Billions need to be captured before carbon can be stored

Published Date: 20 March 2009
By Peter Jones

UTILITY companies can be engines of economic recovery, Ignacio Galán, chairman and chief executive of Iberdrola, the Spanish owner of ScottishPower, declared bullishly in Bilbao this week.
He's right, for the construction of new power stations, transmission lines, and generation systems do create thousands of well-paid jobs. The big problem, however, is that what the Scottish Government wants to do may not fit with the new economic realities faced by companies, and the jobs will not appear as a result.Galán was especially optimistic about ScottishPower's really big project – fitting carbon capture and storage (CCS) equipment to coal-fired Longannet power station. This would not necessarily be a big economy boost on its own. It is the potential spin-off gain from making and exporting the technology to other coal-fuelled generators around the world which is the potential big bonanza.Winning this prize will need ScottishPower to beat E.ON and RWE Npower, who want to do the same with power stations in England, to get the subsidy that the British government is offering to help pay for what will probably be the world's first commercial-scale CCS project.The subsidy is on offer because the British government is not just anxious to secure the knock-on economic gain, it also wants the big reductions in global warming-causing emissions of that CCS would bring. The Scottish Government is even more keen on securing these wins.Before anyone gets to that stage, however, there is a big question to be answered: will the economics of this technology stack up? Nobody knows right now, and that's why a full-scale demonstration project needs to be built and, because of the cost uncertainty, companies will only do it with the benefit of a subsidy.The economics of CCS are of even more crucial importance now because of two things. First, CCS is just one small part of a spectacularly vast bill that Britain faces for the modernisation and greening of the whole electricity system. Nuclear power stations need to be replaced, a huge amount of renewable energy capacity has to be installed, and the electricity distribution system has to be upgraded and overhauled.One estimate for the amount of money that needs to be spent in Britain between now and 2025, produced by accountancy firm Ernst & Young, is a mind-boggling £234 billion. That's about seven times the amount of taxpayers' money so far pumped into RBS. It implies spending of just over £14bn a year, close to half of what the Scottish Government spends annually.Quite how much of this needs to be spent in Scotland isn't clear, but an informed guesstimate is that anything between 10 and 20 per cent could be involved, or up to £46bn, big money in anybody's book.But this is where the second problem lies – this kind of money is in extremely short supply, and what is available is already expensive. In situations where there is more demand than supply, prices go up even further. And in the current financial environment, where investors have become extremely suspicious of anything that looks the tiniest bit uncertain, the costs of financing anything which is new and untried, such as CCS, will be even more expensive than tried and proven technologies such as nuclear or gas.The numbers drawn up by Ernst & Young tell an interesting story. They reckon that in the next 16 years across Britain, £38.4bn will be spent on building new nuclear power stations, £6.4bn on new gas stations, £112.5bn on all forms of renewable energy types, and £7.3bn on CCS coal plant plus another £2bn on tankers and pipelines to pump into permanent underground storage, perhaps in old North Sea oilfields.Per gigawatt of installed power capacity, the Ernst & Young figures say that gas is cheapest at £0.5bn, renewables next most expensive at £2bn, followed by CCS-equipped coal plant at £2.9bn, with nuclear the most expensive at £3bn per gigawatt. That puts CCS at the expensive end of what needs to be done, but still perhaps cheaper than nuclear. But this is not the end of the story, because these are just the capital investment costs. The running costs of CCS are also unknown, and they, because quite expensive pipeline, tankering, and pumping technologies are involved, could be quite expensive.Exactly the same economic problems apply to wave and tide technologies. Since power companies are going to have to raise absolutely stupendous sums by way of debt and equity, and investors will be looking for the maximum degree of certainty when they come to place their money, there has to be serious doubt that the money will be available to develop CCS and other new technologies. The frailties of the current financial world may mean that the potential of CCS may remain just that.• Comments and criticisms welcomed: pjones@ednet.co.uk.