Carbon capture and storage (CCS) faces formidable funding challenges, according to a recent survey of private sector capital providers.
“Across Europe, there is likely to be private sector finance for only two demonstration projects, rather than the 12 hoped for,” conclude the Climate Group and the Ecofin Research Foundation (ERF), who conducted the survey on behalf of the Global CCS Institute.
The survey comprised a series of questions to more than 30 institutions about the likely risks and returns associated with first-generation industrial-scale CCS. Although based in Europe, many of the private sector finance providers have a global remit.
The questions centred on a hypothetical 2GW new-build coal plant with post-combustion CCS. The total cost of the plant was estimated at around €6 billion ($8 billion), of which €4.7 billion would need to come from the private sector. A carbon price of at least €100/tonne of carbon dioxide (CO2) would be required to make such a plant competitive with a similar plant without CCS, say the Climate Group and ERF in a report on the survey. This compares with a current price of around €15/t in the EU Emissions Trading Scheme.
Another risk facing the technology is a drop in gas prices, as might result “if the shale gas revolution that has hit the US comes to Europe”. Coal-fired CCS projects would then “find their economics totally undermined, even if gas-fired plant had to fit CCS”, says the report.
Among other findings, the report notes:
• Large-scale private equity funds would be wary of the operating challenges of CCS;
• It is unlikely that CCS will be able to meet the high returns required by venture capitalists;
• Infrastructure funds generally avoid high technology and construction risks such as those associated with CCS;
• Bond holders or shareholders of large pension funds and insurance companies would be happy for corporates to use their balance sheets to finance CCS, but to the tune of no more than 1-2% of group assets;
• Debt may be available for CCS projects, but only if three key issues are addressed: performance guarantees to cover the whole power generation and carbon capture operation, sponsors with a track record of implementing large complex projects and, in the long term, plants with CCS must be capable of competing with other sources of power without public funding.
CCS involves capturing CO2 emissions at the power plant, compressing it, and transporting it to underground formations such as depleted oil or gas fields for indefinite storage.
By. Graham Cooper
Source: Environmental Finance