Engineering news
The Department for Business, Energy & Industrial Strategy (BEIS) has not achieved value for money for its £100 million spend on the second competition for government financial support for carbon capture storage, according to the National Audit Office (NAO).
The NAO report found that the BEIS’ plan to use a second competition to develop and deploy CCS was ambitious, but ultimately unsuccessful because the untried nature of the technology meant the costs and benefits of the proposed projects were inherently uncertain.
The report said: “Given the level of challenge, it was an achievement for the Department to sustain negotiations with the preferred bidders to the point where it gained valuable technical and commercial knowledge about how to deploy the competition projects. But any value that could be gained is contingent on the department applying the lessons it and the sector has learnt as a result of the competition.”
NAO found that BEIS began the competition without agreeing with the Treasury on the amount of financial support available over the lifetime of the projects. This ultimately contributed to the decision to withdraw £1 billion of funding from the competition, leading to its cancellation, as it was concerned about future costs to consumers, the report found. However, BEIS had designed the competition so it could withdraw from supporting its preferred bidders without incurring cancellation costs.
The terms of the competition contributed to one of the two shortlisted projects being unlikely to reach the construction phase. BEIS funded two developers to undertake work that would reduce the commercial and technical risks surrounding the construction of the first CCS plant. One of the two shortlisted projects, backed by a consortium, was not able to present a proposal compliant with BEIS’ risk allocation as it was struggling to allocate risks between the parties involved. The other competition was more commercially viable, but would have had fewer benefits for reducing the costs of subsequent CCS projects.
The NAO found that many stakeholders think the government needs to carry more risk if it is to enable CCS to be deployed affordably to consumers. Government taking a greater share of the risk could reduce delivery costs but would expose taxpayers to losses in the event of risks materialising, the NAO said.
In addition, flaws in BEIS’ design and implementation of its Levy Control Framework – which caps the costs of certain consumer-funded policies – also impacted on CCS investors’ confidence, said the NAO.
Amyas Morse, head of the NAO, said: "The department [BEIS] has now tried twice to kick start CCS in the UK, but there are still no examples of the technology working. 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."
In response to the report, Dr Luke Warren, chief executive of the Carbon Capture and Storage Association, said: “It is important to remember that the ultimate reason why the competition was unsuccessful was because the promised funding for CCS was withdrawn at the Spending Review. If that had not happened then there is every reason to believe that the UK could now be building its first CCS project.”
Warren added: “Our new analysis supports a key conclusion of the government-commissioned report by Lord Oxburgh that by building on the lessons from the CCS competition and taking a new and innovative approach to the design of a CCS delivery programme, CCS projects in the power sector can be cost-competitive with other low-carbon technologies from day one.
The Committee on Climate Change have estimated that CCS can halve the cost of meeting the UK’s climate change targets. The UK now needs to catch up with other countries that have successfully developed projects, and come forward with a new approach to CCS that recognises its tremendous value to decarbonising industry, heat and power – delivering a truly sustainable industrial strategy for the UK.”