Why is CCS not investable?

Why is carbon capture and storage not investable in the UK right now?

The UK / EU have announced they want 20% reductions in CO2 by 2020, 30% by 2030 and 80% by 2050.

If these targets are to be achieved, this means that the amount of conventional coal power (without carbon capture) will soon be limited. This will create a market for decarbonised electricity to fill the gap.

In 2030 for example, electricity will need to be around 50% decarbonised to hit this 30% overall target (if we work on the basis that transport will take longer to decarbonise, since it needs both a supply of decarbonised electricity or hydrogen, and a conversion of vehicles to electric or fuel cell power).

If the National Grid (UK electricity body) must limit the amount of electricity supplied to the UK which can be carbonised as 50% of the total, then it will be shopping for decarbonised electricity. This comes at a price, but the price will be passed onto consumers who will presumably pay rather than go without their hot drinks and other things electricity provides.

This means there will be a real market for wind and coal + CCS – the sources of decarbonised electricity. They can both compete with each other. The market price will adjust until the 50% can be supplied – or until the electricity price rises to the point that consumer demand drops.

Basically there’s going to be a lot of demand for decarbonised electricity and a willingness to pay in 2030 – and a gradual increase up to that point.

If it takes at least 10 years to plan and commission a carbon capture plant, you might think that there’s a reasonably strong investment case in carbon capture right now – and this investment case will strengthen over the years.

There’s a collossal amount of capital in the world looking for reliable returns which don’t need to be particularly high. So if you take a slightly higher risk and invest in carbon capture now, perhaps you can sell your investment on to investment funds with a lower risk profile in a few years, at quite a high profit.

I’m not an investor – no-one is investing in this idea right now although it is fairly clear – but I can’t see the holes either. Unless people think there’s like a likelihood this carbon discussion will go away. Do we need some kind of government guarantees?

 

 

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