The UK has longstanding ambitions to be a centre for carbon capture and storage (CCS) and that remains the case. However, the nature of its ambitions has changed. Whereas two decades ago the UK imagined itself as supplying CCS equipment to the power industry, now it hopes to act as custodian of captured carbon dioxide produced by other industries that have no other way of reducing carbon dioxide emissions.
Below ground beneath its North Sea waters the UK has about a third of Europe’s potential storage capacity. Norway also has a third of capacity, but it is further from major emitters in Europe, while the remainder is split between different jurisdictions. The UK has the resource: but if it is to make storage a European, or even global, business, it first has to demonstrate it at the domestic scale and convince industry that it is a reliable partner.
The UK has competition. Partly that arises from programmes in other European countries, which may not have the UK’s resources but have smaller storage areas and are going ahead with projects.
France, for example, began consulting on a CCS strategy based around industrial areas in July 2023, and it plans to begin testing storage sites this year and next. There is also competition from the USA, boosted by measures in the Inflation Reduction Act (IRA). Esso, for example, is focusing its CCS development on the USA (and similarly its nascent hydrogen production), attracted not only by the simplicity of the financial incentive provided by the IRA but also by the expected speed of deployment. The US began developing a regulatory framework in 2022 and it is expected to move to potential sequestering as soon as 2025.
Finally, the UK also has to face a different type of competition important to industries that emit carbon – from countries where carbon dioxide emissions are free. The UK CCSA believes one-third of the UK’s emitting industry that is considered to be part of the pipeline of customers for carbon removals “thinks about relocating where they don’t have to face costs.” To retain those industries, the UK needs to put in place takeoff agreements for carbon dioxide and business models that will be attractive enough to keep industry in the country.
The new CCS customer base
In some respects, the false starts in the UK’s programme have reflected the changing nature of the CCS challenge. The UK first opened a CCS competition, with ‘up to’ £1 billion of government funding on offer, way back in 2007. At that stage, investment was directed at technology for capturing the carbon dioxide from power plant emissions – pre or post-combustion – for transport and disposal. The competition was cancelled in 2011. A second attempt at a competition launched the following year was cancelled in 2017, leaving two shortlisted bidders, centred around power stations in eastern Scotland (Peterhead) and Yorkshire (White Rose consortium), out of pocket.
The UK’s strategy now is no longer based on the premise that CCS would be led by the electricity industry, with a fleet of coal or gas-fired power stations fitted or retrofitted with carbon capture. That assumption has gone, at least in the UK and Europe. Coal-fired stations are becoming rare, replaced by a mix of renewables and gas-fired plants. But the latter are operating only partly on baseload. Increasingly, a proportion of the gas plants in systems with a high proportion of renewables operate on an intermittent basis, either to fill in the supply gaps in the mix of wind, solar and hydro, or to provide inertia and other grid services. Gas plant operating hours now vary considerably, but in the UK annual running hours for some plants have been down in the 20-30% level – low enough for operators to replace some large gas turbines with fleets of small gas engines.
Running for such low hours makes it hard to justify investment in new unabated gas plant. To bring new gas plants forward, a capacity market was set up in GB a decade ago and other countries have followed suit. And the new reality of the energy market makes investment in gas-fired stations equipped with CCS, at extra cost, even more difficult. No country has been able to fund a CCS-equipped gas-fired power station simply on avoiding the cost of carbon dioxide emissions (set via emissions trading schemes like those of the UK or EU) and ongoing payments from a capacity market.
Instead of being led – and funded – by the power sector, the UK’s new CCS strategy is based around industry that cannot reduce carbon emissions inherent in the process or switch from gas to electricity to provide heat and energy. Those companies are faced with the cost of carbon emissions, and when in 2019 the UK raised its legislated 2050 climate target from 80% carbon reduction to net zero emissions, it was clear they would require carbon capture.
Now, although the power sector will remain a key user of CCS infrastructure, the UK’s strategy is based around emissions from a suite of major industries. Such industries are typically sited together in regions with access to transport, water and energy infrastructure and the UK has followed other countries in encouraging industry to self-organise in ‘clusters’ that can share pipelines and have access to storage sites offshore.
The UK government’s new target is to capture and store 20-30 Mt of carbon dioxide per year from these clusters by 2030 and it has pledged to invest £20 billion to do that. It has consulted on business models for all the steps in the value chain, from capture to transport and storage. In contrast to other countries, it aims to build a competitive market for both capture and storage, while the pipeline will be operated as a monopoly-regulated asset in a similar way to gas and electricity networks. It has also announced support for the first four industrial clusters, split into two phases (see below). Demand from industry is growing. Storage sites in the UK have order books of emitters waiting for final investment decisions on infrastructure.
Nevertheless, the industry remains nervous about the programme, believing that action is needed immediately, especially given the UK’s history of cancellations.
Heads of terms have been agreed between the members of the first two consortia and the government, but final prices are waiting for approval. That signature has been slow to come, although the funding envelope is set and the final costs are in, because of HM Treasury checks and balances. The supply chain is said to be getting impatient. Its members have provided fixed price contracts as required – fixed until September next year, rather than the one or two months that would normally be required. Fixing often raises prices, especially over a longer period, and that brings up ‘value for money’ questions in the Treasury process.
The industry would like to see contracts signed in this half-year, not least because there is a general election looming in the UK. The date of the election is not fixed and speculation most often places it in the third quarter.
There is political consensus on the carbon capture and storage programme and even on the four clusters. Nevertheless, the election itself, the traditional period beforehand when no announcements are made and the need for a new government to settle in (whatever its makeup) would create further practical difficulties in signing off the agreements with the government that would allow a final investment decision to be taken.
Meanwhile, individual projects have moved forward elsewhere in Europe. In December, Ørsted began construction of two CCS facilities at the Ørsted Kalundborg CO2 Hub, which has been awarded a 20-year contract by the Danish Energy Agency (DEA). These are expected to begin storing carbon dioxide in 2025. The project was awarded a 20-year contract by The Danish Energy Agency (DEA) in May 2023.
In France, Heidelberg Materials, Lafarge France, Lhoist and TotalEnergies launched a CCS project at the port of Nantes-Saint-Nazaire in July 2023, planning to take an investment decision in 2027 for commissioning in 2030.
The UK remains in the game. Its four lead industrial clusters would deliver the government’s its 30 Mt target by 2030, but its position remains vulnerable.
“Companies are still interested in the UK,” says the CCSA, “but if they don’t see final investment decisions in the first two clusters soon, investors will think ‘is the UK still happening?’”
This article first appeared in Modern Power Systems magazine.
