Climate value for money funding carbon capture and storage demonstrations in the UK power sector

Climate value for money funding carbon capture and storage demonstrations in the UK power sector Updated September 2010 INTRODUCTION The Committee on Climate Change (CCC) have repeatedly recommended that the UK power sector should be close to decarbonised by 2030 to put us on a pathway to achieve the Climate Change Act target of at least an 80% cut in greenhouse gas emissions by 20501. As the biggest climate polluter, the rapid decarbonisation of this sector is clearly important in its own right but crucially it could also offer a route to help decarbonise other sectors such as transport and heating through greater electrification. As part of the transition to a truly low-carbon and sustainable energy system, carbon capture and storage (CCS) is often discussed as a suite of technology options which could play a bridging role in reducing emissions from burning fossil fuels to generate electricity. However, whilst investments in renewable energy and energy efficiency offer inherent economic and wider benefits including reducing dependency on imported fossil fuels for example, the application of CCS to the power sector offers no immediate economic payback2. Indeed, the process itself is inherently inefficient. It is, for example, currently estimated to reduce the efficiency of coal fired power plants by around 10 percentage points resulting in more coal being burnt to deliver the same amount of electricity. In essence, it is clear that CCS would not be considered were it not for the central role of burning coal and other fossil fuels to generate electricity in bringing about the climate crisis we currently face, and the need to avoid the emission of additional CO 2 from these fuels. We consider the best climate value for money, in terms of addressing emissions from the power sector, can be achieved firstly through investment in energy efficiency and demand side management measures, secondly through sustainable renewable energy technologies, and only thirdly through the sensible demonstration of CCS3. In 2009, the UK Government announced plans to fund four such demonstration projects, and this intention is repeated in the Coalition programme4. It is envisaged that each project will cover around 300-500MW of power station output and the Energy Act 2010 included a 1 For example - pg xviii - http://www.theccc.org.uk/pdf/tso-climatechange.pdf and pg 18 - http://hmccc.s3.amazonaws.com/21667%20ccc%20report%20aw%20web.pdf 2 Unlike many other low-carbon technologies, such as renewable energy or nuclear power, CCS produces no directly-accessible economic benefit at the moment there is no electricity to see or heat to conserve. For industry, the benefit of practicing CCS is only realised if an economic value is given to avoided CO 2 emissions Carbon Capture and Storage in China An E3G report for Germanwatch, May 2009, http://www.germanwatch.org/klima/ccs-china.pdf. The carbon price is currently not high enough to drive CCS. There are various estimates of the carbon price needed to drive early demonstration of this technology. For example McKinsey have cited 60-90 per tonne of CO 2 abated, Climate Change Capital around 127 and Deutsche Bank around 35. 3 Indeed it should be remembered that CCS it not a zero or close to zero carbon option compared to renewable energy options. For example a recent report from the Wuppertal Institute states Even compared with CCS power plants, renewable energies are responsible for only a fraction of greenhouse gas emissions. In 2020 (2025), offshore wind will cause only 5 to 9 (9 to 15) per cent, solar thermal energy 11 to 18 (13 to 23) per cent and photovoltaics 14 to 24 (7 to 12) per cent of emissions from CCS power plants. Wuppertal Institute for Climate, Environment and Energy, 9 August 2010, http://www.wupperinst.org/uploads/tx_wiprojekt/reccsplus_final_report.pdf 4 We will continue public sector investment in carbon capture and storage (CCS) technology for four coal-fired power stations The Coalition: our programme for Government, http://programmeforgovernment.hmg.gov.uk/files/2010/05/coalition-programme.pdf Page 1 of 6

