Speech

Charles Hendry's speech to Platts CCS Conference

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Introduction Thank you, Jeff [Chapman, Chief Exec of the CCSA] for that generous introduction. It’s an honour to be asked here today, and …

Introduction

Thank you, Jeff [Chapman, Chief Exec of the CCSA] for that generous introduction.

It’s an honour to be asked here today, and speak to you on how I see CCS moving forward. A subject very close to my heart. Because its potential never ceases to amaze.

I think the advantages are clear. Fossil-fired electricity has a hatrick of ‘pros’. Reliability, availability and affordability. It’s why fossil fuels will remain an important part in our future energy mix.

You could easily describe the Coalition Government’s vision for the future energy mix as diverse. Through to the next 30-40 years.

We believe that the right mix of renewables, new nuclear - without public subsidy, carbon capture and storage alongside fossil fuels holds the key to our energy supplies, and in turn our security of supply.

It’s not about low carbon versus affordability versus energy security. These must all work together.

This security is a major component to the economic regeneration that we are committed to starting.

Where CCS comes in

By 2020 well over half of the UK’s electricity generation will still be fuelled by coal and gas.

Coal-fired power stations are an integral part of our energy mix providing around a quarter of electricity.

Look at the last few winters we’ve had? Look at how exceptionally cold and enduring they were. The way our energy system coped demonstrates why we continue to need fossil fuels.

Yet fossil fuel-fired power stations are also the most polluting form of electricity generation, with coal producing around twice as much carbon dioxide compared to gas-fired power stations.

We need to meet the challenge of de-carbonising the next generation of our fossil fuel-fired power stations.

That is why CCS is such a crucial element of this Government’s energy and climate change agenda. It is the only technology that can significantly reduce CO2 emissions from fossil fuel power stations - by as much as 90%.

And it will play an important role in balancing the electricity system. Without CCS, halving emissions by 2050 will be 70% cent more expensive.

This industry is set to become a multi-billion dollar global one and Europe is well-placed to lead the world, but we must act now.

In the UK alone CCS has the potential to create up to 100,000 jobs according to AEA. With export opportunities worth up to 6.5bn a year by 2030 according to the IEA.

The IEA’s CCS Roadmap envisages 100 CCS projects deployed across the world by 2020 and 3400 by 2050. That’s approximately 110 every year.

If we are to deliver anything like these numbers of projects we need to get a move on.

Globally, other governments are starting to confront the challenge. Up to $36billion is now committed in public funding for CCS projects.

CCS and green growth

We have already put in place one of the most comprehensive policy and regulatory frameworks in the world to encourage investment in CCS - including a storage permitting regime and requirements for CCS on a proportion of all new coal-fired power stations and carbon capture readiness for all new combustion plants at - or over 300MW.

The UK is also world leading in terms of CCS research. We have strong centres of academic research in universities like Edinburgh, Imperial College, Leeds, Nottingham and Cranfield.

The UK is also world leading in terms of CCS research - with more peer-reviewed articles on CCS published in the last five years (UK 1st with 93, US 2nd with 71).

Europe also has a natural advantage in the form of the storage capacity available under the North Sea. The potential is enormous.

The estimated COa?? storage capacity of the UK and its continental shelf alone is 22 GTonnes. That’s roughly 100 years of capacity for emissions from the power sector.

Europe’s long-established engineering and project management skills in both fossil fuel power generation and offshore oil and gas make us well-placed to utilise this natural resource.

Demonstration of CCS

In the UK we have amongst the most advanced plans for a fossil fuelled power station with CCS anywhere in the world. We know better than anyone how difficult demonstration of CCS will be.

Ambitious? Yes. But absolutely achievable.

The market conditions are not adequate to fund the development and deployment of CCS at the pace we need.

That is why, as part of the Spending Review last October, we announced that up to a billion pounds will be invested in one of the world’s first commercial-scale CCS demonstrations on coal-fired electricity generating plant.

That is more than any government anywhere in the world has committed to any single project.

To me, that level of commitment clearly shows our determination to tackle climate change and create a world leading CCS industry in the UK.

Subject to the quality and value for money of Scottish Power’s solution, and agreeing suitable terms, we hope to award the contract for the first demonstration project in the Summer, in Longannet, Scotland.

Some have commented that this is a ‘project without end’, but the end is now coming closer.

We have learned much about CCS even from the selection process for the first demonstration project. Not just the technical information that the Front End Engineering and Design (FEED) Studies have delivered and which we intend to share with the world in the coming months.

The CCS chain has no established business model - it takes time and effort for the companies involved to develop their relationships and allocate risks between partners.

The greater dialogue before projects are selected - between commercial partners and with government - the clearer risk allocation will be and the clearer and better understood will be the costs involved.

And companies need as much regulatory certainty as possible - and this is a challenge which governments must rise to because the regulatory framework often needs to be developed in parallel to a real project.

