Examination of Witnesses (Questions 100-118)
DR JEFF
CHAPMAN, MR
SARWJIT SAMBHI
AND MR
RUPERT STEELE
OBE
11 DECEMBER 2007
Q100 Dr Turner: But of course post-combustion
is attractive because that is the option which we might eventually
sell to China and India.
Dr Chapman: Yes, I absolutely
agree that, if your objective is to demonstrate the benefits of
carbon capture and storage to China because there is so much pulverized
fuel power plant on the ground in China now, that is a good thing
to do. If your objective is to save UK emissions, then the best
thing to do is to say you want to save UK emissions and leave
it to commercial organisations to decide which the most cost-effective
option to do that is.
Q101 Dr Turner: Clearly it is desirable
to do both and it would not just be UK emissions that would be
saved, other countries would save emissions by using pre-combustion
plants as well.
Dr Chapman: Yes.
Q102 Dr Turner: What sort of system
lever do you think would need to be pulled to get those projects
going again, to bring them forward?
Dr Chapman: There are several
options that could be brought to bear. First of all, let me say,
I have probably satisfactorily demonstrated, that there is a mechanism
for accumulating the revenue. The mechanism for disbursing the
revenue is something different. You could have, for example, a
feeding tariff like there is on renewable energy in some other
countries, you could have something like a contract for differences,
which is when the Government makes a contract for the difference
between the EUETS allowance price and the fixed price which is
bankable, or you could simply have a carbon contract. Let us face
it, if the objective is actually to avoid CO2 emissions,
then let us focus on the objective and try to incentivise the
non-emission of CO2.
Q103 Dr Turner: Do you see a place
for regulation in this process as well? What do you think would
happen if the Government were to make it clear that they would
in future only license new fossil fuel burning plant from whatever
fossil fuel source if they were CCS equipped?
Dr Chapman: This has been considered
at a European level and in fact at one stage there was quite a
deal of support for this idea. There has been quite a lot of back-pedalling
on this and it is more than likely when the announcements are
made from Brussels on 23 January that that idea will not be included
because it can have perverse effects. There are certain European
Member States that may not have access to storage, for example.
There are certain European Member States that may not be able
to live up to the timescale, whereas other Member States would
be able to deliver well within the timescale. There are potentially
perverse consequences. If you say to people that they must have
CCS on their new power plant after a certain date, then there
will be a natural tendency to sweat dirty assets. In the long
run CCS will become business as usual for fossil fuel power plants,
but at this stage we are quite a long way off that and we need
to think of other methods.
Q104 Dr Turner: I take your point
that other countries may be inhibited by lack of storage facilities,
but the UK does not seem to have limitation.
Dr Chapman: No.
Q105 Dr Turner: Do you think it would
be a practical proposition for the UK to do that unilaterally
and, as for avoiding perverse consequences of companies sweating
their existing dirty assets, will not the other bit of regulation,
the Large Plants Directive, bite on that and stop that?
Mr Steele: The problem we have
is that by around 2015 a significant proportion of the UK's generating
fleet will have retired. We will not realistically be in a position
to have working carbon capture and storage on day one on the plants
that replace that and, as a company that takes very seriously
our obligation to ensure that we can actually supply our customers
with power, it would be premature, given where the technology
is now, to make CCS mandatory. We are strong supporters of CCS,
we are putting together a potential project and entry to the Government's
competition but realistically the technology is not yet right
to make it mandatory in this country.
Q106 Dr Turner: The technology is
not that complex. If you are talking, say, the 2015 timescale,
you still have up to eight years to get it there. Surely, given
sufficient imperative and sufficient effort, it could be made
to happen.
Mr Steele: No, we do not think
so; that is our assessment. We can get the demonstration running
by around 2015 and that is the basis of the entry that we are
preparing for putting forward into the competition. To do the
20,000 megawatts or so that are needed to keep the lights on by
that date, is a risk too far, that would be my assessment.
Q107 Chairman: May I just be clear?
What will happen to the 10 projects in development after the Government's
decision to confine the competition to one particular technology?
