National Audit Office releases report on Carbon Capture and Storage: the second competition for government support

The National Audit Office report on the second CCS competition involving the Peterhead and White Rose projects, released today (20 January 2017), is most relevant for its clear recommendations which are shown below.

Going forward, the UK CCS Research Centre can serve a major role in key recommended activities including knowledge retention, improved affordability, measuring the value of CCS, strategies to optimise value for money and forward-looking scenarios for deployment.

Through its ongoing programme, Delivering Cost Effective CCCS in the 2020s - A New Start, begun in early 2016, the UKCCSRC is also looking at how CCS can be best applied across the whole of the UK.  As stated in the NAO release deployment of CCS will address emissions from power and industry, and also has the potential to support both decarbonisation of heat usage and emissions reductions in the transportation sector. The rate of CCS deployment, including its application to biomass plants, must build significantly in all these sectors in order support cost-effective delivery of the UK’s 2050 CO2 emission targets.

Recommendations

In developing its next phase of supporting CCS, the Department should:

a. Maximise the potential value from the competition by incorporating the lessons it and the key stakeholders have learned into any new CCS strategy. The Department will be more likely to achieve this if it limits the dissipation of skills, knowledge and experience where possible, both within government and the wider CCS industry.

b. Ensure it understands, from the outset, the position of CCS developers and their ability or willingness to carry certain risks and applies this in its approach. This should, for example, dictate which strategy is feasible and what delivery model is appropriate. In particular, it should consider how it will allocate storage risk, and learn from the challenges of sharing risks between participants in a project that are responsible for separate elements of the CCS process.

c. Assess options for how it can make early projects more affordable to taxpayers and consumers. Experience from the competition has indicated that affordability considerations are as important as the long-term benefits of each option.

d. Agree early with HM Treasury any affordability constraints. Crucially, this needs to take into account the costs of both capital support and any subsequent operational support, be that through CfDs or an alternative mechanism.

More generally, the Department should:

e. Work with HM Treasury to establish and use a consistent way of measuring the value of investments in different generating technologies that enable meaningful comparisons. HM Treasury sets out guidance for departments in its Green Book on evaluating the costs and benefits of different programmes and projects. Some metrics that can be used to compare energy generation projects, such as the strike price, are not appropriate for comparing the costs and benefits of technologies at different stages of development and with different characteristics. Compared to established technologies such as wind power, CCS requires additional spending to build supporting infrastructure but could provide additional benefits, such as availability of power when it is needed.

f. Regularly revisit its commercial strategy and the value-for-money case in light of the evolving understanding of the delivery environment and market conditions. This includes working with stakeholders to re-evaluate benefits and emerging challenges of its programmes at regular intervals. These should be clearly communicated across government and to wider stakeholders.

g. Consider the possible consequences of, and its risk appetite for, scenarios that are outside its central forecast or expectation when it develops a new project or programme. The Department launched the competition with the intention of enabling construction of the first CCS projects without fully considering the negative impacts on investor confidence that would occur if it could not achieve this objective.