Tag: BECCS (bioenergy with carbon capture and storage)

Supporting the deployment of Bioenergy Carbon Capture and Storage (BECCS) in the UK: business model options

8 April 2021

Carbon capture

Innovation engineer inspecting CCUS incubation area BECCS pilot plant at Drax Power Station, 2019

Click to view/download the report PDF.

Drax Power Station is currently exploring the option of adding carbon capture and storage equipment to its biomass-fired generating units. The resulting plant could produce at least 8 million tonnes (Mt) of negative CO₂ emissions each year, as well as generating renewable electricity. Drax is planning to make a final investment decision (FID) on its bioenergy with carbon capture and storage (‘BECCS in power’¹) investment in Q1 2024, with the first BECCS unit to be operating by 2027.

The potential of BECCS as part of the path to Net Zero has been widely recognised.

BECCS in power is an important part of all of the Climate Change Committee (CCC)’s Net Zero scenarios, contributing to negative emissions of between 16- 39Mt CO₂e per year by 2050². Investment needs to occur early: by 2035, the CCC sees a role for 3-4GW of BECCS, as part of a mix of low carbon generation³.
The Government’s Energy White Paper commits, by 2022, to establishing the role which BECCS can play in reducing carbon emissions across the economy and setting out how the technology could be deployed. The Government has also committed to invest up to £1 billion to support the establishment of carbon capture, usage and storage (CCUS) in four industrial clusters⁴.
National Grid’s 2020 Future Energy Scenarios (FES) indicate that it is not possible to achieve Net Zero without BECCS⁵.

However, at present, a business model⁶ which could enable this investment is not in place. A business model is required because a number of barriers and market failures otherwise make economic investment impossible.

There is no market for negative emissions. There is currently no source of remuneration for the value delivered by negative emissions, and therefore no return for the investment needed to achieve them.
Positive spillovers are not remunerated. Positive spillovers that would be delivered by a first-of-a-kind BECCS power plant, but which are not remunerated include:
- providing an anchor load for carbon dioxide (CO₂) transport and storage (T&S) infrastructure that can be used by subsequent CCS projects;
- delivering learning that will help lower the costs of subsequent BECCS power plants; and
- delivering learning and shared skills that can be used across a range of CCS projects, including hydrogen production with CCS.
BECCS relies on the presence of CO₂ transport and storage infrastructure. Where this infrastructure doesn’t already exist, or where the availability or costs are highly uncertain, this presents a significant risk to investors in BECCS in power.

CCUS incubation area, Drax Power Station, July 2019

CCUS incubation area, Drax Power Station; click image to view/download

Frontier Economics has been commissioned by Drax to develop and evaluate business model options for BECCS in power that could overcome these barriers, and help deliver timely investment in BECCS.

Business model options

We started with a long list of business model options. After eliminating options that are unsuitable for BECCS in power, we considered the following three options in detail.

Power Contract for Difference (CfD): the strike price of the CfD would be set to include remuneration for negative emissions, low carbon power and for learnings and spillover benefits.
Carbon payment: a contractual carbon payment would provide a fixed payment per tonne of negative emissions. The payment level would be set to include remuneration for negative emissions, low carbon power and for learnings and spillovers.
Carbon payment + power CfD: this option combines the two options above. The carbon payment would provide remuneration for negative emissions and learnings and spillovers while the power CfD would support power market revenues for the plant’s renewable power output.

We first considered if committing to any of these business model options for BECCS in power now might restrict future policy options for a broader GGR support scheme. We assessed whether these options could, over time, be transitioned into a broader GGR support scheme (i.e. one not just focused on BECCS in power), and concluded that this would be possible for all of them.

We then considered how these business model options could be funded, and whether the choice of a business model option is linked to a particular source of funds (for example, power CfDs are currently funded by a levy paid by electricity suppliers to the Low Carbon Contracts Company [LCCC]). We concluded that business models do not need to be attached to specific funding sources; all of the options can be designed to fit with numerous different funding options, so the two decisions can be made independently. This means that the business model options can be considered on their own terms, with thinking about funding sources being progressed in parallel.

We then evaluated the three business model options against a set of criteria developed from principles set out in the BEIS consultation on business models for CCS, summarised in the figure below.

