal plant with oxy-fuel combustion technology and biomass co-firing capability near an existing industrial hub in northeast England; Storage in a saline aquifer in the North Sea.

DECC said its other two finalist projects—both new-build integrated gasification combined cycle plants (IGCC)—would be characterized as “reserve bidders” in case the government is not able to successfully negotiate FEED contracts with Peterhead or White Rose. “These bids may be called to participate in the next stage of the competition if one or both of the preferred bidders fails to enter into a FEED contract by the summer,” DECC said in a fact sheet. Those two “reserve” projects are:

• Teesside—Led by a group of companies that includes Progressive Energy, GDF SUEZ, Premier Oil and BOC, the project would build a new 450 MW IGCC plant on a brownfield site in a northeast England industrial region; CO2 storage in an offshore saline reservoir;
• Captain—Summit Power Group’s larger European version of its Texas Clean Energy Project, developed with Petrofac, National Grid and Siemens; the project would build a new 570 MW IGCC plant in Scotland; storage in an offshore saline reservoir in the North Sea.

Long-Delayed Competition Inches Ahead

DECC’s announcement this week comes nearly a year after the U.K. government announced a retooled CCS RD&D program. After the country’s sole remaining project in its original CCS competition, ScottishPower’s Longannet, dropped out in fall 2011 mostly because of funding concerns, DECC went back to the drawing board to set up a new technology development scheme. What came out of that revamp, many technology proponents agree, is one of the world’s most robust CCS development programs. In addition to relaunching its £1 billion commercial demonstration program in April 2012, the government also allocated £125 million ($190 million) for smaller applied R&D projects. Ruling party politicians also vowed to add several provisions to major electricity market reform legislation making its way through Parliament that would provide long-term support for CCS, including a carbon price floor, emissions performance standards and a carbon capture-ready requirement for all new coal plants. But perhaps most importantly, the government promised to include CCS in its list of clean energy technologies eligible for feed-in tariffs with contracts for difference, a mechanism aimed at providing long-term operational support for new and fledging energy technologies. 

After reopening its application process for large-scale CCS demos last summer, DECC ultimately received eight bids seeking a portion of the £1 billion in prize money. The government later narrowed the field down to a four-project shortlist in October, and after a period of  “intensive” commercial negotiations, split the field to the current “preferred” and “reserved” listings. However, projects still have a long way to go before the government makes its final investment decisions in 2015, observers said this week, and if history is any indication the road ahead could still include unforeseen delays or financial hurdles for the projects.

Finally Building a CCS Industry?

Following the announcements this week, some government officials and stakeholders expressed optimism that the U.K. may finally be moving toward its long-stalled goal of growing a CCS industry by the 2020s. “Today’s announcement moves us a significant step closer to a carbon capture and storage industry—an industry which will help reduce carbon emissions and create thousands of jobs,” U.K. Secretary of State for Energy and Climate Change Edward Davey said in a statement. “We are working quickly to our goal of a cost competitive CCS industry, and these projects are just the start. In the past year we have demonstrated there is significant appetite from industry to invest in U.K. CCS, providing jobs and investment opportunities,” Energy Minister John Hayes said.

Jeff Chapman, CEO of the London-based Carbon Capture and Storage Association, said the announcement “injects new life” into the U.K.’s CCS industry. Jon Gibbons, director of the U.K. Carbon Capture and Storage Research Centre at the University of Edinburgh, said the announcement renews Britain’s status as a CCS leader in Europe. “This is obviously a big deal for Europe, because Europe has found it very hard to get CCS started, as we’ve seen with the NER 300, so it’s really very significant that the U.K. is moving forward on this front,” he said in an interview. “I do suspect that people will follow pretty quickly with other projects once they see that the transport and storage infrastructure is there. The U.K. is really going to set the trend for Europe.”

Some Push for Second-Gen. Investments

But others expressed caution, arguing that the government needs to continue its momentum and not lose sight of planning for second-generation projects now. “The government must also accelerate efforts to bring forward a second wave of projects to build enduring momentum for CCS deployment at commercial scale,” said Stuart Haszeldine, director of the research group Scottish Carbon Capture and Storage. “The government cannot rest on its laurels with this announcement. To have the potential for two projects confirmed is excellent, but to create a new industry a series of investments is needed in CO2 infrastructure and storage assets. Now is the time to plan this second wave of CCS projects on both industrial emitters and electricity generation.”

Chris Littlecott, a senior CCS policy adviser at E3G, said that while the future for CCS in the U.K. now seems brighter than it has in the recent past, the industry’s future is “not quite nailed on yet.” “Crucially, the discussion about what happens next has not yet happened in within government, but there have been some positive signals from ministers’ recent comments that have indicated that they’re now starting to think about this,” he said in an interview. “But if this is about cost reduction and getting CCS to scale, they need to be thinking about more than just the first two projects.”

Fates of Captain, Teesside Unknown

While DECC trudges ahead with FEED negotiations, what is still unclear is the fate of the two projects that do not end up receiving contracts with the government. When questioned this week by GHG Monitor, the developers of the Captain and Teesside projects said their futures still remain murky. Officials close to the Captain project said the project developers would take a wait-and-see approach in the coming weeks as they speak with DECC and review their options, but a Summit official recently underscored in a speech that the project could not move forward without winning the U.K. competition. “If it doesn’t win, it doesn’t go,” the official said in January. Meanwhile, a Teesside spokeswoman said the project’s developers will be meeting with DECC in the coming days to seek clarification on where they stand.

In a March 20 statement, the CCS Association’s Chapman said that the “reserve” projects could still win significant government support to move forward via the contracts for difference being considered by the U.K. Parliament even if they do not earn a chunk from the £1 billion commercialization fund. “Clearly there is disappointment for the two projects that have not been selected to go forward at this stage as those companies have put significant efforts into developing their bids,” Chapman said. “However, the Government has an opportunity to ensure that these projects are kept alive by designing the contract for differences under the U.K.’s electricity market reform in a way that supports these CCS projects going forward.”