CCS - generation cost implications


Courtesy of Courtesy of Energy Institute (EI)

With government FEED contracts awarded for two new schemes, end-to-end CCS projects could finally become a reality in the UK. In an environment where energy prices are constantly scrutinised, how much will this CCS-produced electricity cost? Marc Height listened to the experts.

Carbon capture and storage (CCS) is currently enjoying a new surge of interest following a period of relative inactivity for the technology.

Headlines were made in late February when the second of two governmentpreferred UK projects, out of a shortlist of four that were initially chosen, acquired front-end engineering and design (FEED) grants to progress plans to a more concrete proposition (see page 14).

But what is the likelihood of these projects in Yorkshire and Scotland actually coming to fruition?

We have had CCS schemes on the table before in the UK. A project at Peterhead was in the running in 2004, FEED grants were given to Longannet and Kingsnorth following the 2007 ‘Demo-1’ government competition, and these projects were subsequently dropped in 2011.

This lack of success is clearly something that bugs Jeff Chapman, Emeritus Director of the Carbon Capture and Storage Association, who points out that, despite the absence of a completed project, there have been a total of 17 CCS projects explored to date in the UK, costing between a few million pounds and £100mn each. So far, nothing is on the ground. ‘We have to get out of the competition culture [for CCS] in the UK,’ he said. ‘This is a huge cost and companies are lured by temptation.’

Mathew Bilson, Head of Fossil Fuel Generation and CCS Strategy and Communications at the Office for Carbon Capture and Storage at DECC, responded to a question on this issue at a recent Westminster Energy, Environment and Transport Forum. This time, he says, things are different.

Alongside the FEED grants, there now exists a bolstered framework for ongoing support for the projects through Electricity Market Reform in the form of contracts for difference (CfDs). This opex support, in the form of a guaranteed price for the electricity produced, alongside the capex grants, was not available before. DECC is hoping to have 13 GW of operational CCS plant in place by 2030.

Electricity price

But how much will electricity from CCS power stations actually cost? How will it compare to other low carbon generation – offshore wind, for example, or the agreed strike price for the Hinkley C power plant (£92.50 per MWh)?

The UK Carbon Capture and Storage Cost Reduction Task Force thinks that CCS could produce electricity at £100 perMWh by 2020, with prices falling thereafter, making it ‘cost competitive with other forms of low carbon power generation.’

These costs are dependent on some assumptions around investment decisions before 2020 though, and according to the report would need, among other actions, large carbon dioxide storage clusters as well as a network of shared pipelines built, before £100/MWh can be achieved.

So, initial projects are likely to be more costly, a fact acknowledged by Bill Spence, Business Opportunity Manager for the Peterhead Project from Shell. Spence, likening the process of CCS development to improvements in mobile phone technology, says that while first projects could be clunky, things will improve with time.

Project length will also have an impact on cost, as Spence points out. The plan at Peterhead is to operate for 10 years, sequestering 1mn tonnes of carbon dioxide per year. When including build costs, this decreases the overall project cost-effectiveness when comparing to a 25-year offshore wind project, for example.

Despite this, Spence is convinced that the project is a good fit for the UK, and he also argues that the UK has chosen the right policy mechanism to support earlystage CCS demonstration schemes.

Piping and injecting offshore is one factor that will increase costs compared to onshore storage. The geology on and around the UK favours offshore storage for the carbon dioxide, and given opposition to onshore storage in Germany and protests over shale gas drilling in the UK, storing onshore would be an unlikely scenario anyway.

When working offshore there are also safety considerations, especially if injecting carbon dioxide is as part of an enhanced oil recovery (EOR) scenario and the same rig is being used to also collect hydrocarbons. In the event of methane leakage the procedure is to get as low as possible, where the properties of carbon dioxide means that in a leakage scenario the gas would sink – and workers would need to get up high. Rig design would have to be modified to facilitate these actions.

Attracting investment

Were a CCS cluster network to develop in the future, this would have the effect of each successive capture project becoming more economical. The end goal for those in the industry is for a comprehensive carbon transportation network, not just consisting of the proposed Humber Trunkline, but multiple clusters of carbon dioxide pipes across the UK, connecting multiple power stations to various depleted fields in the North Sea. New projects would then have to simply ‘plug in’ to an existing network.

A high carbon market price would add additional support for the development of CCS projects and such a network, but at the moment in Europe the Emissions Trading Scheme is not providing strong enough prices to attract investment. And in the UK the carbon price floor, designed to set a lowest price and reduce uncertainty for investors, is now uncertain itself, with widespread speculation that it will be rethought following the upcoming UK government elections.

To move forward there needs to be acknowledgment that it may not be realistic to accurately quantify true costs for CCS. Looking to other ways to assign a value to the carbon dioxide captured, through EOR for example, might be a way to attract investors.

The future might be bright. Allan Baker, Global Head of Power at Société Générale, says that there is currently an increased interest in the finance community in CCS. It is a technology it can understand, he says, compared to 2005 when it was unaware of the technology at all.

The fact of the matter is that, to stay within a safe emissions pathway to avoid future climate change, there are two choices. Currently, there is three times the amount of carbon locked in the ground in fossil fuel reserves than we can actually use and stay below 2050 emission targets, according to research from the Grantham Research Institute.

Society can choose to leave two-thirds of these fossil fuels in the ground. Some might take the view that this is an unlikely scenario. Or it can choose to use them. If this course of action is taken, CCS will be absolutely necessary to do so while maintaining a safe level of emissions. From that point of view, it seems that, almost whatever the cost, it will then be one worth paying.

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