Dr Chapman: Of the 10 projects
that I referred to—and if I counted Peterhead that would
actually be 11—four of them are pre-combustion capture,
they are IGCC projects. They are not likely to go ahead as power
plants without carbon capture and storage and the incentive that
goes with it. The other six project are all replacement paci for
the e maing power station stock and those projects will more than
likely go ahead. They are pulverised fuel projects; they are super-critical
projects. The big portfolio generators need to keep their portfolio
balanced and, as it is, they are closing coal-fired power plants
and they need to keep a balanced portfolio because otherwise they
become a hostage to very volatile gas prices. Gas power stations
are cheap and as long as the price of gas is low, that is the
cheapest way to generate electricity. If you want more long-term
certainty over your business, you need to mix that with some coal
plant. The fact is that as the nuclear plants come off stream
as well, the likelihood is that because power generators will
want to maintain this mix, the emissions from the electricity
sector will go up over the next 15 years, not down.
Q108 Jo Swinson: If you think the
six CCS plants that are post-combustion will be going ahead anyway,
is it the best way for the Government to be supporting the industry
to be running a competition putting all the investment into one
of those projects? Would it not be better to use that same investment
to provide some level of financial support for all six or indeed
all 10?
Dr Chapman: You have heard from
Mr Steele that the technology is not really there yet to build
the plant. A demonstrator is a good idea, if that is the case.
I am not an engineer so I cannot actually be absolute about that.
Mr Steele: May I try to clarify?
There are two separate issues. One is the power station itself—that
is replacing some of this very old 1960s or 1950s kit with modern
super-critical coal-fired generation with significant improvement
in efficiency. That is well understood. You can buy them off the
shelf with performance guarantees. We have a project to do it
at Longannet; a number of people have got projects to do it elsewhere.
That is the easy bit. The bit that is harder is then capturing
the carbon. Obviously the super-critical refit gives you a big
reduction in the carbon but then we want to go to the 90% fall
and that means capturing the carbon. That is the new bit, the
bit that the Government needs to support and it is actually very
important that the Government have said they will fund 100%, or
up to 100% of the incremental cost, because that means at least
one project will definitely go ahead, assuming that the Government's
terms are sensible. If they had funded only a proportion of the
cost of the carbon capture, then there is a real possibility that
nothing would have gone ahead.
Q109 Jo Swinson: Maybe I misunderstood.
Dr Chapman just said that you think all six will go ahead. Do
you mean you think they will refit their power stations not that
the six CCS would go ahead?
Dr Chapman: No, it will not be
six CCS, it will be six refits. The total of those six projects
is 9,000 megawatts and, this is just to put it in context, the
demonstrator is 300 megawatts. So in terms of a contribution to
the emissions from that fleet of power stations, it is not a very
big contribution. I am not sure it was the objective of the Government
anyway to make that contribution, but it is not a very big contribution
taken in that context.
Q110 Martin Horwood: I just want
to be clear about the timescale. Are you disagreeing with Mr Steele?
You said in your submission that the Government specified that
the full CCS change should be demonstrated by 2014 or as soon
as possible thereafter. This pace is too slow and represents an
unnecessary further delay in the deployment of CCS. I understood
Peterhead was going to be online ahead of 2015 and yet Mr Steele
is saying 2015 is pushing it and we should not make it mandatory?
Dr Chapman: Peterhead was a gas
project. The technology to convert natural gas into hydrogen and
CO2 is very, very, very well proven and it exists in
oil refineries all over the world including in the UK. There was
pretty well no technology risk there, it was a fairly straightforward
project and could have been completed by 2009.
Q111 Martin Horwood: A few of the
people who submitted evidence and in fact including Scottish and
Southern Energy which is probably another one of your members
I would guess, is it?
Dr Chapman: Yes, it is.
Q112 Martin Horwood: Also in the
Treasury consultation on the competition, there was evidence from
the UK Energy Research Council. Both suggested either multiple
competitions or at least one other competition to support pre-combustion.
Are you saying that is not really necessary?
Dr Chapman: No, I am not saying
it is not necessary. What I am saying is that you can have competition,
not necessarily a competition, but you could have in effect a
roll-out programme and you can make that as big or as small as
you want it to be. If that happens to be one project, that is
one thing: if it happens to be several projects, that is something
else.
Q113 Martin Horwood: Would you agree
with multiple competitions or do you think there are other carrots
that should be offered and if so, what?
Dr Chapman: I would be happy with
multiple competitions. I would like to see a more generic process
in place that was there to stimulate a number of projects. Bearing
in mind, as I said earlier, that even one project can deliver
savings that are the same order of magnitude as the Renewable
Obligation is so far, and that has an instrument of policy all
of its own, then there seems to be no harm in having one by one
policy instruments that may alter over time.
