PGE ENDS POLISH CCS PROJECT; ‘GREEN HYDROGEN’ ALSO APPEARS DONE

EU Projects Continue to Stumble After CCS Shut Out in First Round of NER 300

Tamar Hallerman
GHG Monitor
4/12/13

The utility PGE Group confirmed this week that it has pulled the plug on Poland’s only planned carbon capture and storage project after it failed to receive money in the first round of the European Commission’s clean energy funding competition. A company spokeswoman said that PGE’s board recently decided to “terminate” the proposed 250 MW capture project at its Belchatow power station, which at 5,053 MW is Europe’s largest CO2 emitter. “One of the reasons for the decision was the company’s inability to secure necessary financing for the project,” the spokeswoman told GHG Monitor in a written statement. Tucked into a fourth quarter 2012 earnings report to investors, PGE said that a number of technical, legal and social risks associated with the project posed a “material hazard for project continuation.”

With a relatively low initial price tag of €600 million ($787 million), Belchatow was seen as a CCS project with early promise as the Polish government entered it into the first round of the EC’s New Entrants Reserve Competition (NER 300). PGE planned on rolling out the project in two phases—first capturing 100,000 tonnes of CO2 per year from a retrofitted 250 MW coal unit and eventually separating 1.8 million tonnes of CO2 from 858 MW of cumulative generation using Alstom’s advanced amine post-combustion capture technology. The EC ranked the project second on its preliminary list of preferred CCS projects last summer, and Belchatow’s future looked bright given that the project had already netted a cumulative €317 million ($416 million) in additional funding commitments from the Norwegian government and the European stimulus bill in 2009.

But hopes for the project began heading south in 2011, when the then-CEO of PGE said publically that the utility would only move ahead with the project if 100 percent of the remaining project costs were covered by the EC and the Polish governments. Company officials continued to voice their dissatisfaction with proposed funding schemes, as it became increasingly unlikely that PGE would allow the project to move forward. “As long as such support is not ensured, we are in no position to launch this project fully,” PGE’s Chief Financial Officer Wojciech Ostrowski said last summer. When Belchatow did not receive funding under the first round of NER 300 in December, the project appeared all but dead, sources said. The Polish government did not respond to a request for comment.

Green Hydrogen Project Put on Hold

Belchatow is not the only European CCS project that is on the rocks. Several European sources have confirmed to GHG Monitor that another demonstration project that was entered into the first round of NER 300 has also been shelved. Multiple sources said that Air Liquide has killed its Green Hydrogen demonstration project in the Netherlands. That project would have captured CO2 at a recently-constructed hydrogen production facility near Rotterdam and stored the CO2 offshore in the North Sea near the city’s port, sharing a pipeline infrastructure with another Dutch capture project, the Rotterdam Capture and Storage Demonstration Project (ROAD).

The project also made the EC’s short list of preferred projects last summer, ranking third in the list of the projects most likely to get funding. But the Dutch government failed to ensure the extra funding requested by the EU, and the project came up short financially. When contacted this week, an Air Liquide spokeswoman said the project is currently “on hold” due to the lack of European funding, but would not expand on the project’s future. Multiple sources said the industrial gases company was not pleased with the way it was treated by the Dutch government and the European Commission. “Air Liquide has more or less said officially that they are abandoning the Green Hydrogen project,” said Paal Frisvold, chairman of Bellona Europa. “From what I understand, Air Liquide lost faith in the European Commission.” The Dutch environment ministry did not respond to a request for comment.

EC Moving Forward on Phase II of NER 300

News of the cancelled projects comes days after EC officially kicked off NER 300’s second round. The EC said last week that it will be accepting bids for CCS and ‘innovative renewables’ projects through July. In the meantime, it will begin gradually selling off 100 million carbon allowances set aside for the competition on the EU’s Emissions Trading System, with the hopes that it can announce winners by the middle of next year. If carbon prices stay stable at their current price of around €5 ($6.50) each, the EC could net around €500 million for the competition’s second round. Combined with an additional €275 million ($353 million) in funding rolled over from NER 300’s first round—that money was supposed to go to an industrial CCS project in France that dropped out of the competition last minute—that means the pot of money available for clean energy projects in the second round will likely be around €775 million ($1.02 billion).

That amount could co-finance two to three large-scale CCS projects, Frisvold said. Since all of the money in the first round went to renewables projects, he added, CCS “deserves” to get the lion’s share of funding in the second. “It wouldn’t be inconceivable that all of the money this time went to CCS. It was the CCS community that invented and adopted this [competition], so we deserve it,” he said. When announcing NER’s first round results last December, EU Climate Action Commissioner Connie Hedegaard indicated that since renewables swept the competition’s first round, CCS projects could have more of a chance in the second. But she also underscored at the time that it is the responsibility of member countries to “do their homework” and provide the EC with the level of financial certainty required. “I know that there are some CCS projects in the pipeline that are very good, but it also goes without saying that we have our requirements,” she said at the time.

Frisvold said he is optimistic that CCS can win out in the second phase of the competition despite the “total communication breakdown” that occurred in the first round between the EC and member states. “I’m confident that we won’t let this second chance go away from us,” he said. “Overall, I’m very optimistic because money talks. There’s money on the table and there is a clear, strong willingness now, as well as a clear understanding on how this mechanism works.” He said that the urgency reflected in an EC white paper on CCS released late last month indicates that the EU is willing to step up to the plate on CCS.