Figure 1: Principles for design of business models

Instil investor confidence	▪ Attract innovation ▪ Attract new entrants ▪ Instil supply chain confidence
Cost efficiency	▪ Drive efficient management of investment costs ▪ Drive efficient quantity of investment ▪ Drive efficient dispatch and operation ▪ Risks allocated in an efficient way, taking into account the impact on the cost of capital
Feasibility	▪ Limit administrative burden ▪ Practicality for investors ▪ Requirement for complementary policy ▪ Wider policy and state aid compatibility ▪ Timely implementation
Fair cost sharing	▪ Allows fair and practical cost distribution
Ease of policy transition	▪ Ease of transition to subsidy free system ▪ Ease of transition to technology neutral solution

_{Source: Frontier Economics. Click to view/download graphic.}

All three business model options performed well across most criteria. However, our evaluation highlighted some key trade-offs to consider when choosing a business model:

investor confidence: the power CfD and the two-part model with a CfD performed better than the carbon payment on this measure, as they shield investors from wholesale power market fluctuations;
feasibility: the power CfD performed best on this measure. Because it is already established in existing legislation and is well understood, it will be quick to implement. Introducing a mechanism to provide carbon payments may require new legislation. However, this will be needed in any case to support other CCUS technologies⁷, and could be introduced in time before projects come online; and
potential to become technology neutral and subsidy free: all three options could transition to a mid-term regime which could be technology neutral. However, the stand-alone power CfD performed least well as it does not deliver any learnings around remunerating negative emissions.

Overall, the two-part model performed well across the criteria and would offer a clear path to a technology neutral and subsidy free world, delivering learnings that will be relevant for other GGRs as well.

Conclusions

The UK’s Net Zero target will be challenging to achieve, and will require investment in negative emissions technologies to offset residual emissions from hard-to-abate sectors, as highlighted by the CCC⁸. BECCS in power is a particularly important part of this picture, and represents a cost-effective means of delivering the scale of negative emissions needed. Early investment in BECCS is also important in insuring against the risk and cost of ”back ending” significant abatement effort.

However, market failures, most notably the lack of a market for negative emissions, lack of remuneration for positive spillovers and learnings, and reliance on availability of T&S infrastructure, mean that without policy intervention, the required level of BECCS in power is unlikely to be delivered in time to contribute to Net Zero.

There are a number of business options available in the near term to overcome these barriers. In our view, a two-part model combining a power CfD and a carbon payment is preferable.

This measure:

addresses identified market failures;
can be implemented relatively easily and in time to capture benefits of early BECCS in power investment; and
can be structured to ensure an efficient outcome for customers (including with reference to investors’ likely cost of capital) and in a way that allocates risks appropriately.

View/download the full report (PDF).

_{1: Biomass can be combusted to generate energy (typically in the form of power, but this could also be in the form of heat or liquid fuel), or gasified to produce hydrogen. The resulting emissions can then be captured and stored using CCS technology. The focus of this report is on biomass combustion to generate power, with CCS, which we refer to as ‘BECCS in power’. We refer to biomass gasification with CCS as ‘BECCS for hydrogen’.}

_{2: CCC (2020) , The Sixth Carbon Budget, Greenhouse Gas Removals, https://www.theccc.org.uk/wp-content/uploads/2020/12/Sector-summary-GHG-removals.pdf The CCC’s 2019 Net Zero report also saw a role for BECCS, with 51Mt of emissions removals included in the Further Ambition scenario by 2050. CCC (2019), Net Zero: The UK’s Contribution to Stopping Global Warming. https://www.theccc.org.uk/publication/net-zero-the-uks-contribution-to-stopping-global-warming/}

_{3: CCC (2020), Policies for the Sixth Carbon Budget, https://www.theccc.org.uk/wp-content/uploads/2020/12/Policies-for-the-Sixth-Carbon-Budget-and-Net-Zero.pdf}

_{4: BEIS (2020), Powering our Net Zero Future, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/945899/201216_BEIS_EWP_Command_Paper_Accessible.pdf}

_{5: National Grid (2020), Future Energy Scenarios 2020, https://www.nationalgrideso.com/future-energy/future-energy-scenarios/fes-2020-documents}