Mr Sambhi: In terms specifically
of the types of things that could make CCS viable, because, to
be clear, to have any pre- or post-combustion project built at
scale, there needs to be financial support if we are going to
start building the plant now ready for the 2013 to 2015 time window,
what are the type of things that could be envisaged? One is an
extension of existing legislation that is applied to CHP which
includes exemption from the climate change levy for carbon capture
projects, that also includes 100% first year capital allowances,
but even that is not going to be enough on its own. Put bluntly,
there does need to be some form of capital grant, either for the
upfront investment or for the ongoing costs and on the ongoing
costs, Jeff has alluded to possible mechanisms such as a contract
for difference on the carbon price.
Q114 Martin Horwood: So you would
be in favour of some kind of capital grants programme on a project-by-project
basis. Do you think the competition approach is a slightly clumsy
approach?
Mr Sambhi: From our perspective
a capital grant approach is a more simple measure and it is one
that provides the investing company with some certainty around
the future cash flows which are going to come out of the project.
Q115 Mark Lazarowicz: One issue which
highlights another area where there is a lot to be done—you
mentioned the difficulty of capture—is also the issue of
storage and how you get the CO2 to where it is going
to be stored. That is a point which is mentioned in the Stern
Review, which points out that carbon capture and storage will
require major new pipeline infrastructures, with significant costs.
Do you think there needs to be more direct government regulation
and intervention to get that pipeline network actually available
for the development of CCS? Otherwise will there not just be so
many costs for the first movers that people will be turned off
developing technology?
Mr Steele: May I tell you a little
bit about where our thinking on this is? As far as our potential
project at Longannet is concerned, we have identified some aquifers
under the Firth of Forth and worked with various Scottish universities
in researching those which could be accessed by a very short pipeline.
We are also in discussion with various oil companies about storing
carbon dioxide a little further afield. So from the point of view
of our entry to the competition, we are confident that we can
sort that angle. Looking further forward, there is an issue about
coordination of pipelines and organisation of the carbon capture
and storage. We do, as the UK, have quite a lot of experience
of dealing with this, with of course the gas flowing the other
way from the North Sea developments. At ScottishPower we are quite
confident that the Government will be able to put together a sensible
regime on this.
Dr Chapman: The Government have
actually commissioned and published a report on infrastructure
for the North Sea. It is clear that there are certain clusters
of places where a pipeline infrastructure could be put in place
on land. Probably the most attractive of those is on Humberside
and Yorkshire Forward is actually supporting a project which is
looking at putting a pipeline collection system in around Humberside.
It has access to by far the biggest cluster of point sources of
CO2 in the country, being all the power stations of
South Yorkshire, North Nottinghamshire and all around that area.
Q116 Mr Stuart: Where in Humberside?
Dr Chapman: Just around Humberside.
Basically, you have a lot of power stations along the side of
the Humber: you have Drax and Ferrybridge and Eggborough. Then
you have the Nottinghamshire power stations.
Q117 Mr Stuart: I am talking about
storing.
Dr Chapman: Initially, southern
North Sea offshore. Just as a matter of interest, even yesterday
I was having discussions with a French developer who basically
wanted to build an 800 megawatt power plant in Le Havre which
would also be post-combustion capture. They intend to bring that
on stream by 2014 and they want to lay a pipeline up the Channel
to meet up with the UK sector and to store it in the UK sector.
Their option is to store it in the Paris geological basin.
Q118 Mark Lazarowicz: Can you really
rely upon the development of, effectively, a reverse national
grid in this kind of role with a fortuitous onus on particular
schemes? Are you not going to use some more direct intervention
or direct regulation effectively to bring about a national grid
here? The national grid took some decades to get itself into its
present form.
Mr Steele: I was thinking more
of the system of oil and gas pipeline regulation which operates
in the North Sea, where there is a degree of planning, discussion
and control through the Annex B system. My guess is that the Government
would probably draw on that wisdom in developing something suitable
for CO2 disposal. For example, we would expect, if
something went ahead in Scotland, that the various large point
sources of emissions along the Firth of Forth might be able to
tie into a single pipeline in the same way as the Humberside idea.
Dr Chapman: There is likely to
be competition for seabed space. The Crown Estates, who are the
landlords of the seabed are very keen on spatial planning, especially
with the announcement of the Secretary of State for BERR yesterday,
there is going to be a lot more competition for seabed space in
terms of offshore wind turbines. This is an important point and
we do need to make sure that we plan as well as properly finance
these offshore pipelines.
Chairman: We have kept you rather longer
than we intended but it has been very helpful to us, thank you
very much for coming in.
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