CCS is a process to avoid the release of carbon dioxide (CO2) into the atmosphere and could help the UK achieve its ambitious targets to reduce CO2 emissions, if it is used in the power and industrial sectors. There are currently 15 large scale operational facilities worldwide, but none in the UK.

The audit watchdog reports BEIS spent £68m on an earlier competition on support for CCS, which it cancelled in 2011. It describes the department’s subsequent plan to use a second competition to develop and deploy carbon capture and storage as ‘ambitious, but ultimately, unsuccessful’. This competition cost the department £100m.

Its aim with both competitions was to demonstrate commercial and technical viability of deploying CCS in the UK to reduce the costs of subsequent projects to the point where government support investors require is comparable to other low-carbon generating technologies. Neither of the competitions resulted in a CCS plant being built.

The NAO report points out that the untried nature of the technology meant the costs and benefits of the proposed projects were inherently uncertain. Given the level of challenge, it was an achievement for BEIS to sustain negotiations with the preferred bidders to the point where it gained valuable technical and commercial knowledge about how to deploy the competition projects.

However, it notes: ‘Any value that could be gained is contingent on the department applying the lessons it and the sector has learnt as a result of the competition.’

The NAO found BEIS began the competition without agreeing with the Treasury on the amount of financial support available over the lifetime of the projects. This ultimately contributed to the Treasury’s decision to withdraw £1bn of funding from the competition, leading to its cancellation, as it was concerned about future costs to consumers.

BEIS had, however, designed the competition so it could withdraw from supporting its preferred bidders without incurring cancellation costs.

NAO found the terms of the competition contributed to one of the two shortlisted projects being unlikely to reach the construction phase. BEIS funded two developers to undertake work that would reduce the commercial and technical risks surrounding the construction of the first CCS plant. One of the two shortlisted projects, backed by a consortium, was not able to present a proposal compliant with the department’s risk allocation as it was struggling to allocate risks between the parties involved. The other competition was more commercially viable but would have had fewer benefits for reducing the costs of subsequent CCS projects.

The NAO found that many stakeholders think the government needs to carry more risk if it is to enable CCS to be deployed affordably to consumers. However, while this would reduce delivery costs it would expose taxpayers to losses in the event of risks materialising.

Amyas Morse, NAO head, said: ‘The department has now tried twice to kick start CCS in the UK, but there are still no examples of the technology working. There are undoubtedly challenges in getting CCS established, but the department faced an uphill battle as a result of the way it ran the latest competition.

‘Not being clear with HM Treasury about what the budget is from the start would hamper any project, and caused particular problems in this case where the upfront costs are likely to be high. The department must learn lessons from this experience if it is to stand any chance of ensuring the first CCS plants are built in the near future.’

Carbon capture and storage: the second competition for government support is here.