Companies are still waiting to hear full details from the UK govenment on how it intends to provide £1bn in funding for CCS projects, as promised in the spending review.
Eon recently announced that the uncertain economic conditions meant it would pull out of its plans to build a coal-fired CCS plant at Kingsnorth. Meanwhile, industry leaders have warned that providing the financing only by guaranteeing a floor to the carbon price would not be enough incentive for companies to build the expensive plants.
So the news that the European Commission will announce a “prize” to fund CCS and renewables projects will be very welcome for some.
Under the scheme, bidders will pitch their ideas for new technologies to member governments, which will forward their recommendations to the European Investment Bank, which will then make its own recommendations to the Commission.
At the end, successful bidders will receive a share of whatever is raised by selling off 300m carbon contracts, currently worth €4.5bn on the open market.
But there are two catches:
- The carbon price could drop, significantly diminishing the pot of money available.
- The EU is only willing to fund 50 per cent of the proposed projects. The rest will have to come from member governments (unlikely) or private funding.
Euan McVicar, head of the renewable energy team at McGrigors, says:
Our experience is that private investment could come from a range of sources from banking syndicates to the likes of Google and Ikea who have made green investments to diversify and boost their CSR credentials.
But even with those problems, the fact that there is upfront funding for these projects will make them a lot more atractive for companies to pursue than those that are being incentivised purely through the promise of a higher carbon price in the future.