House of Commons - Science and Technology

Select Committee on Science and Technology Written Evidence

APPENDIX 6

Memorandum from E.ON UK

SUMMARY

1. E.ON UK believes that full-scale demonstration power plants with pre-combustion carbon capture and storage (CCS) or post combustion CCS could and should be built now. However, the demonstration of these technologies would require some form of financial support from Government for such plants to operate successfully in the UK electricity market. Full-scale demonstration is vital to the establishment of these technologies in the longer term to enable them to contribute to delivery of the UK's carbon emission reduction objectives.

2. The UK electricity industry requires a massive investment in capital over the next decade to deliver reductions in carbon dioxide emissions, energy supply security and affordable prices. By 2015 up to 8GW of nuclear (subject to life-extension decisions) and 19GW of coal and oil-fired plant will need to be replaced.

3. Much of this plant will need to be replaced with low or zero carbon generating plant if the UK is to make effective progress toward its 2020 and 2050 carbon reduction goals.

4. While we and other energy companies are already investing in renewable technologies, and are considering further gas-fired CCGT construction, replacement of all closing plant by CCGTs will not deliver the Government's 60% CO₂ emission cuts by 2050 given that much capacity built in the next decade is likely to be still operating in 2050. It would also increase UK gas import dependency.

5. We therefore want to consider a wider range of options to achieve reductions in emissions and to diversify our portfolio of generating plant.

6. The Government has a crucial role in ensuring that a range of low-carbon technological options including CCS is available to companies investing in future power generation. We believe this role is to:

— provide the right market framework to achieve government objectives within a competitive market environment. This should increasingly rely on long term broad ranging market based mechanisms, such as the EU emissions trading scheme, as the main driver to incentivise the most economic low carbon investments, encourage innovation in energy supply and support UK competitiveness. Carbon capture and storage is only likely to be deployed if there were to be a belief in the long-term market value of avoiding carbon emissions. Such incentives must be sufficiently long term (>10 years) to stimulate major capital investment;

— aim to achieve a broad international commitment to action to tackle climate change which shares responsibility across the major emitting economies; with any post-2012 agreement being consistent with investment timescales—10-15 years seems appropriate;

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— encourage the development and demonstration of emerging technologies with capital grants or similar support.

INTRODUCTION

7. E.ON UK is the UK's second largest retailer of electricity and gas, selling to residential and small business customers as Powergen and to larger industrial and commercial customers as E.ON Energy. We are also one of the UK's largest electricity generators by output and operate Central Networks, the distribution business covering the East and West Midlands. We are also a leading developer of renewable power plant.

8. E.ON UK is part of the E.ON Group which is the world's largest privately owned energy service company. In addition to the UK, the Group has electricity and gas interests in Germany, Central and Eastern Europe, Italy, the Netherlands, Scandinavia, the United States and Russia.

9. The UK electricity industry requires a massive investment in capital over the next decade to deliver reductions in carbon dioxide emissions, energy supply security and affordable prices. By 2015 up to 8GW of nuclear (subject to life-extension decisions) and 19GW of coal and oil-fired plant will need to be replaced.

10. We believe much of this plant will need to be replaced with low or zero carbon generating plant if the UK is to make effective progress toward its 2020 and 2050 goals. While we and other energy companies are already investing in renewable technologies, and are considering further CCGT construction, replacement of all closing plant by CCGTs will not deliver the Government's 60% CO₂ emission cuts by 2050 given that much capacity built in the next decade is likely to be still operating in 2050. In fact, replacing by CCGTs would keep CO₂ emissions from the sector approximately constant (assuming no demand growth) since replacement of coal by gas offsets replacement of nuclear by gas. It would also increase UK gas import dependency.

11. We will want to consider a wider range of options to achieve reductions in emissions and to diversify our portfolio of generating plant. Investment options could include coal and gas plant with carbon capture and storage, as well as nuclear plant, renewable technologies such as wave or tidal power and the increased use of biomass. Given the scale of challenge both in the UK and overseas, it is likely that most if not all of these options will be needed.

12. Carbon Capture and Storage (CCS) has the potential for making a significant contribution to CO₂ emissions reduction world-wide. The large geological storage capacity offshore, coupled with its potential use in Enhanced Oil Recovery, make it particularly favourable as an option for the UK. CCS technology is also an option for the developing economies such as China or India and this provides an opportunity for the UK to become a world-leader in technology development with potential benefits to UK Exports.

