European CCS industry faces moment of truth
It will soon become clear which carbon capture and storage (CCS) projects in Europe are still alive. EU member states face an end-of-October deadline to announce which CCS demonstration projects they will invest in - and render eligible to receive hundreds of millions of Euros in fresh EU funds. The original demonstration programme from 2007 - which envisaged a dozen demos on the go by 2015 - is but a shadow of its former self. Yet it is questionable whether Europe can do without CCS if it is to decarbonise its economy by 2050. As pressure mounts on member states to finally commit, the CCS industry is looking beyond its traditional partners in coal and power to become a story about gas, biomass, manufacturing and jobs. Sonja van Renssen reports from Brussels.
|First priority for the CCS sector is getting demon-|
stration projects up and running (c) Darcy Muenchrath
"It's decision time and it's deal time," says Graeme Sweeney, special advisor on CO2 to Shell and Chairman of the industry-led pro-CCS Zero Emissions Platform (ZEP) in Brussels. For the last few years the CCS industry has faced mounting obstacles. What was different at this year's annual ZEP conference in early October was that it didn't just repeat the perennial problems faced by CCS: lack of money, lack of political support, lack of public acceptance. It offered a way out.
"Adapt and move" is ZEP's new slogan and the idea is to reposition CCS as about more than just climate change. "This is about welfare, it is about jobs and it is about the economy. And we have under-told that story," Sweeney told delegates. ZEP's newest member is the European Trade Union Confederation (ETUC).
CCS, say its proponents, is not a take-it or leave-it option for the EU. They argue - and many neutral observers agree - that Europe simply cannot cut greenhouse gas emissions by at least 80% by 2050 - as EU heads of state have pledged to do - without CCS. But while many agree that CCS makes sense in the medium-term that does not make it any easier finding the money for demonstration projects today. And CCS desperately needs a successful demonstration programme followed by a handful of large-scale plants to improve the technology and bring down costs, if it is to stand a chance of becoming cost-competitive with wind, solar and nuclear.
The first priority for the European CCS sector, then, is getting demonstration projects up and running and for this the big challenge is finding sufficient funds.
The number of demonstration projects in the pipeline has been steadily whittled down from 12 in 2007 to just 2-3 today. Potential funds to support them have declined in parallel. The pot of money at stake right now is revenue from the European carbon market - 300 million allowances ("NER300") were set
|"This is about welfare, it is about jobs and it is about the economy. And we have under-told that story"|
Top contenders for the money are the UK's Don Valley project, the Netherlands's Green Hydrogen project and Romania's Getica project. Each project can receive up to €337m - this cap is fixed as a proportion of the total revenue expected to be raised by the 300 million allowances.
But projects are only eligible for the money if their national hosts can present viable business plans by the end of October. This may include public and private sectors funds to make ends meet. "It is only with confirmed projects that we can continue our journey," said Jos Delbeke, Director-General for climate change at the European Commission at the ZEP conference. Vivian Scott, a CCS researcher at the University of Edinburgh, sums it up nicely: "There are two big questions now: can member states come forward with enough money and is the deal good enough for industry?"
So far not a single final investment decision (FID) has been made for any European CCS project. Projects have been beset by different problems. Note that the €1.5 billion generated recently by the sale of carbon allowances was not the first sum earmarked for CCS: the first wave of subsidies was the €1bn of economic recovery money that was awarded to six CCS projects back in 2009. What's happened to these projects? Italy's Porto Tolle has run into permitting problems, Germany's Jänschwalde was called off due to public opposition, Spain's Compostilla faces financial issues and Poland's Belchatow an unhealthy mix of all of these.
Only two of the original six remain serious contenders for final investment decisions any time soon: the UK's Hatfield project - taken over by 2CO, a specialised CCS company funded by private equity, and rebranded Don Valley after the original owner went into administration - and the Dutch ROAD project, led by Eon and GDF Suez.
