NAO: UK CCS competition ‘not value for money’

THE UK’s National Audit Office (NAO) says that the Department for Business, Energy & Industrial Strategy (BEIS) failed to achieve value for money after spending £100m (US$123m) on the failed UK CCS competition.

The UK Treasury withdrew funding for the CCS competition in November 2015 in the wake of the autumn spending review, despite having committed £1bn to the scheme just six months previously, leading to it cancellation. A previous competition, on which the then Department of Energy and Climate Change (DECC) had spent £68m, was also cancelled in 2011.

The NAO’s new report found that BEIS/DECC failed to agree with the Treasury on the amount of financial support that would be available for successful projects over the course of their lifetime, which led to the withdrawal of funding. Just two projects were left in the second competition at the time, and the terms of the competition, designed so that BEIS/DECC could withdraw without incurring costs, contributed to at least one of those failing to reach construction phase. One project could not present a proposal that met risk requirements, while the other was more commercially viable but would not have reduced costs so much for future CCS projects

“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,” said NAO head Amyas Morse.

In future, the NAO says that BEIS needs to take on more of the financial risks relating to CCS, particularly with CO₂ storage, to help restore investor trust. They warn, however, that though this would reduce delivery costs, it may expose taxpayers to more risk.

Luke Warren, chief executive of the UK’s Carbon Capture and Storage Association (CCSA), said that the UK must catch up with other countries that have successfully implemented CCS and develop a new approach.

“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,” he said.

Warren reiterated the Committee on Climate Change’s conclusion that CCS could halve the UK’s costs of meeting climate change targets, and said that the CCSA’s full analysis of Lord Oxburgh’s report, Lowest Cost Decarbonisation for the UK: The Critical Role of CCS, published in September 2016, confirms that CCS projects can be cost-competitive with other low-carbon technologies from day one.