Carbon Capture and Storage (CCS) in the UK – Seizing the Opportunity
There is clearly a need to continue electricity generation from fossil fuels in the UK, but there is also an imperative to reduce CO2 emissions. These objectives can both be met if electricity generation combined with carbon capture and storage is adopted. However, financial incentives will be required to encourage this. What form should these take? For the Talking Point in this issue, David Hughes (david.hughes@senergyltd.com) of Senergy Ltd explores the options and poses a few questions. What is your view on this? Please use the feedback box at the end of the article to provide your comments.
Need for New Fossil Fuelled Power Generation?
Although it flew under the radar as far as the press and broadcasters were concerned (with their preoccupation with nuclear power), the recent Energy Review laid out the Government’s position on CCS and cleaner coal technology in the UK.
During normal operations about one third of the electricity demand in the UK is being met from coal fired generation. At peak demand this can increase to around one half (as it did at times during the winter of 2005/6). Recognising the importance of coal to the fuel mix, generators have committed the investment to upgrade much of the coal capacity to meet new EU restrictions on sulphur and nitrogen oxide emissions. Even with a considerable expansion in renewables and new nuclear build, the likelihood is that new fossil fuelled power stations will be required to meet UK electricity demand in the immediate future and possibly through to the middle of the century, providing environmental concerns can be met. At present burning hydrocarbon gas produces the lowest CO2 emissions (~0.3 te CO2 per MWhr) and, at least in the recent past, has been the preferred choice of generators for new build. However, gas is becoming scarcer, and therefore more expensive. Coal on the other hand is significantly cheaper and in plentiful supply. However, when used for producing electricity coal emits around 0.6-0.75 te CO2 per MWhr (i.e at least twice as much as for gas).
Improving the conversion efficiency and co-firing with biomass can provide together up to a 30% reduction in CO2 emissions from coal, but carbon capture and storage (CCS) is the only technology that can provide a reduction of around 85-90%.
Recognising the Importance of CCS
The Energy Review recognises that “if CCS were economic and technically feasible on a large scale it could have a major impact on global carbon emissions”, with specific mention of China and India. As previously announced, £35 million of UK funding has been set aside to support pre-commercial and commercial demos. Although CCS combined with electricity generation has not yet been demonstrated on a commercial scale, a number of specific proposals are being brought forward by potential operators in the UK. Although not enumerated in the Energy Review to the author’s knowledge as many as five companies have plans to build fossil fuelled power stations on the east coast of the UK which incorporate CO2 capture.
Potential Commercial Demonstration Projects
Scottish and Southern Electricity (and their partners BP) plan to build a 475 MW hydrogen fuelled combined cycle gas turbine power station at Peterhead (Scotland) with the hydrogen generated by reforming natural gas. The by-product is a 1.8 million tonnes per year separated stream of CO2 which will be used for EOR in the Miller field. Progressive Energy has plans to build an 800 MW Integrated Gasifier Combined Cycle (IGCC) power station at Teesside. The fuel (50% coal and 50% petroleum coke) would be gasified in the presence of oxygen and ‘shifted’. The CO2 and hydrogen would be separated with the hydrogen used in the gas turbine and 5 million tonnes of CO2 made available for EOR. E.ON is studying the feasibility of building a 450MW coal-fired power station with CO2 capture on the Lincolnshire coast. The other companies are Powerfuel (51% owned by Russian mineral group Kuzbassrazrezugol) who plan a 430 MW IGCC power station adjacent to the Hatfield colliery near Doncaster and RWE who have plans to retrofit an existing 1000 MW coal-fired power station at Tilbury with CO2 capture.
Schematic of Proposed ‘Decarbonised Fuel’ Project Combined with CO2 EOR and Storage in the Miller Field
Government Action in Support of CCS
As outlined in the Energy Review, the government is seeking to amend the London Convention which protects the marine environment worldwide to allow CO2 storage beneath the seabed. It is also seeking changes to the OSPAR convention which provides further protection to the environment in the North East Atlantic.