framework for a financial mechanism to support these via a consumer levy on electricity. This levy is estimated to be worth around 10 billion over 15 years. Given that consumers will be directly footing the bill, showing that projects have the potential to deliver real climate benefits from day one will be crucial not only from a climate point of view but also in terms of improving the public acceptability of funding wealthy energy companies to demonstrate these as yet commercially unproven technologies. CRITERIA FOR FUNDING DEMONSTRATIONS In 2009, DECC established a set of objectives that they indicated they would like CCS demonstration projects to meet5. These were: Advancing the global development of CCS technology. Improving the affordability of CCS investment. Delivering a diverse and secure low carbon energy supply in the UK. Helping create jobs and economic opportunities for UK-based businesses in a new industrial sector. We consider that it is imperative that funds for CCS demonstration be spent in a way which maximises the climate benefits and learning, hence giving the best climate value for money. With this in mind and to assist the Government in making the right decisions about which projects to fund, we recommend that any demonstration programme should also meet the following criteria: It should lead to an immediate net reduction in greenhouse gas emissions from the UK power sector. Proposals for new power stations should be required to meet a plant based emissions performance standard of 300gCO 2 /kwh from day one6 - including any new plants which are considered as part of the CCS demonstration programme. This is important as the Energy Act 2010 also provides that the funding mechanism for demonstration could be used to pay for the future retrofit of the technology to the full generating capacity of new demonstration plant (presumably should the technologies be technically but not economically viable by around 2020). As well as the obvious immediate climate benefits therefore, such an emissions standard would also ensure the appropriate sizing (and operation) of demonstrations now. Importantly, this would reduce or eradicate the risk of the Government and public having to pick up the bill for a future potentially costly retrofit to large new plant with only partial CCS fitted from day one. It should prioritise projects which can be in operation quickly thereby contributing early learning to the UK, EU and wider G8 CCS demonstration programme7. Storage must not lead to additional net emissions e.g. through enabling enhanced oil recovery activities8. 5 As outlined in Framework for the Development of Clean Coal consultation June 2009 - http://www.decc.gov.uk/assets/decc/consultations/a%20framework%20for%20the%20development%20of%20clean%20coal/1_200 90617164456_e_@@_cleancoalcondoc2.pdf 6 For further information see the joint NGO statement on coal and CCS - http://assets.wwf.org.uk/downloads/joint_public_ccs_statement_june_09.pdf, June 2009. 7 The EU would like to see 12 demonstration projects in operation in the EU by 2015 and the G8 have committed to 20 large-scale CCS projects to be in operation by 2020. 8 A recent report by the Wuppertal Institute notes If the life cycle assessment of EOR is considered, it is clear that it cannot contribute to climate protection. On the contrary: for every tonne of CO 2 stored, the production and subsequent use of the oil releases a four-fold amount of CO 2 into the atmosphere. Comparison of Renewable Energy Technologies with Carbon Dioxide Capture and Storage (CCS) Wuppertal Institute for Climate, Environment and Energy, 9 August 2010, http://www.wupperinst.org/uploads/tx_wiprojekt/reccsplus_final_report.pdf Page 2 of 6

OPTIONS FOR DEMONSTRATING We believe there is a way to meet both our climate value for money criteria and the Government s objectives for the demonstration of CCS based on the criteria below. We have also given examples of demonstration proposals alongside each criteria to show that this is a practical and achievable model for demonstrating CCS: 1. Demonstrating post-combustion carbon capture technology on existing coal power stations Option Longannet pulverised coal plant (Scottish Power) Where possible it would seem sensible to demonstrate a suite of technologies that have yet to be proven at a commercial scale on existing power stations. The construction of new plant, coal plant in particular, risks giving rise to lock-in to long-lived capital and carbon intensive infrastructure, should the technology, for whatever reason, prove not to work. A paper from Imperial College9 presents several other reasons as to why retrofitting existing plant, particularly during the demonstration phases of CCS, could be advantageous. These include: speed of implementation; limited costs; high learning value; and suitability to