_{6: In this report, we use “business model” to describe Government market-based incentives for investment and operation. This is in line with the use of this term by BEIS, for example in BEIS (2019), Business Models For Carbon Capture, Usage And Storage, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/819648/ccus-business-models-consultation.pdf}

_{7: BEIS (2020), CCUS: An update on business models for Carbon Capture, Usage and Storage https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/946561/ccus-business-models-commercial-update.pdf}

_{8: CCC (2020) , The Sixth Carbon Budget, Greenhouse Gas Removals, https://www.theccc.org.uk/wp-content/uploads/2020/12/Sector-summary-GHG-removals.pdf}

At the heart of the energy transition

Will Gardiner, Chief Executive Officer, Drax Group

19 March 2021

Opinion

Will Gardiner opened the second day of the Chatham House Energy Transitions conference. Watch his keynote address below or scroll down the page to read his speech in full.

The energy transition is central to our purpose of enabling a zero carbon, lower cost energy future.

Drax has been at the heart of Britain’s energy system for decades. And we have played a key role in the decarbonisation of the power sector: Drax Power Station in Selby, North Yorkshire, is the UK’s largest power station and Europe’s largest decarbonisation project. Cruachan, our Scottish Pumped Storage facility is a key complement to Britain’s ever increasing supply of offshore wind.

Our transition from coal to biomass has allowed us to reduce our greenhouse gas emissions by over 80% while providing clean and flexible energy to millions of homes and businesses across the UK. This month saw the end of commercial coal generation at Drax power station – a milestone in the history of our company and of the UK economy, too.

But the scale of the climate crisis means that we cannot stop here.

Which is why we have committed to a world-leading ambition to be carbon negative by 2030.

We will achieve this by making a transformational investment in bioenergy with CCS, or BECCS, which will enable us to permanently remove carbon emissions from the atmosphere while continuing to supply the renewable electricity that millions of British homes and businesses depend upon.

Water outlet into Loch Awe from Cruachan Power Station

Today, we are pioneering BECCS at Drax Power Station as part of the Zero Carbon Humber Cluster, a coalition of diverse businesses with one ambition: to create the world’s first net zero emissions industrial cluster.

The benefits are enormous

BECCS is a vital technology in the fight against climate change. Expert bodies such as the Climate Change Committee here in the UK and the IPCC at a global level are clear that we need negative emissions technologies including BECCS to reach net zero, and BECCS is central to the UK and Europe’s decarbonisation plans.

As the world’s largest, and most experienced, generator and supplier of sustainable bioenergy there is no better place to pioneer BECCS than at Drax. The economic, social and environmental benefits are enormous.

BECCS at Drax will permanently remove millions of tonnes of carbon from the atmosphere and help heavy industry in the UK’s largest emitting area decarbonise quickly and cost effectively;

It will enable the creation of tens of thousands of green jobs in the North of England, levelling up the economy and delivering a green recovery from the Covid crisis;

And it will put the UK at the forefront of global efforts to develop carbon removal technology in this, the year that we host COP26 in Glasgow.

The scale of the climate crisis means that we cannot stop here.

A proven technology

We know that BECCS works and that the technology is available now. Looking at cost projections from the CCC, we also know that it is the best value negative emissions technology.

Engineer at BECCS pilot project within Drax Power Station

We have already successfully run two BECCS pilots at the power station. In 2019 we demonstrated that we can capture CO₂ from a 100% biomass feedstock. And in 2020, we began a second pilot working with Mitsubishi Heavy Industries to further enhance the potential for delivering negative emissions.

We aim to deploy BECCS at scale by 2027. To that end, earlier this month, we kickstarted the planning process for our proposals to build our first BECCS units, marking a major milestone in the project and putting us in a position to commence building BECCS as soon as 2024.

The support we need

Drax Power Station has a proud history of transformation. And today we are making rapid progress in further decarbonising our operations and making bold commitments about our future.

The core of our successful decarbonisation has been a close partnership with government. And it is this partnership that will make BECCS a reality and enable the multiple benefits that come with it. An effective negative emissions policy and regulatory framework from government will enable further investments from companies such as Drax.

We believe it is possible for such a policy framework to emerge in the coming months.

