The big catch with CO2

The Government is trying again to get a carbon capture demonstrator off the ground. Tom Bawden looks at the revised £1bn competition

There was a strong feeling of déjà vu yesterday as the Government made the well-flagged announcement that it was re-starting its £1bn competition to develop a carbon capture and storage (CCS) project on a commercial scale.

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Coming days after the energy suppliers RWE and E.ON abandoned plans to build new nuclear power plants in the UK – and with the high-profile failure of the previous, abandoned, CCS competition in October still looming large – the Government is only too aware of the difficulty and importance of this project.

CCS refers to the technology used to capture carbon dioxide and store it underground and will be essential to the Government's legally binding commitment to reduce CO2 emissions by 80 per cent by 2050, compared with 1990 levels.

In October, the winning consortium in the previous £1bn competition collapsed after the Scottish-Power-led group that planned to build a CSS system at the Longannet power station in Scotland could not agree funding terms with the government.

Yesterday, the prospect that the technology could yet prosper became a little more likely, giving the UK some hope of meeting its ambitious emissions targets, as the government re-opened the competition.

On the surface, not much has changed. But experts are hopeful that enough tweaks have been made to the competition to ensure a CCS "demonstrator" can be made. Furthermore, big operators such as Drax, Britain's biggest power station, France's Alstom and National Grid welcomed the revamped competition yesterday and reaffirmed their intention to participate in various consortia.

"I am more optimistic now, although it's still not a done deal," said David Clarke, the head of Energy Technologies Institute (ETI), a research laboratory at Loughborough University funded jointly by the Government and companies such as BP, Shell and Rolls-Royce.

"Most importantly, there seems to have been a shift in the Government's mindset in terms of how important CCS is and what has to be done to make it operationally and economically viable," he added. "Industry has to believe there is a market for it."

Announcing the resumption of its competition yesterday, the Department of Energy & Climate Change (DECC) was keen to stress that, despite sharing a headline figure of £1bn, the revamped process was significantly different from its predecessor.

Importantly, DECC has broadened the entry criteria, in a move that will significantly increase the pool of potential participants. Last time, the competition was open only to coal-fired power plants proposing "post-combustion" systems that trapped the CO2 after the fuel was burnt.

This time, the competition is also open to gas-fired plants, to large industrial emitters such as steel companies, and to "pre-combustion" technologies. These capture the emissions before the fuel is burnt, for example by heating (but not combusting) coal to produce hydrogen and C02 in a process known as gasification.

Mindful of estimates that the CCS industry could be worth £6.5bn to the UK economy by the end of the 2020s and support 100,000 jobs, the government is throwing in an additional £125m of funding for research and development into CCS, including a new £13m research centre at the University of Leeds.

DECC also claims that the competition winner will have access to a host of research amassed by the Scottish Power consortium before it abandoned its quest, which should further help the project.

The CBI was among the many organisations that welcomed yesterday's announcement, before warning: "The Government must learn lessons from its previous competition, which took too long and was eventually abandoned. This time round the competition must be simpler and completed as quickly as possible."

The Government insisted yesterday that it had learned lessons from last time – and it does appear to have taken notice of past experiences.

As a result, Mr Clarke says he is "reasonably confident" that the demonstrator will happen, "but whether it becomes a widespread commercial reality is a different matter".

Broader take-up of CCS depends on how cheap and effective the technology is and to what extent the Government is able to reassure investors that they will make money in the long term. Key to this will be the price guarantees it can offer for electricity produced by low-carbon generators and the minimum price it imposes on carbon emissions. Both will help determine the likely investment returns offered by CCS and both are due to be determined in the coming months.

CCS has a unique status in the low-carbon energy generation world, being a technology purely concerned with reducing emissions. Whereas alternative low-carbon technologies such as nuclear or solar may give the UK greater security of supply or enable relative cost savings, CCS has no such pulling power.

But on the plus side, CSS, although expensive, could potentially allow Britain to generate electricity from the vast reserves of shale gas that have recently been discovered in this country, without breaching its legally binding emissions targets. And, much to the horror of renewable energy enthusiasts, it would help preserve a hydrocarbon power generation habit that is proving hard to shake off.