Legal energy: clean coal power stations

Fossil fuel-fired power stations generate three quarters of the UK’s electricity. Of these, a third are due to be decommissioned by 2015. In an attempt to move away from this reliance on a quickly depleting supply of fuel and, at the same time, lower carbon emissions, the Department for Energy and Climate Change has been looking at options for meeting the energy needs of the country.

Among these is “clean coal” technology, also known as carbon capture and storage (CCS) – a method of cutting carbon by extracting it when it is released and storing it permanently.

A prototype plant is being planned, and in April, Ed Miliband, the secretary for energy and climate change, announced plans to support a further three demonstration coal stations.

Then, last Wednesday, the government issued its long anticipated consultation paper: A Framework for the Development of Clean Coal. This 100-page document, which is open for consultation until 9 September, will inform the development of the primary legislation necessart for the building of CCS projects, and will help it decide whether or not to amend the regulatory and financial framework within which coal power stations are constructed and operated.

This legislation is likely to have several aims. First, it needs to provide financial support for the four commercial-scale CCS demonstration plants in the UK, which cover a range of CCS technologies.

In addition, it is likely to require that new coal power stations include CCS for a defined part of their capacity (at least 300MW). This will immediately prevent smaller plants from being developed.

It is also likely to demand that new coal power stations retrofit CCS technology to cover their full capacity within five years of CCS being “independently judged technically and economically proven”. This, of course, opens up the questions of who decides if the technology is “proven” and whether the plants would need to be closed down if the technology doesn’t ultimately work. Ambiguities like this may deter banks from financing new CCS projects.

It will also aim to stimulate the development of future CCS clusters near the demonstration units. Humber, Teesside, the Thames Gateway and Merseyside have been identified as potential locations.

Of course, it also needs to provide for the possibility that CCS will not be proven as early as planned. In fact, CCS has not yet been proven on a commercial scale at all – a fact that is likely to make projects unviable for all except major utilities companies that have funds available to invest in them. Having said that, the new CCS technologies will need to be developed, and it is likely that this will create a raft of new opportunities for specialist contractors and consultants.

Market forces alone are unlikely to deliver sufficient investment to enable the technology to become commercially deployed – as such the consultation paper has sought to identify funding options for CCS, some of which will need to be imposed by means of primary legislation. The government is looking at a combination of funding sources, including the private sector, public funds and the EU’s European Energy Programme for Recovery, which has already pledged €1.05bn (£880m) for CCS projects to be distributed between seven member states, with €180m (£151m) assigned to the UK.

The consultation paper sets out options for a financial incentive mechanism that will take the form of either a subsidy, similar to the renewables obligation, or a straight levy on energy suppliers. Either option will be imposed on energy suppliers by new legislation, which ultimately will lead to higher energy bills as utilities seek to recoup the extra charges.

So why is CCS such an interesting proposition? Well, for one thing, the drive to CCS will help create new jobs for the construction industry.

Consultant AEA Technology produced a report this month suggesting that low-carbon coal technologies could be worth £2-4bn a year to the UK by 2030, sustaining between 30,000 and 60,000 jobs with a cumulative value of £25-45bn between 2010 and 2030.

With the UK taking a leading role in efforts to develop CCS, and with Norway, the USA, Canada and Australia all launching initiatives to invest and support commercial-scale CCS projects, it looks like the coal power market will be reinvigorated and that opportunities for the UK construction industry to be at the forefront of this sector will be created.

Still, the UK government and companies operating in the sector should not forget that while the UK strives to meet emissions targets, many countries, particularly India, China and Brazil are in the middle of a major coal power plant building programme, using non-CCS technology. It would not be surprising to find UK commercial directors looking at opportunities to get involved in coal power projects that use tried and tested technology outside the UK.