March 16 (Bloomberg) -- The U.K. must learn from a failed 1 billion-pound ($1.6 billion) carbon-capture funding program that “wasted” four years, as it prepares to open a second financing competition, the head of a panel of lawmakers said.
“Government cannot afford to miss this crucial environmental commitment,” said Margaret Hodge, chairwoman of the Committee of Public Accounts, after the National Audit Office published a review of the program terminated last year. “It must learn the lessons from this failure to avoid squandering any more time and money.”
The U.K. in 2007 invited companies to compete for funds to build a demonstration carbon-capture and storage, or CCS, plant and selected four candidates. By last year, Iberdrola SA was the only utility left in the contest after developers including BP Plc and EON AG shelved projects. The final bid was scrapped in October as Iberdrola was unable to build its proposed Scottish plant within the budget or agree to the contract terms.
The government is preparing a new funding program, with a view to starting commercial operations in the 2020s, Energy Minister Charles Hendry said Feb. 27. Britain is promoting CCS, which gathers carbon dioxide from power stations for underground burial, as it seeks to meet energy demand without adding to pollution. The U.K. says CCS could trap about 90 percent of emissions from a fossil-fuel plant, helping the country meet a target to cut emissions 80 percent by 2050 from 1990 levels.
The failed funding round was “a high-risk and challenging undertaking launched with insufficient planning and recognition of the commercial risks,” according to the audit office, which scrutinizes state spending on behalf of the parliament. The government spent 64 million pounds in four years on the program as developers pulled out, the office said in an e-mailed report.
The second competition, to open in the coming weeks, will use the 1 billion pounds from the shelved program.
The first contest, which required utilities to fit CCS equipment to coal-fed plants and capture gases after combustion, was too restrictive, according to the report. It also didn’t offer developers enough clarity on the commercial risks or the financing, including how long-term operating costs would be met, the office said. The 1 billion pounds wasn’t formerly allocated until 2010, about three years after the competition started.
The 64 million pounds spent by the government included 40 million pounds of engineering and design studies awarded to EON and Iberdrola’s ScottishPower unit for their CCS bids, the report shows. The experience gained through the two studies may help curb future CCS costs, the office said.
The full process of capturing, transporting and storing CO2 hasn’t yet been successfully deployed on a commercial scale at power plants.
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