Only one of these, the Don Valley project, is also in line to receive carbon market funds. The ROAD project did not apply under an agreement with the Dutch government which saw the Green Hydrogen
|"There are two big questions now: can member states come forward with enough money and is the deal good enough for industry?"|
At this same meeting, the Australian Coal Association asked whether the ROAD project would consider non-EU investment. "Yes, please!" was the answer. This could fill part of the gap. The rest looks set to be filled with unspent economy recovery funds from CCS projects that aren't going anywhere. Eon is reportedly in close talks with the German and French governments for unspent CCS funds to flow to ROAD. A deal looks imminent.
It would also be significant as it would indicate that the European CCS industry is becoming increasingly aware that it needs to team up. Making CCS a more truly European endeavour certainly makes sense for a country like Germany which no longer has a CCS project of its own but does have big plans for new gas- and coal-fired plants to replace nuclear.
This leaves Don Valley in the UK, ROAD and Green Hydrogen in the Netherlands, and Getica in Romania as Europe's CCS frontrunners. Yet uncertainties persist. The UK remains in limbo - sources say its £1bn national CCS competition is far from set in stone and it may need more time to decide whom to back with how much. Meanwhile, the ROAD project cannot yet claim to be high and dry and Green Hydrogen depends on it. Finally, the Romanian government may be very enthusiastic with lots of support and even feed-in tariffs planned, but its project still needs much work and there is a potential conflict brewing with the EU over an unrelated issue (regional development funds).
Two other European projects worth keeping an eye on are the Peterhead project in Scotland (SSE and Shell) and the China-EU Near Zero Emission coal (NZEC) project, which the EU has reportedly invested some €50m in.
Peterhead is a gas CCS project that is most advanced of all in Europe when it comes to storage. It is expected to win UK government backing and should get some money from the sale of the remaining 100 million EU carbon allowances - when the Commission is expected to revise the award criteria away from cost per tonne of CO2 stored to allow gas projects to win some funds. "The context has changed - the funding vehicles must too," says Eric Drosin, Director for Communications at ZEP.
In any case, it is clear that CCS is becoming a more truly European - and global - project as a shortage of funds drives alliances across borders. "For me demonstration is not about technology, it's about putting the projects together commercially and financially," says Lewis Gillies, CEO of 2CO. Everyone agrees that Europe has fallen behind in the global race to develop CCS. The root cause of this is the difficulty of making a financial case for the technology in Europe. "Things just stack up a bit more neatly elsewhere," says one stakeholder.
North America is where the action is today. First and foremost this is because of the potential for enhanced oil recovery (EOR), or pumping CO2 back into the ground to get more oil out. Companies in
|North America is where the action is today|
In Europe, in contrast, the starting point for a CCS project is not storage but capture, or avoiding emissions. A typical European project would be one that captures all the CO2 from a 250MW coal plant. This entirely different framing results from the fact that CCS in Europe has been driven by the climate agenda, not EOR. (EOR is less obvious in Europe because it would be done offshore rather than onshore and would therefore be more expensive than in the US – although it is an inherent part of 2CO’s business case.) As the climate agenda has weakened, CCS projects have stagnated.
A second thing the US has done right say stakeholders is introducing feed-in tariff-like policies that together with EOR help cover CCS projects’ operational costs. The feed-in tariffs have complemented US government grants and loan guarantees for capital costs. In Europe, only the UK and Romania currently plan to introduce feed-in tariffs for CCS. Elsewhere, the focus remains on subsidising up-front costs.
The third element of success in financing CCS in North America has been creative thinking about getting foreign investors involved. Gillies points to two up-and-coming American projects, Texas Clean Energy and Hydrogen Energy California, which have turned to China and Japan respectively for debt financing, as federal loan guarantees have dried up. 2CO itself is reaching out to South Korea, selling a 15% stake in Don Valley to Samsung and 10% to a second Korean company with an eye on debt financing support from the Korean government in return.
