The UK Government is currently consulting on a framework for CCS in the context of clean coal development (the Consultation). The plans will have a significant impact on those planning to develop coal power generation assets in the UK or invest in CCS technology. However, the proposals for CCS financing will mean that the costs of CCS will be born by a wide range of entities. The Consultation is open until 9 September 2009.

Key facts

  • Pursuant to the Climate Change Act, the UK has committed to reduce the UK’s GHG emissions to at least 80 per cent below 1990 levels by 2050.
  • The Government has committed to hosting “up to four” commercial-scale CCS demonstrations on coal power stations.
  • It is intended that a broader CCS strategy will be published later in 2009 which will consider a number of further issues, including international development of CCS, including in the EU; UK business opportunities and jobs; infrastructure development; skills and capacity building
  • Coal is currently used to generate 31 per cent of the UK’s electricity.
  • The Government intends to require new coal power stations to retrofit CCS to their full capacity within five years of CCS being independently judged technically and economically proven. CCS is hoped to be proven by 2020.

Implementing the CCS requirement

The Government is proposing that any new coal power station must be designed and intended to capture, transport and store at least 20 million tonnes of CO2 emitted from at least 300MW net (400 MW gross) of its capacity.

In addition to this requirement, a financial mechanism which will support CCS development will be implemented (see further below).

The Government intends developers of new power stations to demonstrate that they are designed and intended to capture, transport and store sufficient amount of CO2 by way of the planning system.

Under section 36 of the Electricity Act 1989, developers must gain consent from the Secretary of State for Energy and Climate Change (DECC) to construct any onshore power station over 50MW in England or Wales. This obligation will be replaced by a new requirement to secure development consent pursuant to the Planning Act 2008 once the relevant provisions of that Act are in force.

In order to obtain consent, developers will have to show:

  • How the design and construction of their power station incorporates a minimum 300MW new CO2 carbon capture unit.
  • How the CO2 will be transported.
  • Evidence that the consents for transport are in place (for example in respect of pipelines).
  • That they have access to an offshore facility for the storage of at least 20 million tonnes of CO2 and the operator of the storage facility has the necessary lease and licence.

It should be noted that since April 2009, applicants for all new combustion power stations in England and Wales (not just coal fired plants) with an output of over 300MW have already had to demonstrate that their station will be, and will be maintained, as “Carbon Capture Ready” (CCR). This means that they must:

  • Demonstrate that they have sufficient space on or near the site to accommodate carbon capture equipment in the future.
  • Undertake an assessment into the technical and economic feasibility of retrofitting carbon capture technology.
  • Propose a suitable area of deep geological storage offshore for the storage of captured CO2. Undertake an assessment into the technical and economic feasibility of transporting the captured CO2 to their proposed storage area and
  • If necessary, apply for and obtain Hazardous Substance Consent (HSC) when applying for section 36 Electricity Act 1989 consent.

If granted consent, developers will be required to:

  • Retain the additional space on or near the site for the carbon capture equipment.
  • If their application included plans for some space needed for the capture and compression of carbon dioxide to be off site, retain their ability to build on that site in the future.
  • Submit reports to the Secretary of State for DECC on the effective maintenance of the plant’s CCR status.

Monitoring and enforcement

The Government intends that monitoring and enforcement of CCS demonstration should be implemented by way of the environmental permit that power stations are required to hold pursuant to the Environmental Permitting Regulations 2007.

Three possibilities are under consideration:

  • A requirement to submit a regular report which would include information about the “CCS chain”, the total amount of CO2 produced by the power station, the amount of CO2 stored and plans for the future operation of the CCS chain.
  • Monitoring of consistency between reporting of CO2 capture through checking information on emissions gathered pursuant to the EU ETS regime and information reported in relation to CO2 stored.
  • Setting an emissions performance standard against which the performance of the CCS demonstration unit would be evaluated.

Enforcement options under consideration by the Government include prohibiting the power station from burning coal until the CCS demonstration chain is restarted, putting emissions limits in place and simply requiring that the power station continue to run, but within the constraints of the EU ETS.

Retrofit

It is intended that CCS will be retrofitted to all new power stations in respect of their full capacity within five years of CCS being independently judged to be “commercially and technically” proven. The Government hopes that CCS technology will be proven by 2020. Several different agencies are being considered for their suitability for making this determination, including the Environment Agency, Committee on Climate Change and a newly created body.

The requirement to retrofit CCS technology could be imposed by way of the plant’s environmental permit, either pursuant to a technical measure or an emissions performance standard. The Government is seeking views on the extent to which CCS retrofit measures should apply to existing, inefficient coal power stations.

Selecting the demonstration plants

The Government intends that CCS demonstration projects will access funding through a competitive bidding process. The Government will publish a set of criteria which might include factors such as a requirement that the projects provide the UK with experience of a range of alternative CCS technologies, are coordinated with other projects to capture learning, ensure the projects meet DECC’s requirements for knowledge sharing and minimise the risk of “project blocking” by ensuring that they have a good chance of being delivered.

CCS funding

The Government recognises that CCS demonstration projects will only proceed with Government intervention. Two options for raising money are proposed:

  • An obligation to supply CCS electricity which is similar to the Renewables Obligation. Electricity suppliers would be required to purchase certificates issued to generators to “CCE” electricity (the electricity that derives from the CCS demonstration element of the power station). The price of the certificate would be a premium which would fund the costs of the CCS demonstration investment.
  • A levy on electricity suppliers which would require them to pay a specified amount per unit of electricity supplies to support CCS demonstration projects. It is thought that the levy would be adjusted annually as more CCS demonstration projects come on stream. The levy would be administered by a management agency.

Three further mechanisms have been considered for transferring the revenue raised to the relevant CCS projects. These are:

  • A fixed payment per unit of electricity exported to the grid, similar to a feed-in tariff.
  • An additional payment per unit of electricity supplied, paid over and above the wholesale price.
  • A “contract for difference” with the ETS carbon price for abatement delivered by CCS projects.

The government’s current intention is that financial support for CCS demonstration will be provided by way of a levy on electricity suppliers and distributed by way of a contract for difference.