With COP26 later this year, making that policy commitment will allow us to accelerate our own decarbonisation journey and support the industries of the future here in the UK.

BECCS in context

But we know that there is no silver bullet solution to tackling climate change.

Negative emissions technologies such as BECCS will be needed alongside others, for example more renewables, electric vehicles, energy storage, energy efficiency and hydrogen.

BECCS will enable us to permanently remove carbon emissions from the atmosphere while continuing to supply the renewable electricity that millions of British homes and businesses depend upon.

BECCS complements – and does not – and should not – substitute for ambitious decarbonisation plans. Technologies such as BECCS have a clear and unique role to play by helping harder to abate sectors such as heavy industry, aviation and agriculture – decarbonise.

This is critically important if we are to meet our legally binding 2050 net zero target. The CCC estimates that 51m tonnes of CO₂ will need to be captured via BECCS to meet net zero.

Sustainability at our core

We know that BECCS can only make a meaningful contribution to tackling climate change if the bioenergy is sustainably sourced. This has been fundamental to Drax’s transition from coal to biomass, and it remains fundamental as we progress our plans for BECCS.

Biomass, as the UK Government has stated, is one of our most valuable tools for reaching net zero emissions. So we need the right framework to ensure it is sourced sustainably.

As the world’s largest bioenergy producer and generator, we recognise our responsibility to be the world leaders in sustainability, too.

At Drax, we have invested in world leading policies, tools and expertise to ensure that our biomass is sustainably sourced. We go beyond regulatory compliance and have set up an Independent Advisory Board, Chaired by the UK Government’s former Chief Scientific Advisor, to help us and challenge us on sustainable biomass and its role in Drax’s transition to net zero.

front cover of 'Responsible sourcing' PDF

[click to read]

Thanks to our independent catchment area analyses, we know more about the forests we source from than ever before. We know and can demonstrate how demand for biomass can support healthy forests. For example, in the South East US where Drax sources most of its biomass, there is more than double the carbon stored in forests than there was 50 years ago.

A partnership with our stakeholders

The purpose of today’s session is to discuss all these issues and more. Our aim is clear: to enable a successful energy transition.

At Drax we stand ready to invest hundreds of millions of pounds to scale up BECCS technology;

To put the UK at the forefront of global efforts to reach net zero emissions;

And to help create tens of thousands of green jobs in the North of England.

But I want your help in making BECCS as sustainable and successful as it can be.

We know and can demonstrate how demand for biomass can support healthy forests.

Thank you very much for listening and I wish you a good and constructive session tackling this critical global challenge.

Will Gardiner delivered this keynote address at Energy Transitions 2021.

The video of Will’s speech can be watched in full here and with subtitles here.

Attracting investment in emerging low carbon technologies

Will Gardiner, Chief Executive Officer, Drax Group

17 March 2021

Opinion

Hello everyone. My name is Will Gardiner and I am the CEO of the Drax Group. It is great to have the opportunity to speak to you today at the Utility Week Investor Summit and to discuss attracting investment in emerging low carbon technologies.

Drax at the heart of the energy transition

My company Drax has been at the heart of Britain’s energy system for decades. And we have played a key role in the decarbonisation of the power sector: Drax Power Station in Selby, North Yorkshire, is the UK’s largest power station and Europe’s largest decarbonisation project. Cruachan, our Scottish Pumped Storage facility, is a key complement to Britain’s ever-increasing supply of offshore wind.

But the drive to create a more sustainable, net zero economy means that we cannot stop here.

Which is why at Drax we have committed to a world-leading ambition to be carbon negative by 2030.

Engineer in the workshop at Drax Power Station

We will achieve this by increasing our capacity to generate renewable electricity, and by making a transformational investment in bioenergy with CCS, or BECCS, which will enable us to permanently remove carbon emissions from the atmosphere.

We are pioneering BECCS at Drax Power Station as part of the Zero Carbon Humber cluster, a coalition of diverse businesses with the same ambition: to create the world’s first net zero emissions industrial cluster.

I am delighted to confirm today that the Zero Carbon Humber Cluster project has received more than £21m in funding from the Government’s Industrial Strategy Challenge Fund to help accelerate our plans and to help transform our vision of a zero carbon industrial cluster into a reality.