E3G

Taming King Coal - the EU’s energy policy

By Nick Mabey

CCS ready assessment

Utilities and investors across Europe have yet to fully price future climate change policy into their investment models, and discussions show that there is scepticism that the EU has the political will to achieve its emissions targets. 

A weak requirement in the storage legislation for technical “CCS ready assessment” of new plants confuses rather than helps to resolve this dilemma, and Europe is in danger in the next decade of building a stock of new nominally “CCS ready” coal power stations which cannot be economically retrofitted with the technology. 

The worst case is that new plants are making minor changes in site layout allowing for a future CO2 capture facility, when they have no economically viable access to transport and credible storage facilities. With high uncertainties regarding both transport and storage costs, as yet there is no clear business model for either. Will CO2 transport be allowed through common carrier pipelines, constructed with public funds and shared by many users? 

Or will dedicated investment in transportation need to be included directly in project finances? Will CO2 storage compete with bulk gas storage, and be priced at variable rates? Or will storage be managed as a government concession with zero economic rent?

It is critical for the industry, for consumers and policy makers that investors and operators are aware of the full costs and uncertainties around fossil fuel investments. Given the immaturity of this market it makes sense to require full technological, economic and financial readiness analysis, based on a set of agreed guidelines across Europe. The legislation could do this.

Here is a proposal. All new plants should be required to undertake a full economic, financial and technical review of CCS retrofitting as part of their permitting process. Private investors in utilities should require similar analysis as due diligence for power plant financing. Guidelines for the analysis should be produced by the European Commission in consultation with member states and stakeholders. This would also avoid any legal challenges against future regulation requiring CCS retrofitting. 

Between a rock and a hard place

Europe has willed the end but not the means to deliver the CCS demonstration programme. Unless a way is found to rebuild momentum at EU level it is likely that companies will look to invest in other projects and other areas. In short, Europe has put itself between a rock and a hard place.