UK Dept of Energy wasted £168m on aborted competition for £1bn Peterhead carbon capture project

The British government has ‘not delivered value’ for money for taxpayers after spending £168 million on fees and associated costs for its abandoned carbon-capture and storage projects at Peterhead power stations and the White Rose project in Yorkshire.

Carbon capture storage is a process to avoid the release of carbon dioxide (CO2) into the atmosphere.

It has the potential to help the UK achieve its ambitious targets to reduce CO2 emissions, if it is used in the power and industrial sectors.

However, the Department for Business, Energy & Industrial Strategy has not achieved value for money for its £100 million spend on the second competition for government financial support for carbon capture storage, according to the National Audit Office.

The NAO found the Department began the competition ‘without agreeing the Treasury’ on the amount of financial support available over the lifetime of the projects.

This is a curious explanation because (as the photograph below demonstrates) the Prime Minister (then David Cameron) – who as First Lord of the Treasury out-ranks the Chancellor (as Second Lord of the Treasury) – must have known what he was doing when he witnessed the Peterhead CCS agreement being signed between Shell oil and Perth-based utility SSE.

Peterhead CCS project deal Cameron, Clegg, Carmichael, Davey,
IN HAPPIER TIMES: Shell and SSE chiefs signing their agreement in principle to developer the Peterhead CCS project, as (then prime minister) David Cameron, Alistair Carmichael, then UK Minister for Scotland, and then deputy prime minister Nick Clegg, look on.

The NAO said this ultimately contributed to the Treasury’s decision to withdraw £1 billion of funding from the competition, leading to its cancellation, as it was ‘concerned about future costs to consumers.’

The Department funded two developers to undertake work that would reduce the commercial and technical risks surrounding the construction of the first CCS plant. One of the two shortlisted projects, backed by a consortium, was not able to present a proposal compliant with the Department’s risk allocation as it was struggling to allocate risks between the parties involved. The other competition was more commercially viable but would have had fewer benefits for reducing the costs of subsequent CCS projects.

An NAO spokesman said: “Many stakeholders think the government should bear more risks, particularly over stored CO2. Government taking a greater share of the risk could reduce delivery costs but would expose taxpayers to losses in the event of risks materialising.

“The NAO also found that flaws in the design and implementation of the UK government’s Levy Control Framework, which caps the costs of certain consumer-funded policies, also impacted on investors confidence in the carbon-capture projects.”

See also:

Industry interest in carbon capture market has collapsed since Osborne’s Peterhead U-turn, warns Scots CCS expert

http://www.scottishenergynews.com/industry-interest-in-carbon-capture-market-has-collapsed-since-osbornes-peterhead-u-turn-warns-scots-ccs-expert/

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