Check against delivery
At the outset I would like to emphasise the UK Government’s firm commitment to Carbon Capture and Storage (CCS) and our determination to see the technology ready to be commercially deployed in the 2020s. CCS has the potential to be one of the most cost effective technologies for decarbonisation of our power and industrial sectors.
You will all no doubt be aware of this, but I think it is important to reiterate why CCS is so important. Studies undertaken by the International Energy Agency (IEA) on behalf of the G8 have concluded that, to achieve a 50% reduction in global carbon emissions by 2050 cost effectively, CCS will be needed to deliver about a fifth of this target. Without CCS the delivery cost of meeting a 50% global reduction target by 2050 will be 70% higher. And action on CCS in Europe will be instrumental in helping to drive ambitious international action on climate change, particularly with major economies such as the US, India and China that are heavily dependent on fossil fuels.
CCS provides us with a generation option that other technologies do not - a flexible low carbon electricity source that can provide a balance between the intermittency associated with renewables and the baseload nature of nuclear. It allows fossil fuels to play a full part in our low carbon future and allows the decarbonisation of industrial emissions.
To achieve its potential CCS must be cost competitive with other low carbon technologies and carbon abatement approaches. In the power sector that means that plants with CCS need to be able to compete with nuclear and renewable technologies. In the industrial sector CCS must provide a cost effective means to deal with carbon emissions from processes where there are no other options.
There are three challenges which we believe must be tackled to enable commercial deployment of CCS:
- reducing the costs and risks associated with CCS so that it is cost-competitive with other low carbon technologies
- putting in place the market frameworks that will enable CCS to be deployed by the private sector cost effectively, and
- removing key barriers to the deployment of CCS
UK Government commitment to CCS
To address these challenges the UK Government is taking forward a programme of interventions which is one of the most comprehensive offered by any country in the world to support the development of CCS. The programme includes:
- a CCS Delivery Programme with £1bn in capital funding to support a portfolio of commercially-focused CCS projects, targeted specifically to learn by doing and to share resulting knowledge to reduce the cost of CCS such that it can be commercially deployed in the 2020s
- a £125m, 4-year, co-ordinated innovation programme covering fundamental research and applied research and innovation, to ensure that the best ideas - with a clear focus on cost reduction - can be taken forward to the market
- development of a market for low carbon electricity through Electricity Market Reform, including availability of Feed-in Tariff Contracts for Difference for low carbon electricity tailored to the needs of CCS equipped fossil fuel power station
- intervention to address key barriers to the deployment of CCS including work to support the CCS supply chain, develop transport and storage networks, prepare for the deployment of CCS on industrial applications and ensure the right regulatory framework is in place
Our vision is for a new world-leading UK CCS industry in the 2020s. An industry that can compete on costs with other low carbon technologies. An industry which can create a wealth of green jobs. And an industry which can reduce emissions from both power stations and energy intensive industries in a coherent and cost-effective way, rather than simply individual projects in isolation.
Role of CCS in the UK
It is not possible to predict with certainty which will be the most cost effective routes to decarbonisation of our electricity supply and industrial sector. We do, however, use economic models to produce projections using the best evidence currently available.
Analysis undertaken for DECC’s Carbon Plan - which was published in December 2011 - suggests that around 40-70 GW of new low carbon electricity generating capacity will be needed by 2030, depending on demand and the mix of generation that is built.
That same analysis shows that CCS could contribute 10GW of capacity to the UK electricity market by 2030 and up to 40GW by 2050. And in the industrial sector our analysis suggests that industry will be capturing and storing 48 Mt CO2 per year by 2050.
UK industry is even more ambitious, the CCS Association has set out their aim for 20 to 30 GW of CCS by 2030. Our projections are not targets, it will be for the market to decide which of the competing technologies delivers the most cost effective mix of supply to ensure a balanced electricity system and a decarbonised industrial sector. For CCS to be favoured in the long-term therefore needs investors to be confident that the technology will provide the benefits anticipated at the right price.
Deployment on this scale is clearly a challenge. But it is one we are well placed to tackle. The North Sea has extensive storage capacity available, recent studies show approximately 70 billion tonnes of storage capacity in UK waters alone.
We also have the benefit of expertise that we can apply from our long background of success in the oil and gas sectors. And we have a sound basis of academic research that we can draw on.
Development of CCS for the power sector is our immediate priority, but progress in this sector will also facilitate deployment of industrial CCS. Early deployment on power stations could be the starting point for the development of CCS clusters, with multiple sources of carbon dioxide benefitting from access to shared transport and storage infrastructure.
We will be publishing when the CCS programme is launched a CCS Roadmap setting out our plans for addressing all of the interventions Government is taking to deliver the outcome of cost-competitive CCS in the 2020s.
UK CCS Programme
I know you are all eager to hear details of our new programme following our decision not to take the Longannet project forward. We are working as fast as possible to make sure we have the best programme possible, building on the lessons from the first competition.And we did learn an enormous amount from the UK’s first competition. Everyone involved should be extremely proud of all they achieved.
The work showed that commercial scale CCS is technically feasible and for the first time made complete engineering designs for the end to end chain of capture, transport and storage freely available for the world to see. This is amongst the most detailed and extensive information about CCS projects released anywhere in the world and shows the detailed interrelationships encompassing all aspects along the full CCS chain.
