Experts debate whether investment in renewables holding back development of carbon capture and storage
Dr Peter Radgen
Head of the E.ON innovation center for carbon capture and storage
Over the past 10 years, renewable energy technologies have evolved from research and development to demonstration and wide-scale deployment despite their high initial cost. Even with the significant cost reductions achieved over this period, renewables, in most cases, continue to produce electricity at higher costs than their conventional counterparts. Therefore they would not have been able to grow out of niche markets to widespread deployment without additional support from governments.
Before the liberalisation of the electricity markets in the 1990s, generation was a low-risk business with guaranteed returns based on reimbursement of cost plus a fee, which led to a secure supply with high-capacity margins, but not the most cost-effective solutions as there were few incentives to reduce cost. Competition after market liberalisation has driven down costs and, together with the EU emissions trading scheme – a market-based instrument introduced in 2005 to incentivise investment in low-carbon technologies and innovation – has led to a complex and volatile marketplace for non-renewable technologies.
Many countries have also introduced non-market-based instruments to support renewable energies, such as feed-in tariffs (FITs), contracts for difference or preferred market access. This has created the necessary framework to deploy renewable energy technologies but it is also leading to significant market deterioration as subsidised renewables have taken up a significant share of electricity generation.
From an investor’s point of view, when investments are not triggered by the market but by state interventions for specific technologies, the optimum strategy is to invest only in technologies with very low financial risks and guaranteed profit margins – for example, from FITs or capacity payments. The cost-effectiveness of greenhouse-gas emission reductions or electricity generation does not play a role in the investment decision, it is only about minimising risks and securing profit margins. Furthermore, every power-generating development built outside market conditions devalues market-driven investments.
This has led to a situation in Europe where little or no new market-driven fossil-fuelled capacity will be built, and therefore the prospects for carbon capture and storage (CCS) is also blocked by the “out-of-market” deployment of renewables. We need to acknowledge that interventions that give investors certainty for their investment, like FITs, should only be applied to bring technologies from research and development stages to early deployment – an area which most renewable technologies have left, but where CCS is currently.
An additional dilemma for fossil-fuelled generation is that gas- and coal-fired plants’ ability to offer grid stability and security of supply is not separately valued, as the market is focused only on energy. Fossil-fuelled capacity will be needed as a backbone for a reliable and cost-effective supply; the advantages of a balanced energy mix have not only been true in the past, but will remain so in future.
I predict that the future deployment of renewable power will be based on the visibility of its costs. If delivering decarbonised power at the lowest cost, while maintaining security of supply is the important goal, then CCS must play a key role. However, CCS cannot be delivered by the market alone if that market is destroyed by significant interventions to support the deployment of renewables.
Gaynor Hartnell
Chief executive of the Renewable Energy Association
There are concerns that George Osborne’s strong support for gas might see investment sucked from under the feet of renewables. That said, with investment in new combined-cycle gas turbines on hold while electricity market reform is up in the air, the gas sector might view things in the opposite light. Similarly, many view nuclear as discouraging investment in renewables, or at least distracting Decc in its efforts to bring forward renewables. But the idea that investment in renewables is holding back development of carbon capture and storage (CCS) technology is a new one on me.
And it’s no wonder I have not heard this mooted – it’s a bizarre idea. The deployment of CCS technology is not standing still because lenders are weighing up carbon capture options versus renewable ones, and opting for the latter. It’s because the technology is not yet proven. Far from having its hand bitten off, the energy department had to relaunch the UK’s £1 billion CCS commercialisation programme. Companies were pulling out, not fighting to usurp each other.
I wonder if this isn’t really a question of whether the existence of renewables somehow threatens the establishment of carbon capture and storage? Or perhaps simpler still: is the technology better than renewables and should the UK invest in CCS instead?
It will come as no surprise to readers that my answer to both these questions is “no”.
However, I won’t extol here the benefits of renewables, nor will I criticise CCS technology. There are ways in which CCS and renewables work well together. Biomass coupled with CCS is the only combination of technologies that could actively pull CO2 out of the atmosphere and lock it back underground. And renewables are not going to provide 100% of our energy in the short- to medium-term.
I have my own views on which energy source – gas or nuclear – would work better alongside renewables and recently spoke at a debate on the subject. For the record, I did so in a personal capacity and the Renewable Energy Association does not have an official line on other partners in the energy mix, beyond pointing out that we should minimise energy consumption before seeking to fill the gap. Thereafter, first priority should be to use as much renewable capacity as possible as fast as possible, followed by the most sustainable way to fill the remaining gap.
My personal view is that gas is a better fit with renewables than nuclear. Much of my reasoning also holds true for fossil-fuelled generation with no CO2 emissions. Fossil fuels are flexible and, if partnering with intermittent renewables, flexibility is better than inflexibility. I also feel it is better to store CO2 than it is to store radioactive waste from nuclear plants.
One cannot get away, however, from the fact that thermodynamics, and therefore economics, are not on the side of capturing and storing carbon. CCS reduces the efficiency of the conversion of fuel to energy and, even if that is not coupled with increased CO2 emissions, it uses up fossil fuels inefficiently when they should be treated with respect, given the resources expended in extracting them from the ground.
CCS is a transition technology. We are buying time while we get renewables into place. Renewables are the only technologies where free and non-polluting fuel, which will not run out, delivers itself to the power station. With credentials like that, nothing should be allowed to hold renewables back.
