APPENDIX 19
Memorandum from Progressive Energy Ltd
1. Progressive Energy is a UK based clean
energy project development company which has been working on power
generation with CCS for the past seven years. It has major projects
under active development in England and Wales at the current time.
2. The physical elements in successful deployment
of CCS are:
(a) Cost effective capture of CO2
(b) A suitable long term storage site
(c) A means of transporting the CO2
from the point of capture to the disposal site
Generally the capture step is the most expensive
of these.
3. The Progressive Energy projects are based
on Integrated Gasification Combined Cycle (IGCC) and this technology
is capable of capturing CO2 at a lower price than any
alternative available today.
4. The Progressive IGCC project under development
at Teesside is around 850MWe, will produce around 6 TWh per annum
of electricity and is designed to capture 5Mte per annum of CO2. The
cost attributable to CO2 capture is around £10/te
for CO2 at a pressure of 110bar at the station gate.
5. An IGCC is basically a gas CCGT plant
that makes its own gas on site from coal or other carbonaceous
substance rather than using natural gas. The plant technology
is available today: the main elements are:
— a gas turbine that can operate on
the synthetic gas produced by the gasification process
— a gasification reactor that can successfully
gasify the chosen feedstock, an air separation unit to provide
oxygen
— a shift reactor to convert the carbon
monoxide produced into hydrogen and carbon dioxide
— a physical wash system to remove
sulphur compounds and carbon dioxide.
Hence hydrogen is used as the energy carrier,
minimising the carbon emissions of the plant. All of this equipment
can be seen operating at a commercial scale and is available from
manufacturers with normal performance guarantees and warranties.
6. Hence the answer to the question what
is the projected timescale for producing market ready scalable
technologies is "Now" as far as the carbon capture is
concerned. However there are real implementation challenges associated
with securing the finance for the plant, as discussed later.
7. CO2 can be stored in a number
of geological formations; oil fields, gas fields and saline aquifers.
Storage is achieved by injecting CO2 into one such
formation where it displaces oil, gas or water accordingly. Provided
the CO2 is at a depth of 700 metres or more it is retained
as a supercritical fluid. It will be retained long term if the
storage location is capped by an impervious layer. This is demonstrably
the case in oil and gas fields and is also the case for many saline
aquifers.
8. The North Sea area in particular provides
a vast storage resource. The storage in the UK sector alone would
allow a tranche of coal fired generation equivalent to 25% of
current UK generation to be operated for 200years and the CO2
put into long term storage.
9. The technology for CO2 transport
from the capture point via pipelines and for injection into a
target geological formation is already established. Worldwide
more than 25Mte pa of CO2 is already injected annually
into geological formations. Attention is drawn to two applications
in particular:
(a) Sleipner. Since 1996 1Mte pa of CO2
extracted from a nearby gas field has been injected into a saline
aquifer in the North Sea. Its subsequent behaviour has been monitored
and successfully modelled
(b) USA; CO2 injection for enhanced
oil recovery has been taking place regularly in Texas oil fields
for over 20 years
(c) Canada; 1.75Mte pa of CO2
is captured from a coal gasification plant, transported 200 miles
by pipeline, and used for EOR in the Weyburn oilfield.
10. Hence there are no insurmountable technical
barriers to prevent investment in IGCC with CCS now.
11. The use of the CO2 for enhanced
oil recovery has the potential to both extend the life of the
UK's oil reserves and significantly increase the amount of those
reserves that will ultimately be recovered. Based on USA experience,
some 20% additional oil can be recovered through tertiary recovery
with CO2-EOR.
12. IGCC with CO2 capture for
EOR also represents one of the few remaining opportunities for
the UK to deliver substantial additional carbon emissions reductions
by the end of the decade.
13. It therefore represents an opportunity
for the UK to take leadership in the exploitation of this technology
and in overall emissions reductions in a way which is very easily
transferred to emerging economies such as India and China who
have significant coal-based power station construction programmes.