On the regulatory side the government, in collaboration with Norway, is looking at arrangements for the licensing of CO2 storage sites, and the issues surrounding the decommissioning of such sites and the associated long-term liabilities.
The government recognises the likely requirement for infrastructure for the transport and storage of CO2, and sees this as a major challenge which would benefit from coordinated international action. The UK and Norway announced in June 2006 a joint project on enabling CCS in the North Sea which will examine the likely future need for a network of pipes and cost effective ways of realising the benefits of CCS.
A suitable legal and regulatory framework is not in itself sufficient to make CCS a reality. It must be economic and commercially feasible. Together with industry, the government is examining how existing tax rules impact the change of use of oil and gas infrastructure to CCS. A crucial step is ensuring that the environmental benefits of CCS are rewarded under schemes and policies designed to encourage CO2 emissions reductions in such a way that they can influence investment decisions.
CCS is now recognised under Kyoto, and the government is working with EU partners to ensure it is recognised as a Clean Development Mechanism (CDM) by the UN. The government is also pushing for CCS to be recognised within the EU Emissions Trading Scheme (ETS).
The next step is a commercial demonstration of CCS, providing it proves cost effective. The Treasury is examining the costs of such demonstration projects and a statement will be made in November/December 2006 in the Pre-Budget Report.
What Subsidies Should Demonstration CCS Projects Receive?
Generating electricity from fossil fuels will always be cheaper without CCS than with CCS unless there is a value associated with the reduction in CO2 emissions achieved from capturing and storing the CO2.
Estimates from the IEA suggest that the current incremental cost of generating electricity from an IGCC with CO2 capture using coal (compared to a conventional high efficiency coal plant) is around £11 per MWh reducing to £8.5 in the longer term. BP quote a much higher figure of £30-36 per MWh in their October 2005 submission to the Select Committee on Science and Technology (presumably this is for a natural gas power plant with a reformer as proposed for Peterhead, and includes the transport and storage costs which are not included in the IEA estimates).
In their April 2006 submission to the Energy Review, Progressive Energy report the incremental cost in terms of the CO2 captured at the plant (pre-combustion) at £10 per tonne for coal and £40 per tonne for hydrocarbon gas. Using the emissions figures taken from the Energy Review and quoted above, this translates to £6-7.5 per MWh for coal and £12 per MWh for gas.
Clearly there is considerable uncertainty as to the costs and the Treasury is wise to be looking at these carefully.
Whatever the incremental costs, there clearly need to be mechanisms to encourage the introduction of power generation incorporating CCS in the UK. One mechanism might be through the EU ETS. Even if CCS is recognised under the scheme soon, it is not clear what is going to happen to the scheme at the end of the Phase II in 2012. Also the trading price has proved extremely volatile. It reached €31 (£20) per te CO2 in late April 2006, before crashing to €12 (£8). In late July 2006 the price has recovered to €17 (£11). As presently implemented it would not appear that the EU ETS can provide a sufficiently reliable mechanism to allow the long term investment decisions required to implement CCS.
Since April 2002, the government has been encouraging the development of electricity generation from renewable sources through the Renewables Obligation (which seeks to encourage the generation of 10% of electricity from renewable sources by 2010). This is a complicated mechanism, but effectively subsidises electricity from renewables at £33 per MWh (buyout price 2006/7). This amount rises with inflation (until 2015) and the scheme runs to 2027. If this mechanism were extended to CCS it is likely that this would be sufficient to kick start the adoption of CCS. However, it would not be sustainable in the long term as this cost would have to be born by the ever shrinking sector of electricity generation from non-renewable, non-CCS sources.
There are other mechanisms encouraging renewables such as enhanced capital allowances, and exemption from the climate change levy (CCL) which is paid by industrial users (£4.3 per MWh).
Your Views
So the question is what mechanisms are required to make CCS a reality in the UK? None of the above appears entirely suitable. What do you think? What mechanisms would you propose? Do demonstration projects (i.e. first of a kind) need special treatment? Please contribute your thoughts using the feedback box below.