EXPRESS #1 - October 30, 2018
12 commercial-scale CCS demonstration plants were supposed to be up and running in 2015. This was what the European Council asked from the European Commission in 2008.
At the end of 2017, the Commission had spent €424 million on the CCS programme. The result, as of today: zilch. None of the plants ever got built.
It is well-known of course that the EU’s carbon capture and storage (CCS) efforts have failed miserably. Now in a new report, the European Court of Auditors (ECA) has analysed the two major funding programmes for the CCS projects to find out what went wrong and how much this has cost the taxpayer.
The two programmes are the European Energy Programme for Recovery (EERP) and the New Entrants’ Reserve 300 programme (the latter funded by the auctioning of 300 emission allowances under the EU’s Emission Trading System).
Both programmes were set up not only to fund CCS projects, but also other “innovative” renewable energy projects. The latter also failed partially: under the NER300, the Commission spent over half a billion euros on projects that never got off the ground. (Note that this fact is fairly well hidden in the ECA report on page 25 and is not mentioned in the press release.)
So total cost of this financing failure: around €1 billion.
Let’s look at the two programmes in more detail.
Under the EERP, the Commission granted one billion euro to six CCS projects. At the end of 2017, the Commission had paid out €424 million (see Table 1).
Four out of these six co-funded projects had ended after the grant agreement was terminated, and one project ended without being completed. The only completed project did not represent a commercial size CCS demonstration project, but smaller pilot facilities for capture, transport and storage, notes the ECA.
The ECA report described what happened:
All projects started ground preparation works early. No tangible results from these activities are in use today, except at the project in Spain. The project in the Netherlands constructed a CCS tie-in at the base of the flue gas chimney in the coal-fired power plant that entered into operation in 2013. This project was the only EEPR CCS project to obtain a carbon storage permit under the CCS Directive for its anticipated offshore storage location, but it does not currently capture and store any carbon. The largest expenditure item of the project in the United Kingdom included technology licenses acquired at €17 million and now fully depreciated. Despite €60 million of EU contributions to the capture work, the project delivered no results on this work. The project sponsors never started the construction of the base power plant to which the CCS facilities would be applied. Similar issues existed for the projects In Italy, Germany and Poland, but they were cancelled earlier.
In short, a debacle.
The EEPR did make a positive contribution to the offshore wind sector, notes the ECA.
At the end of 2017, the Commission had paid out €255 million of the €565 million it had granted to nine offshore wind projects. Four projects had reached full completion. For two projects, the grant agreements were terminated early after the Commission had paid out €7.4 million. Three projects are still on going in 2018.
Note that the EEPR was also intended to “quickly stimulate economic growth” after the financial crisis, but it also failed in this respect. Stimulating economic growth “required spending a large portion of the available funds by the end of 2010”, notes the ECA. “While spending money is not an objective in itself, the EEPR CCS and offshore wind programmes did not meet this recovery objective. Payment rates stood around 10% at the end of 2010, and were still below 50% for both programmes at the end of 2017.”
The NER300 programme likewise has delivered not a single successful CCS project, notes the ECA.
NER300 “aimed to award funding to eight projects which would demonstrate the commercial viability of CCS. This funding could be awarded to projects already funded under EEPR, or to other projects demonstrating CCS. After the first NER300 call for proposals of 2011, ten CCS demonstration projects were eligible and had successfully passed the EIB’s due diligence appraisal. The Commission ranked eight projects to consider for grant funding and kept two on a reserve list. Based on this ranking, the Commission asked Member States to confirm their support to these projects. Three Member States confirmed five of these ten projects. Yet, the Commission found that these confirmations were not in line with NER300 legal requirements and did not award any grants to CCS projects for the first call for proposals.”
Under the second call for proposals in 2014, writes the ECA, “only the United Kingdom submitted a CCS project. The Commission awarded a €300 million grant to the project that was also included in the United Kingdom national CCS support scheme. This project planned to capture and store almost 18 million tonnes of CO2 over a ten year demonstration period. However, in November 2015, the UK cancelled its support scheme following a spending review. This left a significant funding gap and the consortium disbanded. At the time of the audit, withdrawal of the project from NER300 was under preparation, meaning that the €300 million grant awarded but yet to be paid, would not be spent on the NER300 CCS objective.”
In other words, the good news is that the NER300 in the end did not spend any money on CCS projects.
In addition to funding CCS projects, however, NER300 also aimed “to support at least one project in every renewable energy project sub-category to demonstrate the viability of a range of innovative renewables not yet commercially available. The Commission awarded €1.8 billion of NER300 funds to 38 innovative renewable energy projects in 2012 and 2014.”
What were the results? Of the 38 projects eligible for financing, only six projects were in operation in 2018, as can be seen in this chart:
The ECA writes that “In February 2015, the Commission amended the NER300 Decision, putting back the deadlines for final investment decision and entry into operation by two years34. The amending Decision mentioned that the economic crisis was the main reason why a significant number of projects awarded NER300 funds were unable to reach final investment decision within the original deadlines. Despite these deadline extensions, seven projects (with total grants awarded exceeding half a billion euro) had withdrawn from NER300 by early 2018. One further project was likely to withdraw in 2018, representing another 31 million euro. Fourteen projects awarded grants in 2014 should still reach final investment decision in 2018.”
Most of the projects that were withdrawn concerned bioenergy, as the chart notes. Note that the final bill could still turn out to be higher, as there are still 14 projects in planning.
Although the ECA tries to find some extenuating circumstances for this debacle (“EEPR and NER300 projects were affected by adverse investment conditions”), they can be no excuse for this failure.
What lessons should we drawn from this? There is only one lesson really: the EU should not be spending any money on energy projects in the first place. Bureaucrats and politicians are not good investment managers – first, because they are not spending their own money, and second, because they don’t have the right incentives.
Needless to say, that is not the lesson that will be drawn in Brussels. An article on Euractiv about the ECA report did not even mention how much money has been wasted. It just talks about how to spend the money that was left in the programmes.
Of course, the Commission has promised that the next time “the new provisions will be spelled out clearly and that cooperation agreements with the EIB will be improved”. Sure. There is always a next time. Until the next ECA report…