COMMENTS ON SPECIFIED ASPECTS OF CCS

Viability of CCS as a carbon abatement technology for the UK:

The current state of R&D in, and deployment of, CCS technologies

13. E.ON UK has been tracking the development of CCS technologies since the early 1990s and is currently participating in eight Clean Coal and CCS collaborative R&D projects. E.ON UK has an annual low carbon R&D programme of about £3 million. The R&D of CCS technologies is being extensively pursued world-wide and a number of technologies are sufficiently well developed to enable full-scale power generation with CCS to be demonstrated. These technologies do not represent the final most efficient or cost-effective designs, but are at a sufficiently advanced stage to enable such plant to be built.

14. The EU and a number of Governments, including Canada and the US, have already developed programmes to examine some of the more important issues facing CCS and several of these are longer-running than the UK Government's current Carbon Abatement Technologies (CAT) strategy. UK companies are already active in a number of EU projects. The common goal of all these projects is to move towards reliable, and significantly lower cost, CCS.

15. CCS technologies can be applied to power generation from coal , gas and other fossil fuels. It is possible to remove the carbon (as CO₂) either before the fuel is combusted, known as pre-combustion capture, leaving a fairly pure hydrogen stream as the fuel, or after combustion before the flue gas is vented via a chimney, known as post-combustion capture. The two capture processes are fundamentally different and would be integrated into power plant in different ways.

16. Pre-combustion technologies involve the chemical conversion of fossil fuels to hydrogen, with oxidation of the contained carbon and separation of the resulting CO₂ . This process requires the gasification of the fuel as a first step, and hence, the power plant is essentially a type of Integrated Gasification Combined Cycle (IGCC) plant with a capture technology included.

17. Historically, IGCC sites have predominantly been utilised within the chemical and liquid fuel industries. However a resurgence of interest in the technology for electricity production has come about directly from the debate on CCS. Large capacity is yet to be proven and there remains an issue of reliability. Despite these factors IGCC remains one of the most attractive technologies for accomplishing CCS demonstration.

18. Post-combustion technologies involve the separation of CO₂ from products of combustion either by solvent washing (eg using a chemical known as an "amine") or by pressure separation in a selective membrane filter. Only the former is sufficiently developed to be considered available for a full-scale demonstration plant at present. The process may be facilitated by combustion of the fuel in pure oxygen ("oxyfuel firing").

19. Amine scrubbing is the most advanced technology for post combustion capture of CO₂ from power plant. A plant for one 500 MW coal fired unit would capture around 8,000 tonnes per day. The technology has been used for over 80 years for gas sweetening in the petrochemical industry and there are hundreds of plants in service today. Although CO₂ capture from flue gas presents additional problems due to the presence of oxygen and other contaminants in the raw gas, the technology has been used in this way for over 25 years and 23 commercial scale plants have been built. The technology could be adopted for use on a large coal fired unit today if required. However, the largest plant built so far was designed for 1,000 tonnes per day. There would therefore be technical and commercial risks in fitting the technology to a 500 MW coal fired unit—which would require an increase in scale by a factor of about eight.

20. E.ON UK believes that both pre-combustion CCS and post combustion CCS full-scale demonstration power plant could be built now. This could be as a retro-fit to existing plant or in a new plant.

Projected timescales for producing market-ready, scalable technologies

21. E.ON UK believes that power plant with CCS could be developed to be a candidate for a significant fraction of the new plant required to entered service over the next 10 years.

22. There are currently no full-size (.300-500 MWe) power plant with CCS operating world-wide. There are no IGCC plant (which would form the basis for a pre-combustion CCS power plant) operating commercially with the load factors required to be competitive in the UK electricity market. However, both post- and pre-combustion technologies are sufficiently developed for full-size plant to be built.

23. E.ON UK believes that both pre-combustion CCS and post combustion CCS full-scale demonstration power plant could be built now. However, the first such demonstrations would be of less than optimal design and efficiency, using technology that would be improved upon well within the lifetime of the plant.

