Offshore CO2 storage “unlikely” to attract private investment unless government shoulders financial risk

Offshore CO2 storage is not an attractive investment proposition for the private sector, according to the Carbon Capture and Storage Association (CCSA) and government must shoulder the financial risks if CO2 projects are to go ahead.

The associations’s new report into UK CCS programmes said: “The full-chain private sector business model… is unlikely to work in the future. Investing in offshore CO2 storage is currently not, and – under the current policy and regulatory framework – is unlikely to become, an attractive investment proposition for the private sector. This is primarily due to the onerous financial security requirements, uncertain costs and the CO2 storage liabilities.”

It continued: “The likelihood and consequence of cross-chain default by either the capture operator or the transport or storage operator proved to be a major challenge to both debt and equity investors in all parts of the CCS chain…It is now clear that HMG would have had to accept the majority of the financial risks arising from developing, operating, monitoring and decommissioning the new CO2 stores.”

This is one of 36 key lessons for industry and policy makers in the new report, which particularly focused on the impact of the cancelled CCS competition. The report is based on interviews with the two preferred bidders; the Shell Peterhead project and the Capture Power White Rose project, as well as interviews with a number of other companies interested in developing CCS projects.

Luke Warren, chief executive of the CCSA, commented: “The CCSA has partnered with Patrick Dixon, former Expert Chair of the Office for CCS in DECC, on this report. Patrick has worked tirelessly with the CCSA and project developers to capture the important insights into the delivery of large-scale CCS projects. The report highlights that there were no technical barriers to delivery but that any future CCS programme will have to address a number of outstanding commercial challenges. The report also clearly shows that CCS has significant potential for rapid cost reduction. The Government has confirmed its intention to develop a new approach to CCS, and we look forward to working with them to build on these lessons and ensure the successful delivery of CCS”.

Read the full report: Lessons Learned – Lessons and Evidence Derived from UK CCS Programmes, 2008 – 2015

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