UKERC response to BEIS consultation on CCUS business models

26 Sep 2019

There is global consensus that carbon capture usage and storage (CCUS) will be essential to successfully tackling climate change and meeting the ambitions of the Paris Agreement.

The Department for Business, Energy and Industrial Strategy (BEIS) recently consulted on the potential business models for carbon capture, usage and storage (CCUS). This was seeking to understand how a core set of CCUS specific risks, which have been presented as an intractable problem for previous projects may be mitigated through the development of business models.

UKERC provided a response to the recent BEIS consultation on CCUS a summary of which can be read below.


 

The consultation correctly identifies the key risks in CCUS deployment and sets sensible criteria for the assessment of ways forward. However there are three key areas where a bolder and more robust approach is needed

CCUS-specific risks:  Setting global standards

The key risks of CCUS are correctly identified, but there remains a very significant issue about whether they should be mitigated in a financial or technical sense. 

One of the things that makes CCS different to the infrastructure projects to which it is often compared (for instance, the Super Sewer) is that a CCS is not a “one off” with one off risks.  It is an essential part of meeting our emissions reductions targets and has application across the world at large-scale (as indeed the consultation points out).

The government should consider if, for an industry of enormous global application, the UK should set a precedent, which is that these risks are offloaded onto the taxpayer or consumer via contract.  It is surely incumbent on the UK to prove that such risks can both be understood and managed to a sufficient level of technical detail that they can be accepted by investors.  This would set a global benchmark for CCS development.

The need for an anchor / underwriter and the role of hydrogen

It is well-established that CCS and in particular transport and storage infrastructure must be built at scale in order to be cost effective.

It is also clear that some sectors - and hence by definition the consumers in some sectors - have to act as an underwriter of that infrastructure in order for it to be able to be deployed at that required scale.

The consultation seems to dismiss the role of power as an anchor / underwriter.  The consultation looks at CCS power stations on a rather laissez faire basis and while the consultation does identify the challenges of developing CCS power stations, it fails to address the challenges of developing CCS without power stations.

Industrial CCS, while important, in a UK context does not have the combination of scale and clear financial longevity to provide this underwriting function.

This leaves only one viable underwriter of a CCS network and that is hydrogen consumers (the gas consumers of today) and hence ties CCS to hydrogen deployment at scale which adds to the challenge and doubles the policy bet.

A simple logical corollary of the approach outlined in the consultation is that cost-effective CCS deployment requires new applications of hydrogen to be developed at scale.

The need for a Delivery Body

In 2018 UKERC published an opinion piece looking explicitly at the need for a Delivery Body. The two key areas above combine to continue to support the need for that Delivery Body.

Firstly, for an industry of this importance to our decarbonisation goals, the specific risks should not be contracted away, but should instead be addressed by developing the capabilities to deal with those risks.  It is clear from past attempts to develop CCS and from the continued lobbying from industry that there is little appetite for developing the capabilities needed to manage these risks on a global scale.  This is a large part of the case for a Delivery Body and would position the UK as standard-setter for this important industry.

Secondly, there is the need to explicitly address who is underwriting what, and how an optimal system is deployed will need guidance and oversight, it will not, in our opinion, emerge from the individual decisions of market players.

Read the full response to the Business Models for CCUS consultation here.