Carbon Capture and Storage in the UK Jonathan Holyoak Head of CCS Policy, Office of Carbon Capture and Storage Department of Energy and Climate Change The High Commission of Canada 28 March 2013

3 Graphs CCS Roadmap 1 year on What next? Contents

Levelised Cost Estimates for projects starting in 2018, FOAK/NOAK, 10% discount rate Source: DECC (2012), Electricity Generation Costs Potential

Established Cost Reduction Task Force to advise Government and Industry on reducing the cost of CCS. Interim report (Nov 2012) found that UK gas and coal power stations equipped with CCS have clear potential to be cost competitive with other forms of low-carbon power generation. Final report with agreed actions to be published in the Spring. Pathways

UK Energy System: Annual costs of meeting carbon targets in Source: Carbon Capture and Storage: Mobilising private sector finance for CCS in the UK – a joint ETI and Ecofin Research Foundation report, published December 2012 Prize

Our overall objective is cost competitive CCS in the 2020s – CCS playing a key role in a low carbon energy mix Findings of the CCS Cost Reduction Task Force interim report show this is possible DECC’s CCS Roadmap contains 5 key interventions to help deliver cost-competitive CCS in the 2020s The objective: To bring about cost competitive CCS 1. CCS Commercialisation Programme 2. R&D and Innovation 3. Electricity Market Reform 4. Intervention to address key barriers 5. International Collaboration

The £1bn UK Competition aims to support practical experience in the design, construction & operation of commercial scale CCS. Projects: Plan to support portfolio of commercial-scale projects. Funding: £1bn to contribute to capital cost. Uniquely, Contracts for Difference (CfDs) to recoup investment and operational costs. Scope: Point to point full chain projects, and possibly also clusters Progress: Four promising projects shortlisted Oct Shortlisted projects submitted revised bids on 14 Jan. Following the evaluation criteria set out in our published competition documentation, preferred bidders were announced on 20 March. Roadmap 1 Year on: Good progress in £1bn Competition Timing 3 April 2012 Competition launched 3 July 2012 Competition closed – 8 bids received 30 Oct bids shortlisted & bid improvement phase 14 Jan 2012 Revised bids submitted 20 March 2013 Announced preferred bidders Start operation

Two preferred bidders were announced by the Chancellor in Budget 2013: Peterhead Project White Rose Project Reserve projects : Captain Clean Energy Project Teesside Low Carbon Project £1bn Competition Preferred bidders

Preferred bidders need to meet certain conditions before we proceed to FEED negotiations We hope to sign FEED contracts by the summer FEED contracts will then inform decisions in early 2015 on constructing up to two full projects Reserve projects may be called to participate in the next stage of the competition if one or both of the preferred bidders fails to enter into a FEED Contract by the summer £1bn Competition Next steps

Roadmap 1 year on: £125m UK CCS R&D Programme (1) c£55m Fundamental Research and Understanding £13m UK CCS Research Centre UK Storage Atlas £5M “Challenges of Geological Storage” EPSRC call (results pending) c£27m Component development and applied research UK CCS Research Centre’s pilot scale capture facilities (PACT) New CO2 metering technology at Heriott-Watt University New CO2 monitoring technology at Durham University c£43m Pilot scale demonstration (c5-10MWe) Carbon capture pilot at Ferrybridge coal-fired power station Next-Generation CCS on both IGCC and CCGT Next-generation capture “carbon water exchange” technology on a CHP unit at the Solutia manufacturing plant, Newport Saline aquifer appraisal pilot project

£125m UK CCS R&D Programme (2)

EMR Programme includes: –Long-term contracts that reflect the value of low carbon generation to the electricity market –Feed-in Tariff Contract for Difference –A Capacity Mechanism –£7.6bn LCF in 2020/21 –An Emissions Performance Standard to provide a regulatory backstop for the Government’s policy of no new coal without CCS –A Carbon Price Floor that, together with the EU Emissions Trading System, will penalise the combustion of fossil fuels Energy Bill introduced to Parliament on 29 Nov Roadmap 1 Year on: Good progress on Electricity Market Reform

Contracts for Difference (CfDs) An offer for CCS projects Baseload model is appropriate for the first CCS projects Some CfD variations may be needed to ensure a range of low carbon generation comes forward at reasonable cost Potential variations for projects supported under CCS Commercialisation Programme CCS projects outside CCS Programme – - contract duration of at least 15 years - fuel price indexation to be considered as part of wider design - considering how to incentivise flexible capacity in longer term Generators receive payment from two sources: the electricity price and a top-up payment to a pre-agreed level

Source HM Treasury 2011 Carbon Price Floor Illustration (in real 2009 prices and calendar years) Carbon Price Floor Supporting carbon prices Source: Guardian 24 Jan 2013

CCS Directive implemented Comprehensive licensing regime for offshore storage in place (property rights, storage permit, decommissioning) Directive liability requirements proving to be a challenge commercially All arrangements need to be applied in practice – part of learning from CCS programme Industrial CCS – working with BIS to take forward action on this Roadmap 1 Year on: Tackling key barriers

This strategy will set out how we will work with industry and others to: Better understand likely demand Reduce cost and time of converting prospective to operational stores Allocate storage rights beyond early stage projects Manage conflicts of interest with other offshore activities Facilitate shared development with other storage projects and EOR. Roadmap 1 Year on: Storage strategy in development

Our collaboration is focussed on sharing knowledge generated through the UK programme and learning from other projects around the world to help accelerate cost reduction. UK is engaged in a range of bilateral, multilateral and regional partnerships to share knowledge and address both practical and political challenges. The UK Government has also allocated £60m to the International Climate Fund (ICF) to support capacity building in developing countries. Through the first UK CCS Competition, the UK supported FEED studies at Longannet and Kingsnorth. The government made the complete engineering designs for the end to end chain of capture, transport and storage freely available to support the worldwide development of the technology. Commitment to knowledge sharing embedded in current UK CCS competition. Engagement with the Commission on funding schemes Roadmap 1 Year on: UK driving knowledge transfer UK FEED studies accessed across the world

£1bn Competition - FEED contract negotiations Continuing our wider work on developing a CCS industry in the UK, beyond the competition Keen to start engaging supply chain on future opportunities Working with the Cost Reduction Task Force to take forward the actions required to get costs down Working with industry and others to develop a Storage Strategy Working with the European Commission on funding for NER Round 2 July 2013 further detail on the CfDs published What next?