short project life. For example, first tranche generation demonstration projects are likely to be superseded relatively quickly as the technology improves and teething problems are ironed out. Application of CCS to existing plant may therefore make a short demonstration project life (e.g. 10-15 years) economically more viable/attractive than if the technology were applied to a new build plant which may run (in the case of coal) for a further 30 years10. In addition, if CCS does work on an integrated power plant then demonstrations at the scale proposed on existing plant will of course lead to an immediate net reduction in power sector emissions11. The EUs Zero Emission Platform (ZEP) proposes that a retrofit to an existing plant should be included in the portfolio of 12 EU demonstrations and state Retrofitting can provide for large applicability both within and outside Europe, as the only solution for CCS for the existing power plants. Retrofitting requires technical development and cost recovery 12. An International 9 Retrofitting CO 2 capture to existing power plants as a fast track mitigation strategy Hannah Chalmers, Jon Gibbens, Mathieu Lucquiaud, Imperial College London, July 2009 10 This point is also corroborated a McKinsey report - Carbon capture and storage: assessing the economics McKinsey&Company, September 2008 - which states it is worth noting that retrofitting could be an attractive option for building a CCS demonstration project, because the capex required would be lower (and thus the risk smaller), and the construction time might be shorter. The shorter lifespan of a retrofitted CCS plant would most likely not be a problem, since the plant would in any case be expected to have a shorter life. And the impact of the possibly higher efficiency penalty would be reduced by the smaller size of the plant, the shorter life and lower utilization. http://www.mckinsey.com/clientservice/ccsi/pdf/ccs_assessing_the_economics.pdf 11 For example in an assessment undertaken for WWF in 2009, IPA Energy + Water Economics estimated that demonstrating 300MW of CCS on the existing coal power plant at Longannet in Scotland could result in a reduction in power sector emissions of 14.5 million tonnes CO 2 between 2014 and 2025. Conversely, if the same capacity of CCS was demonstrated on a new 1,600MW pulverised coal plant this would result in an increase in emissions of 32 million tonnes over the same period with the risk of some 240 million tonnes being emitted over the plant s life if further CCS retrofit proved impractical. http://assets.wwf.org.uk/downloads/carbon_choices2.pdf 12 EU Demonstration Programme for CO 2 Capture and Storage (CCS) European Technology Platform for Zero Emission Fossil Fuel Power Plants (ZEP), November 2008, http://www.zero-emissionplatform.eu/website/docs/etp%20zep/eu%20demonstration%20programme%20for%20ccs%20- %20ZEP's%20Proposal.pdf Page 3 of 6

Energy Agency report on CCS also states that demonstrating CO 2 capture through retrofitting at a coal-fired power plant in particular is an urgent need 13. Indeed the learning from a retrofit project on an existing sub-critical plant may actually have more direct applicability and transferability to the situation in for example China14 than the learning gained from demonstrating post-combustion technology on a new, built for purpose carbon capture ready supercritical plant in the UK. A paper for the Massachusetts Institute of Technology notes There is a large difference in CCS plant design for purpose built as opposed to retrofit. A new, purpose built plant allows multivariable optimization through management of the entire design process in a holistic fashion. With a CCS retrofit, compromises in cost and/or performance may be needed to enable implementation within an existing plant structure. 15 Scottish Power s existing coal plant at Longannet in Scotland is now only one of two plants in the running in the first UK CCS demonstration competition and the only plant which could still feasibly meet the competition s operational deadline of 201416. The Longannet plant is currently due to continue operating until around 2030. Clearly if Scottish Power decided to fully upgrade the plant to operate on supercritical boilers the life expectancy of the unabated and abated parts of the plant would be extended for another 30 years or more. Conditional to our support for any retrofit project therefore would be a guarantee that CCS would be fitted to the full generating capacity of the plant should the plant ever be upgraded. Indeed we consider that any parts of the plant intending to upgrade and therefore extend their operating lives do so whilst complying with an emissions performance standard of 300gCO 2 /kwh from day one and up to 2020, reducing to around 100gCO 2 /kwh by 2025. 