BP pulls out of contest to build emissions plant

By Ed Crooks, Rebecca Bream and Fiona Harvey
Published: November 8 2008 02:00

BP has pulled out of the government's competition to build a prototype power station that will capture and store its carbon dioxide emissions, in a setback to plans to develop technologies for cutting the output of greenhouse gases while continuing to use fossil fuels.
Britain's biggest energy company will instead focus its carbon capture programme on its joint venture with Rio Tinto, the mining group, which is developing projects in California and Abu Dhabi.
It has also emerged that RWE Npower, the UK arm of the German energy group, is considering legal action against the government after failing to reach the short list for the carbon capture competition.
The government is offering a subsidy of several hundred million pounds to the competition winner, to build an integrated project including a coal-fired power station and equipment to separate carbon dioxide from the waste gases and take care of storage.
The winner is to be chosen as the preferred bidder by the end of next year, with the aim of having the project in operation by the end of 2014.
Four groups made the short list chosen by the government over the summer: BP, Eon UK, ScottishPower and Peel Holdings.
However, BP last month told the department of energy and climate change that it would drop out, having failed to find a partner with coal-fired power generation experience.
The move follows BP's decision to focus its wind power business on the US, where most of its activity is concentrated.
It had been looking at possible developments in other countries, including Britain and China, but has decided that the risks in other markets, such as offshore wind in the UK, make them commercially unattractive compared with onshore wind in the US.
The government played down the significance of BP's exit from the carbon capture competition, saying there were still "three strong bidders who are committed to the project".
In spite of its failure to make the government's short list, RWE Npower is also still keen to take part.
It has been in talks with Eon, ScottishPower and Peel about joining their bids, and hopes to make an announcement in the next few weeks.
If it fails to strike a deal, however, RWE plans to challenge the government over how the short list was drawn up.
It said it was "surprised and disappointed" to be excluded.
"As a prudent measure to preserve our position, we are submitting an application to seek a judicial review of the process," it said.
Jeff Chapman, chief executive of the Carbon Capture and Storage Association, said he was "concerned" that the timetable for the competition appeared to be slipping.
He said Britain needed to grasp carbon capture and storage as a matter of urgency.
Finalists going head-to-head
Remaining entries left in the government's carbon capture competition: Eon UK plans to build a controversial coal-fired power station at Kingsnorth in Kent, and would fit carbon capture equipment to half of one of the two units at the plant. Its partners include Tullow Oil and Arup and Fluor, two engineers. ScottishPower bought last year by Iberdrola of Spain, is in a consortium with Marathon Oil of the US and Aker, a Norwegian engineer. It hopes to add carbon capture equipment to one of the four units at Longannet, a 1970s coal-fired power station on the Firth of Forth. Peel Holdings , the owner of John Lennon airport, Mersey Docks and the Trafford Centre, has a partnership with Dong Energy, a Danish gas and electricity group. It has not yet specified which power station it would want to fit.
And one other hopeful: RWE Npower submitted an entry for its proposed power station at Tilbury in Essex, but was rejected on a technicality. It hopes to re-enter the race.
Copyright The Financial Times Limited 2008