Special Report ESG: Carbon Risk, What if we could capture carbon?
There is a big question begged by the ‘stranded assets’ thesis: What if there were no link between burning fossil fuels and emitting greenhouse gases?
Richard Simon-Lewis, head of finance at Capture Power, argues that carbon capture and storage technology (CCS), the collection of CO2 emissions via pipeline to permanent storage underground, can make that possible.
Capture Power is the preferred bidder in the UK government’s £1bn CCS Commercialisation Programme, and is behind White Rose, which
will be the UK’s first CCS coal-fired power station. To be
located in Drax, North Yorkshire, it will provide clean power equivalent to the needs of 630,000 homes. Its CO2 will be transported to a deep saline formation under the North Sea, developed and financed by the National Grid.
The plant will treat and capture 90% of the power station’s CO2. But the plant can also generate power via biomass, and when it does so it can go to zero or even negative emissions.
Support has come from government at both EU and national level. The Energy Technologies Institute recently suggested that meeting emissions targets without CCS would cost the UK an extra 1% of its GDP every year. This is why the UK’s Department for Energy and Climate Change has said that it wants to see 13GW of CCS capacity up and running by 2030 – and this is the opportunity that private capital is focused on.
“The funding community I am talking to for the White Rose project in Humberside has no interest in a standalone project,” said Simon-Lewis, speaking at the Sarasin & Partners Institutional Conference in London in November 2014. “They want to finance an industry.”
Government is keen to make CCS work to maintain job-supporting industries threatened by emission targets. White Rose will be located in the most energy-intensive area in the UK, responsible for 20% of the UK’s carbon emissions because it hosts most of its thermal capacity and heavy industry. The government plans a trunkline able to take attachments from other projects across the Humber region.
“This is game-changing in terms of enabling us to keep heavy industry in the UK,” says Simon-Lewis.
And, one might add, in Europe. The National Grid’s saline formation can take about 25 times the estimated cumulative storage requirements for all of UK industry to 2050. That is why the UK is in talks with France and Germany to make the North Sea a CO2 hub for Europe. (Vattenfall had the technology ready to build a plant of similar scale in Germany, but was unable to get the local approval for storage on land).
CCS technology is much more advanced than most people realise. There are 22 large-scale CCS projects in operation or construction, with capacity to capture up to 40m tonnes of CO2 per annum, equal to 8m cars being taken off the road. A further 14 are in advanced planning, and the first large-scale power-sector project went live at Boundary Dam in Canada on 2 October 2014.
“When people look back on 2014-15 they will view these years as pivotal in the deployment of CCS, with the US, China and Canada leading the charge,” says Simon-Lewis. “We strongly believe that CCS will be cost-competitive against renewables, and if you look at the interest in the US, based on the profile of their yet-untapped shale resources, you can appreciate not only its capacity to take existing emissions out of the system, but also its capacity to keep energy-intensive industries in their current locations.”
Since Carbon Tracker popularised the concept three years ago, more and more institutional investors have become persuaded that markets are mispricing fossil-fuel assets ‘stranded’ by climate change policy. Those investors should not discount the capacity of technology to free them up again.