Unlocking CCS’ value for UK decarbonisation€¦ · ©2013 Energy Technologies Institute LLP - Subject to notes on page 1 ... Platts European Carbon Capture and Storage conference,

©2013 Energy Technologies Institute LLP - Subject to notes on page 1

©2013 Energy Technologies Institute LLP The information in this document is the property of Energy Technologies Institute LLP and may not be copied or communicated to a third party, or used for any purpose other than that for which it is supplied without the express written consent of Energy Technologies Institute LLP.This information is given in good faith based upon the latest information available to Energy Technologies Institute LLP, no warranty or representation is given concerning such information, which must not be taken as establishing any contractual or other commitment binding upon Energy Technologies Institute LLP or any of its subsidiary or associated companies.

Unlocking CCS’ value for UK decarbonisation

George Day, Head of Economic Strategy, ETIPlatts European Carbon Capture and Storage conference, BrusselsFebruary 2014


How things might be in 2040…

CCS key part of power sector

Industrial applications

Gasification – production of hydrogen

With biomass – to generate negative emissions

UK has invested around £60 bn in CCS facilities and infrastructure

Storing over 100 m tonnes of CO2

Integrated transport and storage network ~ 6 onshore hubs


Overview

The value of CCS for UK decarbonisation

The characteristics of CCS

How to unlock CCS’ value?


ETI’s leading capability to model the UK national energy system

Power

Buildings

Transport

Industry

Infrastructure

Demand scenarios

Energy resources

Technologyprofiles

Global parameters

Energy system

blueprints

A national energy system design tool

• Least cost optimisation• Spatial and temporal

representation• Peer reviewed• Increasingly credible and

influential


Deploying CCS cuts cost of meeting UK carbon targets by £billions

-20.0

-10.0

-

10.0

20.0

30.0

40.0

50.0

2030 2040 2050

Transport

Fuel / resources

Power &conversionInfrastructure

Industry

Buildings & heat

Net saving~ £13bn

Net saving~ £20bn

Net saving~ £32bn

↑Cost Savings£bn(ESME v3.1)

↑

Fuel costs are higher, but there is less need for expensive low carbon vehicles, building retrofits, (intermittent) generation capacity & transmission infrastructure resulting in net savings which grow over time.


Does CCS still make sense if costs are higher than expected?

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

2030 2040 2050

Energy system cost savings £bn/yr

Core scenario

CCS costs +50%

CCS costs +100%

The value CCS delivers to the energy system is remarkably robust to more pessimistic views about future CCS costs

(ESME v3.1; 2013)


Why is CCS so valuable?

ETI energy system modelling points to ‘energy system-wide’ value of CCS extending beyond low carbon electricity generation

‘Negative emissions’

Enables continued use of fossil fuels where very expensive to replace

Low carbon electricity from

fossil fuels

CCS with biomass

Gasification applications

Flexible low carbon fuels (hydrogen, syngas)

Low carbon energy diversity, portfolio of flexible low carbon energy vectors, option value & robustness in meeting carbon targets

CCS on industrial emissions


£ / MWh is the wrong metric!Simple comparisons misleading guide for policy

0

20

40

60

80

100

120

140

Offshore wind / solar Early power sector CCS

~ £ / MWh

Plus: • Reliable capacity• Unlocking industrial

CCS• Valuable future

options for bio CCS (-ve emissions) & low carbon gas fuels

Intermittent power generation capacity


Overview





Characteristics of CCS make it challenging!

• £ billionsLarge size of investments

• Dependent on policy to deliver rewardsPolicy dependence

• Long term uncapped liabilitiesLiabilities

• Mostly mature, but untried integrationTechnology maturity

• Requires new integrated value chainComplexity of value chain

• Critical mass to realise economies in storage and transportEconomies of scale

• Higher marginal costs than competitors (renewables)Cost structure

• Future applications in gasification & bio creditsOption value


Value chain components – differing characteristics

Capture

Competing capture technologies and multiple applications served by a global supply chain

Transport

Geographically specific, integrated transport networks Shared access to infrastructureMay require co-ordination, regulation or governance

Storage

Geographically specific, high risk, geological externalities. Interaction with hydro-carbons (EOR & decommissioning) Eventual state liabilityMay require strategic shaping


UK CO2 storage potential

Ample storage for UK needs

A few strategic stores & simple integrated network can meet needs

Up front costs, then economies of scale

Path-dependency – high premium from taking a strategic approach

Need co-operation or regulation

Southern and eastern UK dominate emissions

Shortage of appraised options for storage.


Need storage capacity to be available for projects to be bankable

Bankable capacity (P99) required at FID

Appraisal requirementto deliver bankable capacity(some sites may fail)

Cumulative CO2 storage need


Storage and transport – multiple market failures and challenges for first movers …

Access to capital

Constraints on balance sheets and access to

funds

High risk & low

rewards?

Higher risks for first movers

first movers may not

capture all benefits

risk of future

regulatory intervention (e.g. price or access regulation)

Imperfect market information

Lack of clear price signal for storage services

Lack of legal clarity

over liabilities, third party

access etc.


Overview





CCS investment needs

0

1000

2000

3000

4000

5000

6000

2013 2018 2023 2028 2033 2038 2043 2048

£m/yr

Year

Outline investment profile for CCS development in the UK(total approx £65 bn to 2050)

Storage

Transport

Capture


How a CCS sector could mature Potential evolution of a UK CCS sector

Pre-commercial• Full chain• Power sector

Early roll out• Follow on projects• Industrial emitters• Emerging

infrastructure networks & clusters

Mature• Integrated networks• Clusters• Storage hubs• Cross border

movement

The profile of projects likely to evolve as a CCS sector develops to maturity – needs a strategic approach to policy and business models/structures likely to evolve.


Support for CCS demonstration & deployment in UK

• For R&D and for full chain demonstration (capex grant)Public expenditure support

• But only for power sector (Feed in tariff contracts, carbon price floor)

• No driver for industrial or biomass applications• EOR?

Rewards & incentives

• Some aspects clarified, but so far limited appetite for active government role or building future framework

Policy & regulatory framework

• Key aspects of risk allocation remain unclear• Lack of clear pipeline of projects

Overall policy commitment


CCS strategy options

• rely on feed in tariffs contracts• projects compete on simple £/MWh basis• EOR as possible driver?

No strategy?

• ‘retro-fit’ strategic considerations onto existing policy

• E.g. take strategic factors into account in allocating feed in tariff contracts?

‘Implicit’ strategy

• more active government leadership role in shaping development of sector

• enable coherent development of infrastructure

‘Explicit’ strategy


Creating an enabling market, policy and regulatory framework

Allocate Feed in Tariff contracts to drive early ‘post-competition’ roll-out• target strategic value

to CCS sector not simply lowest £/MWh

• Create confidence in project pipeline

Attract investment into storage appraisal & derisking• Make the storage

opportunity more attractive

• Address market failures (public or pooled investment)

Strategic shaping of sector• Active leadership • Rewardindustrial

applications• Infrastructure• Governance, risk

sharing, insurance etc.


For more ETI insights…

http://www.eti.co.uk/technology_programmes/carbon_capture_and_storage


For more information about the ETI visit www.eti.co.uk

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Unlocking CCS’ value for UK decarbonisation€¦ · ©2013 Energy Technologies Institute LLP - Subject to notes on page 1 ... Platts European Carbon Capture and Storage conference,