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Decc starts consultation on energy supplier levy to fund carbon capture and storage The government has started consulting on its proposed levy on electricity suppliers to fund up to four projects demonstrating carbon capture and storage (CCS). The levy would need primary legislation. An obligation to supply CCS electricity was rejected as too risky because of insufficient price competition. Ministers prefer a so-called Contract for Difference scheme as the way of supporting projects (see box). The Department of Energy and Climate Change (Decc) is also interested in an alternative mechanism, a so-called Additional Payment per unit of CCS electricity supplied, over and above the wholesale price of electricity. Also considered, but discounted, was a feed-in tariff. Decc estimated that the four CCS demonstration schemes would cost £8.7-10.3 billion and that the levy would need to raise £5.9-9 billion. The consultation fleshes out the government's proposal that any new coal-fired generation plant should be required to demonstrate CCS on a part of its capacity (300MW has been put forward), and that these demonstration schemes should be required to retrofit CCS to the rest of their capacity within five years of the technology being proven. This is anticipated to be 2020. New coal-fired power stations built after 2020 would have to have full CCS. The Environment Agency is likely to be the arbiter over whether the technology works, while Ofgem would oversee the new regime. The government is also seeking views on retrofitting existing coal stations and what measures need to be taken if CCS is not technically proven by 2020. This could be an annual cap on emissions, a limit on running hours or an emissions performance standard to limit emissions per unit of electricity generated. The Association of Electricity Producers welcomed the consultation, but voiced concern about the retrofit proposal. It said that existing plant was not designed with CCS in mind and would be forced to close. *Making a difference: how Decc's CfD scheme would work* Under the Contact for Difference (CfD) scheme, CCS projects would receive a fixed/strike price for the carbon they abated, measured against the emissions from an unabated fossil generation plant. The strike price would be paid minus the European Union Emissions Trading Scheme (ETS) carbon price. Decc said this approach avoided the carbon price uncertainty associated with the Additional Payment option. "The CfD effectively leaves the generator to mange fossil fuel price minus the ETS carbon price, and to sell the CCS electricity, as for any other power station," it said. Source: Utility Week © Faversham House Group Ltd 2009. News articles may be copied or forwarded
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