CCS set to be funded through contracts for difference

A government consultation launched last week has proposed that carbon capture, usage and storage (CCUS) schemes should be supported through the Contracts for Difference (CfD) regime, in a similar way to renewable power.

CCUS “will be essential to meeting the UK’s 2050 net zero target, playing a vital role in levelling up the economy, supporting the low-carbon economic transformation of our industrial regions, creating new high value jobs,” says the Department for Business, Energy & Industrial Strategy paper. It forms part of ongoing work to establish the market rules for the nascent sector, which is attracting growing attention from major energy firms.

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The department has put forward three amendments to the regulations that underpin the funding scheme.

The first concerns the ‘Dispatchable Power Agreement’ (DPA) contract, which is based on the standard terms of a CfD. It describes the agreements as “a key tool used to encourage low carbon electricity generation by bringing forward investment in Power CCS projects and incentivising those facilities to operate in a manner which benefits the UK energy market”.

Rather than having a strike price, the DPA would consist of two payments. The greatest would be an availability payment, linked to meeting performance requirements and set either through negotiation or competitive bidding. A smaller element would vary according to the difference in cost between running with carbon capture and operating an unabated reference plant.

The proposed amendment to the Contracts for Difference (Allocation) Regulations 2014 would remove the general requirement for CfDs to have a strike price. A further amendment would ensure that this does not affect CfDs for other low-carbon energy sources, namely renewables, nuclear power and energy-from-waste.

The final part concerns changes to the rules around CO2 transport. The Contracts for Difference (Definition of Eligible Generator) Regulations 2014 mandate that generators must be connected to a “complete” system, which assumes that the waste gas would be piped away. However, “We recognise that generators may need to use a non-pipeline transport solution, including rail, road, and/ or shipping, to transport their CO2 to a suitable storage site. This could be required for various future scenarios, for example, projects which are not located directly within a CCUS cluster and cannot connect to the CCUS cluster’s CO2 pipeline,” says the paper.

The proposed amendment would ensure that the regulations allow for all forms of CO2 transport.

Responses are due by 8th September 2021.

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