2. Including at least one demonstration on gas plant Option Peterhead gas plant (Scottish and Southern Energy) Although burning gas to generate electricity is around half as carbon intensive as burning coal it is clear that within the context of the 2030 power sector decarbonisation timeframe, CO 2 emissions from gas plant will also need to be addressed. Indeed, since 2006, the Government has approved planning permission for 15GW of new gas fired power plant, and a further 11.6GW are awaiting consent17. We therefore agree with the recent CCC recommendation that Given new evidence on the potential competitiveness of gas CCS with other forms of low carbon generation, and the very limited international effort to develop this technology, serious consideration should be given to funding at least one gas CCS demonstration project as part of the four CCS demonstration projects committed to in the Coalition Agreement 18. Furthermore, in a UK powered progressively by renewable energy, any fossil fuel plant on the system will increasingly be required to operate on a flexible basis at varying and low load factors19. In this respect, gas-fired power stations equipped with CCS may well be more cut out to operate at lower load factors than new coal plants due to the lower capital costs of the 13 Carbon capture and storage full-scale demonstration progress update International Energy Agency, 2009 14 Where plant are currently not being built carbon capture ready. 15 CO 2 capture and storage for retrofit applications MIT, March 23 2009, http://web.mit.edu/mitei/docs/reports/langleyalexander.pdf 16 http://www.scottishpower.com/pressreleases_1908.htm 17 Dash for gas could squeeze out low-carbon generation May 2010, ENDS report 424, pg 15. 18 Letter from the CCC to Chris Huhne, 17 June 2010 - http://hmccc.s3.amazonaws.com/gas%20ccs%20letter%20-%20final.pdf. In the attachment sent with the letter the CCC also note that the cost of demonstrating CCS based on /MWh calculation will be cheaper on a gas plant than it will on coal plant Relative costs of CCS on gas and coal plants 19 In their recent letter to Chris Huhne regarding approach to investment in fossil fuel power generation the CCC note Flexible (i.e. low load factor) low-carbon generation plant will be required in the UK and other countries particularly to support seasonal demand for electric heating from the 2020s. 17 June 2010. Page 4 of 6

former20. It is also worth noting that from a purely cost point of view, the CCC recently observed that the cost of demonstration on gas plants (in terms of /MWh) will actually be cheaper than for CCS demonstrations on advanced supercritical coal plants21. Our preference would be for any demonstrations on gas to be on existing plant22. Indeed Scottish and Southern Energy recently announced plans to demonstrate post combustion CCS at a commercial scale at their existing gas plant at Peterhead in Aberdeenshire23. 3. Pre-combustion demonstrations on any new coal gasification plant should capture at least 90% of the CO2 emissions from the full generating capacity from day one Option proposed coal gasification plant at Hatfield (Powerfuel plc) As pre-combustion technology is more integrated into the engineering design and construction of an Integrated Gasification Combined Cycle (IGCC) coal plant, CCS coverage of the whole plant from day one is the most sensible option (as retrofitting further pre-combustion capture technology or changing the capture levels on existing units could be problematic). However, despite earlier commitments from Government that this would be the case24, DECC now appear to be considering only partial application of this technology to any demonstration plant (depending on the number of gas turbines): pre-combustion demonstrations need only be applied to one gasifier-gas turbine unit of an Integrated Gasification Combined Cycle (IGCC) plant 25. From a value for money point of view, with regards to the cost of these technologies when applied to coal plant, an AEA report for DECC showed that whilst the capital costs for a new capture ready IGCC plant are more expensive (estimated at 990/kW) than those of a capture ready pulverised coal plant (at 836/kW) this situation appears to be reversed for new plant with CCS. Under a scenario where full scale CCS is fitted the capital costs for a pulverised coal plant are estimated at 1457/kW and for an IGCC plant is 1273/kW26. 