Projects 2-4

We know that one demonstration project is not sufficient in moving CCS to being a technically and commercially viable technology within the time frames required to meet our carbon reduction targets. That is why we have a commitment to continue public sector investment in a further three demonstration projects.

The Office of Carbon Capture and Storage is developing detailed proposals for a process to select and fund demonstration projects 2 to 4.

In opposition, we felt that the OCCS needed to have the same presence as nuclear does with the OND and we have this. It is an outstanding example of collaborative working with industry to discover the barriers, and remove them. The OCCS should be seen now as a delivery body.

We conducted a formal market sounding exercise last year which has been essential in helping to shape our approach. We plan to launch a call for proposals after this year’s Budget and to select projects by the end of 2012.

We also opened up to having gas in the equation and we think this is absolutely the right approach.

Last week I received nine applications from UK CCS projects for EU funding. I’ll wager that no country in the EU received more. This demonstrates the continuing high level of interest in CCS from UK industry and confirms the lead that the UK is taking in developing this critical technology.

In fact we think this amounts to about half the applications in the whole of the EU.

Of the applications we received, five were for pre-combustion technology, three for post-combustion, and one for Oxy-fuel. Two of these were on gas and the rest on coal.

Three of the proposals are for power stations in Scotland and six for power stations in England. All of the proposals are for projects with offshore storage so we won’t have the issue that they have had in the Netherlands with onshore storage.

We have until 9 May this year to assess the applications against the EU’s NER criteria and decide which to put forward to the European Investment Bank for further consideration.

We will publish more information about the projects put forward shortly but the level of interest alone is a clear indication that the UK is poised to take the lead.

International policy

I want to be clear that I don’t see demonstration of CCS as just being in Europe.

We must also accelerate the deployment of CCS so that we can speak with confidence, and based on experience, in the international arena.

The work we do in delivering our first demonstration plants will provide large-scale exemplars. I want to see the experience and knowledge from these projects shared widely. We must learn from each other and share that knowledge with the rest of the world.

This week in London we hosted preparatory meetings for the Clean Energy Ministerial meeting which will take place in Abu Dhabi, this April. The UK has been jointly leading this work with Australia, to help accelerate demonstration and deployment.

And we are supporting CCS capacity building in developing countries through the Carbon Sequestration Leadership Fund.

Domestic policy

This Government has, and will, put in place policies and regulatory frameworks to facilitate CCS but we must work with industry to address the delivery issues - the technical, financial and commercial challenges - if demonstration projects are to be built on time and CCS is to become commercially viable. That is why we set up the UK’s CCS Development Forum - to bring together leaders from industry, NGOs and the public sector to hold the Government to account on its CCS commitments.

We are also developing a CCS Roadmap to 2050 which will articulate our proposed timescales and set out the key technical, policy and commercial issues which need to be addressed, by when, and by whom, if CCS is to be commercially deployed from the 2020s and contribute to achievement of our 2050 target.

We had intended to publish the Roadmap in spring this year. But given the huge amount of progress we expect to make this year - reaching agreement on the first demonstration project, on electricity market reform, and assessing nine projects for the NER - we have decided to publish in the Autumn to ensure that we capture the learning from all this work.

This is not just about ambitious targets, but an opportunity for you to hold us to account, and us to hold you to account.

Investment

If we are to deploy low carbon energy technologies like CCS we must ensure that we can attract the investment required. More than £110 billion of investment is needed in the UK in new power stations and grid upgrades over the next decade. That’s double the rate of the last ten years. The current market is not fit to deliver this.

And so we’re proposing interventions which could help to deliver the investment needed.

The hardest and most important challenge for the department is on electricity market reform (EMR). The EMR process is ongoing, a consultation was published at the end of last year. Final recommendations will be made in a White Paper later this year.

The reforms aim at moving the UK to the front of the global race for electricity investment, driving the growth of clean energy industries like CCS in the UK, and ensuring the best possible deal for consumers.

Electricity market reform is about getting the right long-term signals in place to attract investment in all forms of low-carbon generation while maintaining security of supply.

We will be bringing forward proposals on the carbon floor price, Feed-in Tariffs and Contracts for Difference, as well as setting the level of an Emissions Performance Standard. We want to drive investment in the UK and ensure this doesn’t go overseas, so we will ensure that the right level of an EPS is set and this is seen as a beacon of our long term investment framework

Conclusion

In short we need more energy but fewer emissions. And so to end where I began: the challenge is vast, the prospects daunting but it’s all within our reach. The glass is most definitely half full.

Of course uncertainty characterises the long term. Much of the investment will have to be significantly bigger than in the past. And we need to take the public with us. Safety is a priority, but we also need to ensure we are explaining the benefits of CCS.

But we are optimistic about our energy partnerships, both in the UK and further away. And we need to ensure that our direction builds the right bridge to a sustainable energy future. So that energy can continue to be synonymous with development and opportunity.

I’m grateful for the opportunity to share my thoughts with you all, and I look forward to hearing yours.