The government has proposed using a dual Contracts for Difference (CfD) mechanism with separate strike prices for electricity generation and negative emissions to spur the development of bioenergy with carbon capture and storage (BECCS) power stations.
A consultation paper issued on Thursday (11 August) by the Department for Business, Energy and Industrial Strategy (BEIS) outlined the government’s thinking on the business model for BECCS plants.
As carbon dioxide is absorbed during the growth of the feedstock and then captured and stored when it is burnt to generate power, proponents claim BECCS plants are able to deliver net negative carbon emissions. Drax submitted £2 billion plans last month to fit CCS equipment to two of the biomass units at its power station in North Yorkshire.
The BEIS paper argued that electricity CfDs, which have underpinned the recent boom in the offshore wind sector, offer the best mechanism for supporting roll out of the fledgling BECCS technology. These would be combined with a new type of carbon CfD, which would provide a guaranteed price for negative emissions by paying out or recouping the difference with the prevailing price on carbon markets. Payments would be made on a £/MWh and £/tCO2 basis respectively.
BEIS said this dual mechanism would be “familiar and effective”, boosting investor confidence by offering stable revenues for both electricity generation and negative emissions, whilst also providing paybacks to consumers when power or carbon prices are high. The associated costs of each output could be spread separately across the two revenues streams.
The carbon CfD could also be integrated into carbon markets such as the UK Emissions Trading Scheme, fulfilling the “polluter pays” principle and reducing the cost to consumers of support payments.
Other options considered by the department included a carbon CfD only and an electricity CfD combined with a fixed direct negative emissions payment.
BEIS said just using a carbon CfD would create perverse incentives for plants to run during periods of negative electricity prices to maximise carbon payments. It would also require a higher carbon strike price to cover fuel costs, increasing support payments by customers and reducing the likelihood of paybacks when carbon prices are high.
The champions of BECCS say the technology offers a way of generating power while offsetting emissions from hard to decarbonise sectors like aviation. However, critics dispute that biomass generation by itself is low-carbon and that combining it with CCS therefore can deliver negative emissions, particularly when considering emissions over the timescales relevant to limiting climate change.
Kwasi Kwarteng, secretary of state for business and energy, said the government is “fully behind biomass energy to provide more power in Britain, for Britain”, following a report in today’s ‘Financial Times’ newspaper that he told MPs biomass has not developed as rapidly as other renewable technologies, like wind.
Will Gardiner, CEO of Drax Group, said the consultation paper could kick start a new sector of the economy with the potential to grow to an “even greater scale” than wind and solar power.