20 The relative cost advantage of gas CCS improves at lower load factors, as it is less capital-intensive than coal CCS. This is likely to make gas CCS well-suited to a more flexible role in a power system that includes high proportions of intermittent renewables and in which the electrification of heat means that electricity demand has a significant seasonal component - Page 68, Meeting Carbon Budgets ensuring a low-carbon recovery, 2nd Progress Report to Parliament, Committee on Climate Change June 2010 - http://downloads.theccc.org.uk.s3.amazonaws.com/0610/ccc-progress-report-web-version_3.pdf. Whilst In Poyry s Impact of intermittency report shows coal plants with CCS operating at 70-75% load factors during the 2020s - Page 10, Impact of Intermittency Poyry, July 2009, http://www.poyry.com/linked/group/study. In addition the CCC have also specifically noted, in their recent letter to Chris Huhne that The cost advantage of gas increases at lower load factors, given that it has relatively low capital costs (e.g. our analysis suggests that gas CCS could have a 35/MWh advantage over coal CCS operating at a 50% load factor in DECC s central gas price scenario). - http://hmccc.s3.amazonaws.com/gas%20ccs%20letter%20- %20final.pdf. 21 Attachment: Relative costs of CCS on gas and coal plants sent with letter to Chris Huhne, June 2010, http://hmccc.s3.amazonaws.com/gas%20ccs%20letter%20-%20final.pdf. 22 Although we recognise that for pre-combustion this will depend on whether the existing turbines have manufacturing guarantees that they can burn hydrogen (given that today s turbines are highly specified in terms of the gases or combination of gases they are able to accept). If no guarantees are in place or forthcoming then a retrofit of pre-combustion technology may require the change of one or more gas turbines and this might therefore take place during a significant refurbishment/re-powering of the plant which would extend its life. 23 8 July 2010 http://www.scottishsouthern.co.uk/sseinternet/index.aspx?id=22800&tierslicer1_tsmenutargetid=1368&tierslicer1_tsmenutargettype=1&tiersli cer1_tsmenuid=6 24 In his statement to the House on 9 November 2009 regarding the National Policy Statements Ed Miliband, the then Secretary of State for Energy and Climate Change said: The pre-combustion demonstration projects are expected to have 100% CCS on their coal capacity from day one - http://www.decc.gov.uk/en/content/cms/news/npsstatement/npsstatement.aspx 25 Clean coal: an industrial strategy for the development of carbon capture and storage across the UK DECC, March 2010 - http://www.decc.gov.uk/assets/decc/what%20we%20do/uk%20energy%20supply/energy%20mix/carbon%20capture%20and%20 storage/1_20100317090007_e_@@_cleancoalindustrialstrategy.pdf 26 Future value of coal carbon abatement technologies to UK industry AEA report for DECC, December 2008, http://www.aeat.co.uk/cms/assets/mediarelease/pr_190609.pdf Page 5 of 6

A further component of maximising the value for money in devising a CCS demonstration programme is the extent to which the technologies tested can contribute to the reliability of UK energy supply. One dimension of this is the extent to which pre- or post-combustion CCS plants can contribute flexible, reliable capacity to the UK energy system. Regarding pre-combustion, it is necessary to consider the wider issues of energy security, beyond simply electricity generation. Pre-combustion gasification plant could potentially, for example, switch from generating electricity when demand for power is low to separating hydrogen, itself a versatile energy carrier. This hydrogen in turn could potentially be injected into the existing gas grid as a means of reducing the carbon intensity of our current gas supply. 4. Considering the phasing of demonstration projects The original Impact Assessment that accompanied DECC s Framework for Development of Clean Coal consultation was based on a scenario where the first UK demonstration begins operating in 2014, the second in 2015 and up to two more begin in 2018. As there will likely be rapid learning from the first few operational projects (including those in other EU countries, and globally), it would seem sensible to stagger UK projects so that learning from early demonstrations can be used to inform the need for future projects in the UK. Page 6 of 6