Future of carbon capture and storage in the UK Contents
Conclusions and recommendations
Reactions to the Government announcement
1.Reports from stakeholders regarding the cancellation of the competition raise serious questions about the manner in which this decision was handled by Government. It is disappointing that companies that had committed years to a Government-led competition were only informed of its cancellation on the day of the announcement, when there had been consistent statements by Government that it was committed to the commercialisation programme as late as a few weeks prior to the decision. (Paragraph 16)
2.The lack of engagement by DECC prior to, and since, the announcement has damaged Government’s relationship with the very stakeholders it will depend upon to develop CCS technologies. DECC must now work to mend bridges and proactively engage with industry in a consultative way to discuss the next steps for businesses involved with the development of CCS in the UK, whether through workshops, meetings or consultations. (Paragraph 17)
3.It is disappointing that the White Rose and Peterhead projects will end as a result of the cancellation of the competition. This decision is but one of a number of recent policy announcements that are damaging investor confidence in the UK energy sector. Pulling the plug at the last minute is likely to have led to the loss of significant amounts of foreign investment, which could have been retained if developers had had more warning of the decision. There are also worrying wider impacts on phase 2 projects and potential delays in industrial CCS projects. The lessons learned documents from the White Rose and Peterhead projects will provide valuable information for future CCS development projects. (Paragraph 25)
4.We recommend that DECC collects and compiles the lessons learned information as soon as possible, preferably in the first quarter of 2016, and makes it publically available so that a wide group of stakeholders can benefit. DECC should urgently facilitate discussions between UK developers, the European Commission and the European Investment Bank to keep the NER 300 or other European funding in the UK. It should continue to work with the Commission to identify potential future funding opportunities for CCS projects in the UK. (Paragraph 26)
The future of CCS in the UK
5.Transport and storage infrastructure will be key to any future development of CCS on power generation and industry in the UK. Having this infrastructure in place and maximising the use of the UK’s existing North Sea assets would have allowed second phase project costs to fall rapidly. With both the White Rose and Peterhead projects cancelled, the opportunity to develop this infrastructure in the first half of the 2020s is likely to have been missed. By pulling the plug on the competition, the UK Government may have lost an opportunity to exploit its North Sea capital, which could have generated additional revenues. (Paragraph 32)
6.DECC must now devise a new strategy for carbon capture and storage in conjunction with a new gas strategy, taking into account the infrastructure challenge in the future. It has already interrupted the momentum that had built up over recent years. It must not allow what is left to be lost. The Department must be clear over its plans, particularly with respect to CCS contracts-for-difference. Given initial costs and lead time for projects, if we do not commit to CCS now, we may have to accept that it will not be part of the future UK energy policy. (Paragraph 33)
7.We recommend that DECC engages with the National Infrastructure Commission to explore options for the development of CO2 transport and storage. The Commission should consult on whether developing CCS infrastructure should be one of its priority areas. DECC should also immediately begin consulting on its CCS strategy as outlined in paragraph 17 and publish this strategy by the summer of 2016, taking stock of the lessons learned documents from the two competition projects, but also after discussions with the wider industry. The strategy must clearly address the following points:
Conclusions
8.We understand that Government has a difficult job to do when deciding where its limited public expenditure should be allocated. However, the manner in which the carbon capture and storage competition was cancelled, weeks before the final bids were to be submitted and without any prior indication given to the relevant parties, was both disappointing and damaging to the relationship between Government and industry. (Paragraph 35)
9.In addition, the delay in bringing forward any subsequent plans for carbon capture and storage seems to be in direct contradiction with the direction of energy policy set out in the reset speech. With gas and without CCS, we will not remain on the least cost path to our statutory decarbonisation target. If Government is still committed to its decarbonisation targets, it cannot afford to sit back and simply wait and see if CCS will be deployed at the moment when it is needed. The challenging infrastructure surrounding the transport and storage of carbon needs to be considered far in advance of it being utilised and investors need the confidence that the UK is committed to a domestic CCS market. If Government does not come up with a clear strategy very soon, knowledge, investment, assets and expertise in the UK will all be lost. (Paragraph 36)
10.We also note the December 2009 report by the working party, assembled by Lord Oxburgh, on ‘the arrangements needed to develop the infrastructure for carbon capture and storage in the UK’, which recommended setting up a National Carbon Storage Authority, and we urge the Government to give serious consideration to this recommendation. (Paragraph 37)
