UKCCSRC September 2018 Conference session blog: Developing a Pipeline of Financeable UK Projects

This blog was produced by Hisham Al Baroudi and Shoaib Shah

Described as having combined half a century of experience working in the CCS sector, the session chair David Reiner introduced the speakers Paul Davies and Patrick Dixon to the session.

David emphasized that since 1998, over the past two decades the CCS sector has made considerable progress, and today some CCS projects are operating as designed.

Particular attention was drawn to USA, UK and Algeria based CCS projects (see photo 1). Although multiple projects had failed in the UK as highlighted in photo 1, the Algerian In Salah project is capturing 1Mt CO2/year.

David also highlighted that mere storage projects were insufficient to address the issues around CCS and that clusters had to be created. Once again progress has been in this sector.

The Alberta pipeline is an example of a successful CCS cluster and shows promise for further expansion.  All these however are contingent upon agreement from political bodies who will invariably assign and manage the risks associated with the financing storage, transport and clustering of CCS projects. Under the Obama administration CCS experienced some growth however under the new administration progress has reversed. (See photo 2). The same may be true with UK’s own Brexit looming on the horizon.

In order to achieve the IEA 2040 carbon emission targets, there needs to be a global CO2 reduction or capture of 3800Mt CO2/year.  The current CCS and reduction capacity stand at a mere 37Mt/year (see photo 3). In order for the UK to get closer to its own 2040 targets, new regulations need to be put in place and the risks associated with financing the multiple facets of CCS (IE storage, pipeline transport, generation) need to also be allocated to appropriate bodies.  With this note, the floor was handed over to Paul Davies.

Paul, an experienced project financier having raised over £250m for energy efficiency projects, highlights that the problem with financing CCS. Is that little leverage exists around industry to tap into the CCS market.   There are also energy price risks stopping further investment in cleaner power generation.   Also, considerable risks exist around CO2 transport which he private sector may not be willing to take.  Given all of these risks, the following 3 recommendations are made to the UKCCS Taskforce.

1- Government guidelines

The government must be clear on policy regarding the allocation of risk when it comes to CCS. It must also clarify the cost incurred to market place investors when CCS project are undertaken. Once projects are online and ownership is transferred the government also must clarify how the risks of the project and their liability transfer between parties. Furthermore, clarification is needed as to the risks posed to the public for CCS projects. Once these conditions are met by the government, investment in long term CO2 storage will become a viable.

2- Creating Clusters

CCS cannot work in isolation and therefore polluters will need to be encouraged to partake in CCS collectively. This poses the issue of creating storage clusters either around groups of CO2 generators or creating CO2 transmission from generators to clustered storage sites.

With regards to CO2 pipeline construction and CO2 transmission, in order to build these projects a ‘regulated asset model’ may be appropriate. This sort of business model would allow investors to make returns on their projects by charging for the use of the pipeline and where CCS facilities need to be improved, the cost incurred can be passed on to the customers (IE energy users).  

With regards to generation and capture, transferring CCS technology to the private sector by using tradition project finance may also be a viable option. However, in this scenario the government would need to underwrite the storage and transmission risks discussed earlier.

Decoupling the risks associated with generation/capture and storage/transmission and regulating risk allocation will enable investors to fund CCS projects.

3- Hydrogen Economy

The UK needs a real centralized market price for H2. Once a market price is set, it can then be released into the existing gas network.  This creation of a market price and reuse of existing infrastructure fits will within the utilities model.

In order to for the UK to accelerate and meet the 2040 targets, market regulations, frameworks and rules set by the government will serve as a bigger catalyst than more government issued funding.

With this Paul handed over to Patrick Dixon.  

Patrick Dixon introduced his strong industrial background having spent many years at BP before moving onto the role of CCS Expert chair at Department for Energy and Climate Change in the UK government. He then moved on as a Board Director at the CCSA whilst actively privately working to facilitate the development of CCS Projects in the UK.

Being a cooperator in the report of the ‘Clean growth strategy and the CCUS Cost challenge taskforce’ Patrick’s message was essential to make us appreciate the importance of inter-governmental communication and the role of professionals in shaping the future of CCS in the UK. He therefore advocates for the need to recognize CCUS as a key opportunity and emphasized the importance of an urgent action in order to deliver CCS at the suitable scale and lowest cost. Generally, this is the line of action, but more specifically these efforts translate into more specific taks: the government ambitions must be matched with industry’s commitments as a pipeline of financeable projects needs a joint industry and Government effort to attract the investment required.

So, overall, the solution is a suitable business model in order to commercialise this technology. The positive ‘take home message’ is that can even bring a higher value across low carbon industrial products thus benefitting the wider economy in the long run, and the concept that the CCUS chain can already be deployed at a competitive cost by applying it in clusters, with stakeholders playing the role of facilitators in explaining how CCUS can benefit the local economy and needs.