UK Government publishes CCUS business plan

Nov 17 2022

The Dispatchable Power Agreement (DPA) sets out the Government's framework to support power generation with carbon capture and storage.

In response to consultation feedback regarding power CCUS, the government has now set out its aims for a Power CCUS revenue mechanism that:

• incentivises Power CCUS to operate flexibly, dispatching after renewables and nuclear, but ahead of other unabated power plants as part of a flexible electricity system;

• has the capacity to be competitively allocated;

• provides fair return on investment with appropriate risk allocation and without overcompensation; and

• ensures that the costs are affordable for electricity consumers.

Any power CCUS business model would be subject to value for money and affordability assessments. In making such assessments, the government will assess the total system costs of Power CCUS. The Government has expressed the intention to develop a business model with a revenue mechanism consisting of a payment for availability of low carbon generating capacity and a variable payment, the combination of which should enable a plant to operate flexibly, providing value to a low carbon electricity system whilst providing sufficient certainty to investors.

The DPA is the proposed contractual framework for power CCUS, it is based on the Contracts for Difference (CfD) for Allocation Round 4 but adapted to enable natural gas fired power CCUS facilities to play a mid-merit role, in terms of order of delivering power to the grid in meeting electricity demand, displacing unabated thermal generation plants.

The DPA proposes an Availability Payment, linked to facility performance, to incentivise the availability of low carbon, non-weather dependant dispatchable generation capacity. The Availability Payment will be calculated and paid regardless of whether a facility is dispatching, and so will not incentivise facilities to displace lower cost and lower carbon sources of generation such as renewables and nuclear.

To ensure that a Power CCUS Facility generates electricity ahead of higher carbon alternatives, the Government has proposed that a Variable Payment will account for the additional cost of generation for a Power CCUS Facility compared to an unabated Reference Plant, which is intended to be a CCGT with the highest defined thermal efficiency, assessed on a lower heating value basis operating on the GB electricity system.

Phase 2 allocation

The DPA has been developed as part of the wider CCUS Cluster Sequencing Process, and projects were able to make submissions for a DPA in Phase-2 of this process. The application window for Phase-2 closed on 21 January 2022. Projects selected following successful evaluation in Phase-2 of the CCUS Cluster Sequencing Process have been invited to participate in the due diligence and negotiations stage and may ultimately receive a DPA subject to final government compliance checks of the Cluster sequencing Phase 2 guidance.

UK Government CCUS business models

Previous: Aramco and Pertamina explore hydrogen and ammonia value chain at B20

Next: Blue carbon venture agrees first one billion tonne carbon removal deal

Issue 97 - Jan - Feb 2024

2023 and UK - COP 28 and keeping 1.5 alive .. UK ‘CCUS Vision’ to develop a competitive carbon market .. CCSA London: UK progress and perspectives .. Statera Energy first customer for H2NorthEast Teesside blue hydrogen project Increasing the viabil.....