Memorandum submitted by ScottishPower
Limited
1. ScottishPower is one of the UK's six
large integrated energy suppliers, and is owned by IBERDROLA,
one of the world's leading utility groups and a particular leader
in low carbon generation. Our sister company, ScottishPower Renewable
Energy Limited, is the UK's largest wind power generator. We have
electricity networks in South and Central Scotland, Merseyside
and North Wales and some 5.2 million energy customer accounts.
Our power generation assets include the Longannet and Cockenzie
coal plants in Scotland and a number of gas fired stations in
England.
2. This Memorandum relates to the Government's
announcement on the competition to design and build a pilot Carbon
Capture and Storage (CCS) project and policy towards funding and
developing CCS more generally. ScottishPower is developing a potential
entry in the competition, based on its coal fired power stations
in Scotland and offshore carbon dioxide (CO2) storage
locations.
THE CCS COMPETITION
3. In our view, the Government's announcement
was well judged, both as to the process for the competition and
as to substance.
Process of the competition
4. We believe that it has been very helpful
for the Government to clarify what kind of project it is looking
for at this stage. Prior to the announcement of 9 October, it
was difficult to get partners to focus on specific propositions
because there was doubt as to the approach most likely to be followed.
We think that to have left the key technological issues open longer
would have made the competition very difficult to manage, given
the significant issues of timescale, regulation and risk allocation
that will need to be addressed.
5. Going forward to the competition itself,
we are encouraged by the Government's approach of being clear
about what it is seeking. It would be helpful, at quite an early
stage, for this to include guidance on the Government's requirements,
critical success factors and selection criteria, so that project
entrants can begin to develop the correct technical offer. We
will be reading the Information Memorandum of 19 November 2007
with this in mind.
6. An important element of this will be
the Government's attitude to risk allocation, as there is a clear
interaction between the amount of risk outwith the bidder's control
that the project is required to bear, and the level of the bid.
Substance of the announcement of 9 October
7. We agree with the Government's approach
of concentrating support such that up to 100% of the costs of
a project can be covered. This should ensure that a project does
indeed go ahead; we had previously been concerned that support
might be spread too thin, making it unviable for industry to proceed.
While we would obviously have liked such a level of support to
be offered to more than one project, we understand that there
have to be constraints on spending.
8. We envisage that the funding would best
be provided in two forms. The first would be an initial capital
payment in respect of the investment needed to install the CCS
facilities. The second element would be in respect of the CCS
operating costs. As well as direct funding, this could possibly
involve some sort of minimum CO2 price and the ability
to trade out the saved CO2 permits on the EU ETS.
9. As to the actual choice of technology,
we believe that the Government was right to focus on post-combustion
coal. Given the abundance of coal, its high level of CO2
emissions and its increasing use for power generation in many
parts of the world, it is clearly right to focus the capture and
storage demonstration on that fuel. We also think that post combustion
makes the most sense:
— the technology of choice for new
coal fired power generation in most parts of the world is undoubtedly
advanced supercritical boilers using pulverised fuel. Demonstrating
and deploying post-combustion capture (which is the method appropriate
to this technology) is going to be crucial in controlling emissions
worldwide;
— there are significant retrofit opportunities
in Great Britain for post combustion capture, either on existing
plant or on new coal build, likely to be capture ready advanced
supercritical;
— our international experience, through
our parent Iberdrola, suggests that as a cost effective, reliable
and flexible generation plant, IGCC is not yet there. This is
evidenced by the fact that IGCC is not being favoured at present
for commercial generation projects in most parts of the world.
A demonstration based on that technology might not therefore fit
with actual plant deployment plans. Furthermore, we suspect that
there would be so many issues concerning the actual IGCC plant,
that it would be difficult to focus the demonstration project
on the capture and storage element rather than the power station
to which it was attached; and
— use of post-combustion technology
gives the option of undertaking initial testing using flue gases
from existing subcritical boilers, so providing for a more flexible
implementation plan with fewer major dependencies on other activities.