The next big milestone for CCS in the EU is the end-of-October deadline for member states to decide which projects they support. Funding decisions for the first batch of carbon market revenue will follow by the end of the year. Deals to channel unused economic recovery funds to the most promising projects are also likely to start appearing soon. The first final investment decisions should come next year - this is certainly 2CO's plan - for operations to start in 2016.
In the meantime, a long-promised Commission policy paper on CCS remains unlikely to see the light of day mainly because "they don't know what to say", say sources in Brussels. A Communication on CCS from the Commission has been on the agenda for a long time, but has not been forthcoming. In an interview with EER in May 2012, Energy Commissioner Günther Oettinger said he hoped to be able to publish a Communication on CCS "before the end of the year", but there is no sign that this will happen. Instead, it is decisions from Brussels on energy infrastructure - including funding for CO2 pipelines - and future R&D funds that will be important to the CCS dossier.
Some stakeholders would like to see Brussels take the lead in mapping EU CO2 storage capacity. Storage - and the public opposition it can trigger - has temporarily dipped out of sight with the end of the German Jänschwalde project and the urgency of the financing challenge. But it will come back. "Should you happen to be able to finance your project, you'll find another obstacle - storage," warns Niels Peter Christensen from Norwegian state CCS enterprise Gassnova. "Storage availability is a prerequisite for project developers to take a final investment decision," he adds.
Christensen recommends that the EU creates 4-6 small storage pilots to learn from and help build public acceptance. These would cost €30-50 million each, he estimates. But again, funding is an obstacle: less than half the money would probably come from R&D funds, Christensen admits, with industry required to supply the rest.
The decline in European projects means that international knowledge sharing has also attained unprecedented importance and the EU is likely to sign memoranda of understanding with other countries on CCS, according to a Commission official. ZEP’s Graeme Sweeney adds: “It was never only a European project, it was always a global issue. We need our 3 or 4 – or 5 or whatever that turns out to be – and we need to stretch that back to 12 by embracing others who are doing things.”
But aside from funding announcements, the EU action with the biggest likely impact on CCS is set to be the reform of the EU Emission Trading Scheme (ETS). While a marginally higher carbon price will not help demonstration projects as such, it will send that all-important political signal that the ETS - and Europe's climate agenda - is here to stay. EU climate and energy commissioners Connie Hedegaard and Günther Oettinger will reportedly lead a debate on a 2030 energy and climate package next year.
One important outcome of this debate will be how it engages energy-intensive industries, like metals, chemical and cement producers. These have remained largely absent from the CCS dialogue. They are reluctant to engage heavily with the climate agenda due to international competitiveness concerns. But they are increasingly the next logical target for CCS, alongside gas. "The next big challenge is getting heavy industry on board," confirms Drosin.
At the ZEP annual conference, Tore Torp from Statoil reminded delegates that the International Energy Agency (IEA) expects half of all CCS projects to be in industry by 2050. He said evidence to date suggests "industrial capture and transport and storage of CO2 would be lower cost than in the power sector". A representative from steel giant Mittel told him it could even be half the price. With trade union organisation ETUC on board, ZEP may well reach out to heavy industry - the iron and steel sector in Germany for example - with the proposal of capturing their CO2, transporting it through Rotterdam and storing it in the UK. For Germany, this could side-step public opposition to storage while at the same time helping an industry secure its future in Europe.
Ultimately the success of CCS involves starting to think about what it can do beyond simply putting CO2 in the ground. Its advocates believe it has a role to play in saving power plants, industries and jobs in Europe. Bio-CCS - biomass conversion combined with CCS - is already on the horizon and could extend its benefits to other sectors such as agriculture.
The cost of a complete failure on CCS in the EU would be very high. "Europe has a choice," says Vivian Scott of the University of Edinburgh. "Either it can pull together and extract some positive results or we find ourselves without CCS and have to import it." The question is whether policymakers keep CCS just barely alive as a fig leaf to push the climate problem further down the road or whether they put in the money to really make it happen.
More on CCS on European Energy Review
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