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CCS option

UK Nuclear Analysis: Hinkley Point C

The government is unlikely to have the appetite to subsidize both new nuclear and CCS, but CCS has failed on a commercial level in the UK, proving too expensive for private companies. In this it is similar to new nuclear; Hinkley Point C would not have progressed without the CFD subsidy and other guarantees provided by the government.

A report released in September by the UK’s Parliamentary Advisory Group on Carbon Capture and Storage outlined a potential new path towards significantly reduced CCS costs of £85/MWh in the early 2020s for the first projects, but one that is heavily dependent on government intervention. This compares to a recent study by consultancy Poyry that estimated CCS costs of around £115/MWh in the mid-2020s falling through a process of ‘learning by doing’ to about £90/MWh in the early 2030s.

If CCS can be made more affordable, it would open up a sustainable, long-term future for fossil fuel use in the power generation sector.

State-owned delivery company

The report, Lowest Cost Decarbonisation for the UK: the Critical Role of CCS, argues that a major part of the costs of CCS are inflated by private-sector risk premiums. While private companies have the capacity to provide all of the technological components of CCS, none provide the full chain of capture, transport and storage.

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As private companies, they must also borrow at commercial interest rates for a capital-intensive investment and provide commercial rates of return to shareholders that reflect the risk involved. This, the report says, inflates the cost of CCS, making in unaffordable.

The advisory group argues instead that a state-owned company should be created – a CCS Delivery Company (CCSDS) – which would act as contract holder and project manager. This would transfer operational and long-term CO2 storage risk to the state, and by extension the tax payer, but would significantly reduce both insurance and capital borrowing costs.

Once the start-up infrastructure is built, commercial companies would enter the market as third-parties to buy capacity for the transport and storage parts of the system.

The group also proposes the creation of a CO2 storage obligation on emitters and a certificate system. This would create a market for CCS, providing both an incentive for the power sector and other industries to participate in the newly-formed CCS market, and certainty for the storage operators of a flow of CO2. The creation of an obligation to store would in turn de-risk the state’s investment in the infrastructure.

Although an ideological departure from current UK government thinking on energy markets, the creation of a state-owned corporation does have precedent for large public sector infrastructure projects. The advisory group also advocates eventual privatization of the CCSDS.

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