10. We are also supportive of the Government's
approach of seeking to demonstrate the entire storage chain and
the use of an offshore CO2 store.
POLICY TOWARDS
FUNDING AND
DEVELOPING MORE
GENERALLY
11. Looking to the future, we think that
the most obvious signal to support the long term deployment of
CCS will be the price of carbon. Although it may well be sensible
to have a significant element of free allocations in the third
phase of EU ETS as a transitional measure, a move to auctions
will be appropriate as 2020 approaches. If free allocations do
continue beyond phase 3, it will be important that CCS plants
gain allocations no lower than coal plants of the same output
without CCS. This is a matter which should be taken forward at
EU level in the third phase of ETS.
12. Some thought will need to be given to
the price of carbon. There is still very limited visibility of
this going forward. If this remains a problem, the Government
will need to consider whether there are any domestic measures
that could be taken to give some more assurance to industry that
investments made off the back of the carbon price will not be
stranded.
13. A key challenge in the use of post combustion
carbon capture is the efficiency penalty from the amount of energy
needed to operate the capture system. We believe that this will
be an important area to seek improvement as it would significantly
improve the economics of a CCS plant. Accordingly, the Government
should continue to support technical innovation to address the
issue of energy cost/efficiency penalty as well as wider questions
such as CO2 storage identification and verification.
These can be addressed through ongoing activities such as the
Technology Programme and the Hydrogen and Fuel Cell and Carbon
Abatement Technologies (HFCCAT) Programme.
14. Consideration might also need to be
given to an intermediate mechanism to maintain the momentum of
CCS deployment and bridge the gap between the current competition
and a world where the carbon price will drive forward CCS investments.
This could be something modelled broadly on the Renewables Obligation,
but separate from it. Whether such a mechanism will be required
will depend on how soon, and how strongly, the carbon market matures.
15. We have also considered the option of
regulatory models to encourage the use of carbon capture and storage.
We think that the option of requiring new fossil plants to be
"capture ready" is reasonable, providing there is an
adequate definition of what capture ready means and that meeting
that definition is not disproportionately expensive. It will be
important that this requirement, if introduced, does not stand
in the way of the construction of adequate capacity by around
2015 to meet Great Britain's power requirements.
16. We would advise against going further
and making retro-fit of CCS a requirement, either on "capture
ready" or other plants. In the long run, if the price of
carbon does not justify fitting CCS, then regulating to force
it would be a misallocation of resources. Moreover, the possibility
of compulsory CCS could be detrimental to investment prospects
for new coal plant, especially supercritical coal, despite the
fact that this technology has significantly lower emissions than
existing coal plants. This could have unintended effects and could
impact negatively on supply security. Making CCS mandatory for
new plant should only be considered if it can be shown to be technologically
and commercially viable for the developer.
17. A financial framework that will make
CCS viable is one key element of what is required to see the technology
flourish. The other element is a satisfactory regulatory system
to address the CO2 storage process. It will be important
that prospective CCS project developers (whether or not successful
in the competition) have an opportunity to engage in dialogue
with Government on the high level licensing principles. Such dialogue
will help ensure that the regulatory regime is effective and that
projects can be prepared for development against a known and realistic
framework.
18. The framework for approval of CCS projects
will need to be carefully designed, to ensure that all relevant
issues (including environmental issues) are properly considered,
whilst avoiding the delays that have so strongly hampered the
development of wind power in Britain. It will be helpful if the
number of separate approval bodies is minimised and that the UK
and devolved authorities work together to formulate a uniform
and supportive approach.
Conclusion
19. A significant role for fossil fuels
remains essential in the UK electricity generating sector, not
least to cover the variation in output from renewable generators.
CCS is a technology which can play a vital role in minimising
the emissions of CO2 from the fossil component of the
power sector. However, there is a great deal of work still to
do on both the economic and regulatory frameworks needed for it
to succeed. We will need to press on purposefully if significant
deployment is to begin around 2020. That said, the Government's
approach of seeking a demonstration starting in 2012-14 and moving
on to a wider deployment seems right and best calculated to secure
a positive result.
20 November 2007
| 