24. Demonstration plants are vital in establishing the viability of CCS for several reasons. A full-scale demonstration project is the most effective way of identifying and addressing all the transport and storage issues associated with large scale CO₂ production from power plant. These issues include:

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— Identifying suitable storage sites.

— Establishing the true potential of EOR as a driver for CCS.

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— Monitoring and verification methods.

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— Authorisation and planning.

— Co-ordinating industry stakeholders.

25. The potential cost benefit of using CO₂ for EOR in the North Sea has been widely promulgated as a driver for CCS in the UK. This potential needs to be assessed in detail but is likely to be site/project specific. There are timing issues associated with CCS storage via EOR because many oil fields are reaching the end of production within the next few years and will then be de-commissioned. EOR would not be an option once this has occurred. Demonstration projects with EOR would enable the economics to be evaluated and also demonstrate the technical feasibility of EOR using land-based CO₂ sources.

26. Although some capture technologies have been demonstrated at reasonable scale, integration of these technologies into the power plant cycle at full-scale has not been demonstrated and it is expected that there will be considerable challenges to overcome. A demonstration plant would address these issues, establish the UK as a world leader in advanced technology, and provide valuable operational experience.

27. Finally, building full-scale demonstration plants provides a signal to manufacturers that investment in CCS technology development is worth undertaking, hence stimulating competition and improvements in design.

28. We anticipate that the pre-construction phase of project development would take at least two years from the decision to proceed by the generator, and the construction phase would be about three years. Therefore we expect that CCS full-scale demonstration plant could be in operation by 2010-12. It is unlikely that these prototype plants would be commercially viable without Government capital grants or similar support.

Cost

29. The current costs of CCS projects are uncertain. The development of practical projects will reduce this uncertainty and experience is expected to reduce costs over time.

30. For example, our current estimate is that an amine scrubber plant retro-fitted to a 500 MW coal-fired unit would cost approximately £120 million to build and would reduce the power output of the unit by 20% to 30%. This equates to a cost of about £30/te CO₂ abated. However the technology is the subject of world-wide R&D at present and refinements to the process and plant designs are being claimed regularly—with the expectation that costs and operational efficiency penalties will fall considerably over the next few years.

31. The table below sets out the estimated costs of power plant with CCS technologies fitted compared to some other generation types. These costs relate to new-build plant.

32. The estimated life-time cost of different technologies is each dependent on a range of estimated input prices and business risks. Therefore, the table below shows a range of lifetime cost estimates for plant commissioned in the next decade:


Generation Type	Cost range p/kWh (2005 prices)

Carbon capture & storage	3.3-5.6 gas 3.9-5.1 coal
CCGT	2.2-4.9
Coal with FGD & SCR	2.8-5.2
Wind Onshore Offshore	4.2-5.2 6.2-8.4	Excludes costs of back-up capacity
Nuclear	2.5-4.0

33. These estimated costs exclude any additional benefits or costs which might arise from Government support, fiscal or regulatory measures. Carbon capture and storage is only likely to be deployed if there were to be a belief in the long-term market value of avoiding carbon emissions, which would increase the cost of plant types which emit CO₂ to the atmosphere. At present a carbon price is generated through the EU Emissions Trading Scheme. An explanation of the ranges provided above is given in the Annex.

Geophysical feasibility

34. Geological storage is being actively investigated in many projects world-wide. Injection of CO₂ into hydrocarbon reservoirs and its use in Enhanced Oil Recovery (EOR) is well established, particularly on mainland USA, where EOR using CO₂ has been in operation for several decades. However, EOR using CO₂ has not been commercially undertaken in the North Sea. There are also a number of field projects looking specifically at the injection of CO₂ underground for storage purposes. All these projects have demonstrated that it is feasible.

35. Current evidence based on several large-scale CO₂ storage projects, laboratory based experiments and theoretical studies, suggests the risk of significant CO₂ leakage from saline aquifers or hydrocarbon reservoirs can be very low. However, leakage risk can be very site specific and further work needs to be done on how to assess this risk. There are also some issues to be resolved relating to the extent of likely local environmental impact (eg through leakage to the surface or into the ocean).

36. The geophysical issues that need further study are those relating to:

— the long-term effectiveness of geological storage;

— the effectiveness of storage when injecting for enhanced oil recovery;

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— environmental effects.

