CCS left with ‘uphill battle’ due to Government failings, says National Audit Office

The UK Government's "ambitious, but ultimately, unsuccessful" plan develop and deploy Carbon Capture and Storage (CCS) incurred costs of £100m and failed to achieve value for money, the National Audit Office (NAO) has found.

In a new report released today (20 January), the NAO outlined that the “untried nature” of CCS technology left associated project lifetime costs uncertain and benefits hidden. The report claimed it was an achievement for the Department for Business, Energy & Industrial Strategy (BEIS) to sustain negotiations and gain technical and commercial knowledge through the venture, but that the money spent wouldn’t translate to any worthwhile projects.

According to the NAO, the Government began the £1bn CCS competition without any agreement with HM Treasury on the amount of financial support that would be made available over the lifetime of the projects. This, according to the report, was a contributing factor to the decision to axe the competition. At the time, the competition was designed so that any withdrawal would not incur cancelation costs; yet overall costs soon reached £100m.

“The Department has now tried twice to kick start CCS in the UK, but there are still no examples of the technology working,” NAO’s head Amyas Morse said. “There are undoubtedly challenges in getting CCS established, but the Department faced an uphill battle as a result of the way it ran the latest competition.

“Not being clear with HM Treasury about what the budget is from the start would hamper any project, and caused particular problems in this case where the upfront costs are likely to be high. The Department must learn lessons from this experience if it is to stand any chance of ensuring the first CCS plants are built in the near future.”

According to the NAO, any future CCS deployment initiatives could see the Government carry some of the risk. Shortlisted projects on the previous competition were unable to present compliant proposals over struggles to allocate the financial risks involved between the parties. This could be avoided, the report notes, if the Government takes a greater share of the risks to reduce costs. However, the report does highlight that this risk burden exercise wouldn’t be in line with wider energy policy and would incur more losses onto the taxpayers if projects fail.

The report recommends that the Department should draw on the lessons learnt from its “ambitious” approach to CCS strategy, in order to maximise value for future competitions. The Levy Control Framework – which caps total subsidies for low-carbon energy generation until 2020 – was one area which had dented investor confidence, and should be remedied. Last year it was revealed that the Government had overspent the £7.6bn budget for the LCF by a projected £1.5bn.

The NAO has previously warned that the cancelation of the competition could cost the UK an additional £30bn to meet its 2050 carbon targets, and is also likely to delay deployment of the technology until 2030.

Commenting on the report, the Energy and Climate Intelligence Unit’s (ECIU) energy analyst Dr Jonathan Marshal said: “For the NAO to lay blame at the inability of different Whitehall departments to work in unison highlights a recent trend of changeable and unpredictable UK energy policy. From ditching onshore wind and rendering solar unprofitable almost overnight, the Government is turning away from the cheapest ways to keep the lights on and knocking the confidence of investors at the same time, which paradoxically makes energy more expensive.”

Closing the door?

Despite the failings found in the report, BEIS ministers have reiterated that the Department isn’t “closing the door” on CCS. When quizzed by BEIS Committee in December, Business and Energy Secretary Greg Clark suggested that CCS technology was “unlikely to deliver the value for money required”; although £11m has been spent on CCS projects and research since the cancelation in November 2015.

Last week, Climate Change Minister Nick Hurd claimed that the Emissions Reduction Plan – set to be published in the coming months – could contain some element of CCS deployment.

“We’re interested in finding a smarter path forward to see whether we can reduce the cost of CCS, which is too high,” Hurd said. “Taxpayers spent a lot of money to achieve not very much. It was the right to cancel the competition, but this could play a very important part in the future.”

Matt Mace

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