The material is available from the DECC website, I urge you to take advantage of it. I also offer a challenge to other projects being developed around the world. We have made this valuable information freely available to everyone, so that it can be put to use helping to speed CCS toward commercialisation. I challenge you to take the same steps. With a global effort we can ensure that CCS is ready more quickly, and at lower cost.
The scope of our new CCS programme is being developed and will be announced as soon as possible. The focus of the programme will be to reduce the costs of CCS and enable commercial deployment in the 2020s.
This means we need to create certainty around the levels of investment needed to get CCS operational, and also the additional running costs. We will be designing the new process to make sure we reach this overall objective as quickly as possible and at best value.
And with this overall objective in mind we are also considering opening up the new competition to potential clusters of projects, part chain projects (for example individual capture plants) where they have a clear likelihood of becoming full chain in the near future, and industrial CO2 emitters where they support cluster proposals.
Our aim is to take decisions on which projects to further support six to nine months after the launch of the competition, allowing us to synchronise with the European NER300 timetable.
We are absolutely aware of the need to provide certainty but also believe it is important to take the time now to reflect on lessons learned from the first competition and make sure we get the details of the new competition right.
Whilst we can’t set out the final details right now, I can tell you that our approach is likely to be:
- more collaborative - for example, potentially sharing information from studies such as FEED as they progress. That means building on the lessons from Longannet to maximise the value of knowledge and effort at the earliest opportunity
- more open - allowing industry to put forward proposals that will help deliver our goals both as quickly as possible and at best value. Again this builds on a key lesson from Longannet: that you, the industry, have the knowledge to drive the technology forward at best value, and
- targeted at creating a future CCS industry, rather than just projects in isolation - this follows industry feedback on the importance of planning for infrastructure for the future
We’re working to finalise the criteria over the coming weeks, but we’re actively considering projects to put forward proposals that stimulate clustering and anticipate the development of future infrastructure. But as ever, there must be a clear value for money justification: such proposals must contribute to our overall objective of ensuring CCS is cost-competitive in the 2020s.
This is about developing a CCS industry for the future, so we can decarbonise our electricity generation and our industrial processes - especially in those regions which are home to clusters of energy intensive industries.
Projects will be supported from the £1bn capital we have made available and we also have the potential for low carbon Contracts for Difference which our reforms to the electricity market will make available. Taken together, we believe this will be one of the best offers from any Government to support CCS deployment going forward.
Electricity Market Reform
Confidence is the key to delivering the investment we need in the UK electricity sector. Technology developers and investors will require confidence that there is a long-term future for their technology, that there is certainty of opportunity for those who want to take CCS and other low carbon technologies forward. That is why the UK government is implementing the biggest reforms to the electricity market for a generation - to provide the certainty that investors require.
The Electricity Market Reforms that we have announced offer the prospect of a future market for CCS electricity that will drive investment in commercial CCS plants. We are currently considering reforms that offer for CCS:
- long term contracts to provide stable financial incentives
- support for early CCS projects with contracts that are designed to recognise uncertainties associated with these early projects
- an Emissions Performance Standard (EPS) set at the equivalent of 450g CO2/KWh for plant running at baseload to limit emissions
- a Carbon Price Floor (CPF) that will further incentivise investment in low-carbon generation now, whilst also giving appropriate exemptions for CCS generators to help increase competitiveness in the market
Our innovation programme forms an essential component of our work on delivering CCS. With our delivery partners - the Technology Strategy Board, Energy Technologies Institute (ETI) and Research Councils - we expect to invest around £125m in our CCS research and development programme up to 2015. The programme will continue to provide support for projects such as the UK’s first carbon capture pilot - a 5MWe post-combustion capture plant attached to the Ferrybridge power station, which was launched last November.
This cross-government programme will also support fundamental research and training in our universities and research organisations, small companies developing innovative CCS technologies, as well as a further two pilot-scale capture projects.
My department will also launch a competition in the spring to award up to £20M to CCS innovation projects.
Other interesting projects in the UK include the upcoming publication of the UK CO2 storage atlas - led by the Energy Technologies Institute, which will be published in the spring. as well asa privately funded 3MW post-combustion capture pilot at RWE’s Aberthaw coal power station.
Tackling barriers to deployment
Alongside this focus on providing the market framework for CCS we must work to ensure that barriers to deployment of CCS are addressed.
Development of a new CCS industry at the scale and in the timeframes envisaged requires, amongst other things:
- an enabling regulatory framework - we’ve done this in the UK by establishing a comprehensive regulatory regime for all stages of the CCS process including full implementation of the CCS Directive, and clarifying other important legal issues such as who owns the rights to store carbon dioxide
- a strategy on storage that has resulted in a number of comprehensive reviews of UK offshore storage capacity - so we have a good feel for where storage sites are located, how viable they are and when, in the case of oil and gas fields, they will become available (we also have an established process in place for obtaining rights to those storage sites and obtaining the permits needed to explore and eventually store carbon dioxide in those locations)
- people with the right skills, and supply chains capable of providing the required goods and services - obviously there is a limit to what governments can do in this regard, but we are keen to work with industry to provide the market pull, and
- a clear vision of how, where and when to develop transport and storage infrastructure, including the possibility of supporting infrastructure sized to take account of potential future use
CCS is essential to meeting our climate change and energy objectives. The reforms to the electricity market we have proposed will provide the market certainty, giving investors the confidence they need to take decisions to support CCS projects. Our programme of work to reduce costs will push the technology toward commercial viability, and by working together with industry we will make CCS a reality. The details of the CCS programme will be announced shortly and I look forward to working with you and hearing your views.