14. This opportunity is presented to the
UK by the dynamics of its own energy market: the need for new,
low-emission power generation and the rapid maturing of the UK
oil province.
15. In order to seize this opportunity however,
any commercial barriers to the large-scale deployment of the technology
in the UK market must be quickly overcome.
The need for urgency in the deployment of this
technology in the UK comes from three main drivers:
— The need for replacement power station
investment in the UK which retains coal in the energy mix in an
environmentally acceptable manner.
— The need to find new ways of reducing
CO2 emissions in order for the UK to meet its targets
for emissions reductions by the end of the decade.
— The declining production of oil from
the UK oil province, which will increasingly lead to field closures
and decommissioning. Once fields are decommissioned it will probably
be too expensive to re-open them for the purposes of EOR and therefore
the potential for the use of CO2 in EOR is lost forever.
16. High quality CHP is supported by being
given enhanced capital allowances and eligibility for Levy Exemption
Certificates under the Climate Change Levy (CCL). Giving IGCC
the same treatment as CHP has the same rationale (reduced emissions
per MWh of electricity). Such a level of support is likely to
overcome any barriers associated with perceived technology risk
by investors. Investors' confidence in investing in IGCC supported
by the CCL would also be much enhanced by some form of guarantee
of eligibility to an equivalent level of support if the CCL is
removed.
17. The EU Emissions Trading Scheme provides
an incentive for the reduction of CO2 intensity in
the power generation process. This is both a new scheme and one
for which there is no regulatory clarity beyond 2012. Hence
while it provides an incentive for low capital, high variable
cost carbon abatement such as fuel switching in the existing generation
base, it is unlikely to support the financing of capital-intensive
emissions abatement such as the sequestration of CO2. This
is often referred to as the problem of EU Emissions Trading not
being a "bankable" system in the long-term.
18. It is very important that IGCC with
CCS is guaranteed to get full allowances under EU ETS for the
lifetime of the plant, and that competition is not distorted through
different treatment of new entrants and existing incumbents. The
ability to obtain certain value from the allowances associated
with a CO2 capture plant is a significant part of the
economics of the decision to capture and use the CO2
for EOR, or other geological storage.
EXECUTIVE SUMMARY
IGCC with the separation of CO2 for
EOR has the potential to be a major supplier of cheap low-carbon
electricity to the UK market, and enhance the value of the UK's
remaining hydrocarbon reserves.
IGCC can be also used to prime the hydrogen
economy, and has development potential to ultimately be used in
conjunction with high efficiency fuel cells.
IGCC and EOR use established technologies which
can produce market ready scalable technologies now, and under
the right incentive regime, can attract private finance.
This opportunity will be missed by the UK unless
it acts quickly to incentivise appropriate project and infrastructure
developments over the coming years.
Government can make it happen. The keys are:
(a) For the promotion of IGCC, or more correctly
the production and use of hydrogen rich fuels in power generation,
we recommend that IGCC be given the same incentives as a combined
heat and power plant in the UK market:
— Enhanced capital allowances should
apply for all invested capital.
— The electrical output should be eligible
for Levy Exemption Certificates under the Climate Change Levy.
(b) For the promotion of Carbon Dioxide Capture:
— The plant should be guaranteed a
full allocation of emissions allowances under the EU Emissions
Trading scheme as if it were emitting all of its CO2.
— Investors should be provided with
confidence in the long term cash flow benefits of CO2
capture and storage, through provision of bankable value in emissions
trading.
(c) For the promotion of EOR, it is vital
that Government provides sufficient incentives to the oil industry
to ensure that the major oilfields are not abandoned prematurely,
and realises the very significant opportunity associated with
tertiary oil recovery with CO2-EOR. Under an appropriate
fiscal regime, tertiary CO2-EOR is routinely performed
in the USA at a delivered CO2 price which is consistent
with the CO2 capture cost from a new IGCC plant.
September 2005
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