Other obstacles or constraints

37. CCS is a complex process with many involved stakeholders. Of major concern to E.ON UK, as the potential operator, is the current absence of a mechanism for crediting the operator with the CO₂ emissions reduction that CCS would bring about. Without a mechanism of accreditation, an operator would not be in a position to offset the capital costs and running costs of the additional plant required for CO₂ capture.

38. In order for the EU Emissions Trading Scheme to recognise CCS-based CO₂ reductions, the European Commission would need to be assured that CO₂ reductions were robust and not likely to be significantly offset by future leakage from geological reservoirs. Methods for auditing CO₂ reductions from a power station with CCS would be relatively straightforward. Likewise, leakage from pipelines is simple to measure, so it is in the development of methodologies for verifying CO₂ storage that the majority of effort needs to be focused.

39. The purpose of the EU ETS is to enable overall CO₂ reductions within the sectors participating to be achieved in the most cost efficient way, with the market carbon price acting as the driver for the deployment of a particular reduction technology. CCS technology represents a very significant additional investment cost to power production. In order for a power company to invest in CCS , the company needs confidence in the long-term value of carbon emissions, and this would be much improved if the EU ETS rules were firmly defined over the 2008-12 and ensuing periods.

40. Without an accepted mechanism for the inclusion of CCS-based CO₂ reductions into international carbon frameworks such as the EU ETS or the Kyoto Flexible Mechanisms, it is unlikely that CCS technologies would be deployed on a large-scale.

41. Most of the UK's resources for storing CO₂ in geological formations are located offshore. The treaties governing the injection of CO₂ , as relevant to the UK, are the London Convention, the London Protocol, and the OSPAR Convention. Because CCS technologies are relatively new, the storage of CO₂ underground for purposes other than as the incidental result of Enhanced Oil or Gas Recovery, is not included explicitly in these. It is important that these Conventions are amended to allow the injection of CO₂ when it is not for the purposes of EOR.

42. It is not clear at present what entity would be legally responsible for the management of the stored CO₂ . During the lifetime of the CO₂ injection, this might be expected to be a company. However over the long term, this responsibility and liability would be best placed with the Government.

43. Finally, the large-scale storage of CO₂ will need to find acceptance with the general public. At present public awareness in the UK of CCS is low and it will be important to increase this significantly over the next few years in order for informed public debate to ensue.

44. In summary, the role of the Government is crucial for there to be a range of low-carbon technological options including CCS available to companies investing in future power generation. We believe this role must be to:

— provide the right market framework to achieve government objectives within a competitive market environment. This should increasingly rely on long-term broad ranging market based mechanisms, such as the EU emissions trading scheme, as the main driver to incentivise the most economic low carbon investments, encourage innovation in energy supply and support UK competitiveness. Such incentives must be sufficiently long term (>10 years) to stimulate major capital investment;

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— encourage the development and demonstration of emerging technologies with capital grants or similar support.

UK GOVERNMENT'S ROLE IN FUNDING CCS R&D AND PROVIDING INCENTIVES FOR TECHNOLOGY TRANSFER AND INDUSTRIAL R&D IN CCS TECHNOLOGY

45. The role of UK government funding is essential in moving forward both the development and the demonstration of low carbon technologies.

46. UK RD&D activities should recognise the considerable R&D taking place worldwide and seek to ensure that R&D work carried out in the UK complements international programmes. However, different worldwide markets may well produce different optimum solutions for low carbon futures—given their power market, fuel portfolio and existing technology mix. UK Government R&D funding should be used to underpin the UK's CO₂ reduction targets.

47. UK Government funding should be targeted at the development of technologies which will be deployable in the timeframes required by the UK market and which, in the long term, will be capable of operating within a fully competitive power market. Funding is necessary to promote expertise in the fundamental aspects of CCS technologies (within equipment suppliers, users and universities) to promote long-term sustainable expertise in the UK.

48. In addition, CCS systems are likely to require that links are forged between existing areas of expertise within UK industry, (which may include boiler system optimisation, amine scrubbing, pipeline design, petroleum engineering, shift reactor design etc) which allow an optimisation of a whole CCS system to be undertaken. R&D funding should be used to foster links of this type.

September 2005



© Parliamentary copyright 2006	Prepared 9 February 2006