Carbon-capture in the UK: Drax drop-out is The End of The Beginning

Dorothy Thompson
Dorothy Thompson

Last week, Drax chief executive Dorothy Thompson said her company could no longer afford to be involved in the project because of government changes to the subsidy regime for renewable energy.

The White Rose CCS project involves the construction of a state-of-the-art, up to 448MWe (gross) coal-fired oxy-fuel power plant with full CCS deployed from the outset. It would generate enough low carbon electricity to supply the equivalent needs of over 630,000 homes and would be capable of capturing two million tonnes of CO2 per year, some 90% of all CO2 emissions produced by the plant.

The captured CO2 would then be transported via the Yorkshire & Humber CCS cross-country pipeline, an associated project being developed by National Grid, for storage offshore in deep saline formations under the southern North Sea.

Pete Emery, Drax Group Operations Director, said: “We are confident the technology we have developed has real potential, but have reluctantly taken a decision not to invest any further in the development of this project. 

“The decision is based purely on a drastically different financial and regulatory environment and we must put the interests of the business and our shareholders first.

Drax and White Rose carbon capture plantCOMMENT

By SAM GOMERSALL

The Drax withdrawal from the White Rose carbon capture and storage project because of “critical reversals” in government support raises inevitable questions about the future of CCS in the UK. 

Whilst both the Shell-SSE Peterhead project and the Capture Power White Rose project are approaching the end of their FEED programmes, the news about Drax has highlighted that there is still some distance to go to reach final investment decision on these projects. 

 If these projects fail to go ahead, there are significant implications for CCS and UK carbon reduction efforts.

 

Recent Thinking

The recent thinking in CCS was that both the Shell/SSE Peterhead project and the Capture Power White Rose project would go ahead.  Developers of both projects have invested a huge effort to progress to the current position and have just completed front end engineering design (FEED) work.

Future UK carbon capture scenarios are based on the assumption that both projects go ahead.  The enthusiasm of the CCS community for these projects makes it difficult to contemplate it any other way.  

However, we have been here before.  In the first DECC CCS Competition (Demo 1) Scottish Power and EON reached the same FEED stage, only to end up with no projects when neither project could be progressed.

Thinking the Unthinkable

What if the projects do not go ahead?  To consider what the factors are that could lead to this outcome, it is useful to look back at Demo 1.  The National Audit Office produced a report “Carbon capture and storage: lessons from the competition for the first UK demonstration” which outlines some of the reasons.

“The Department decided that the project could not be funded within its agreed £1 billion capital limit.  It also could not agree with ScottishPower how to offset the additional cost of the new carbon price floor (a minimum charge for emitting carbon dioxide) to secure the availability of Longannet power station for the duration of the demonstration project.  Furthermore, there was no prospect of agreeing contract terms that would be mutually acceptable to all members of the consortium and the Department.”

Some of the key issues which could prevent either or both Demo 2 projects proceeding could include:

  • Loss of investor confidence in government policy around low carbon projects
  • FEED illuminates a show stopper issue (technical or commercial).
  • Participants or DECC are not satisfied that FEED has reduced project risk to a reasonable level.
  • DECC are not satisfied that a projects meets its value for money criteria.
  • Contractual arrangements within the project cannot be resolved.
  • Project contract/risk allocation with DECC cannot be resolved to the satisfaction of all parties.
  • DECC funding in terms of capital grant or CfD cannot be agreed.
  • Project funding needs (project finance or internal funding) cannot be met.
  • Commercial return/benefit needs of project developers not met.

These are significant and complex projects.  Now is the time to retain focus and commitment to overcome these hurdles. 

So where do we go from here?

If either the Peterhead or White Rose projects fail to go ahead it will be a significant setback for the carbon-capture sector in the UK.  

The stated DECC objective of Demo 2 was to enable “private sector investment in CCS equipped fossil fuel power stations in the early 2020s without capital subsidy, at an agreed CfD strike price that is competitive with other low carbon generation technologies”.  More specifically the DECC website indicates this includes:

  • Generating learning that will help to drive down the costs of CCS.
  • Testing and building familiarity with the CCS specific regulatory framework.
  • Encouraging industry to develop suitable CCS business models.
  • Contributing to the development of early infrastructure for carbon dioxide transport and storage.

Clearly if neither project was approved, these objectives would not be met.

Furthermore, any further potential CCS projects in the UK will be significantly delayed as the implications of the outcome are assessed and confidence in CCS suffers a further setback. If Demo 2 failed to deliver a project, after the same outcome in Demo 1, CCS in the UK would suffer a critical if not fatal blow.

Commitment must exist from all involved to push these two projects through the Final Investment Decision. The implications of not reaching FID on both these projects will be a significant setback for CCS in the UK.

Sam Gomersall is Commercial Director at Banchory-based Pale Blue Dot, an energy management consultancy

Pixie Energy

Pixie logo Pixie Energy is an incubator and a facilitator of strategic research and project work, focusing on energy regulation, policy and markets at the local and national level. Find out more about Pixie Energy here.

Local Energy Matters: Scotland

Local Energy Matters: Scotland is a free-to-download brochure with a focus on energy tariffs in the two Scottish electricity distribution regions, as well news on local energy and low-carbon schemes.

Previous editions can be download here.

Scottish energy market overview

You can read an overview of the Scottish energy market here.

Scottish Government energy feed