Bloomberg News

CO2 Plunge May Create Funds Gap for Carbon Capture, PwC Says

October 06, 2011

(Adds U.K.’s Longannet project in sixth paragraph.)

Oct. 6 (Bloomberg) -- A plunge in carbon prices may create a funding gap for power stations that plan to trap greenhouse gases from smokestacks for permanent burial underground, according to PricewaterhouseCoopers LLP.

The European Union plans to fund carbon-capture-and-storage projects as well as lesser-developed renewable-energy projects using money raised from the sales of 300 million EU emissions permits. Allowances for December have plunged 42 percent from their highest level in May, cutting the pool of money available.

Carbon-capture projects, more costly than renewables, may not receive all the funding they need, Jonathan Grant, London- based assistant director of sustainability & climate change at PwC, the management consultant, said by telephone yesterday. “The lower prices could create funding gaps in the projects which applied for the maximum amount,” he said.

The European Investment Bank said yesterday it will start sales of a reserve of permits soon after an EU regulation providing for a transfer of the allowances becomes binding. The EU rules, which the EIB said are expected to enter into force in the first half of November, allow the European Commission to deliver the post-2012 allowances to the bank.

In the first round of sales, announced in November, proceeds from 200 million permits are to be split among at least eight carbon-capture projects and 34 renewable energy technologies, covering as much as half of the construction and operation costs that companies and national governments will also help finance.

‘Less Funding’

Iberdrola SA’s Scottish Power Ltd., Ayrshire Power Ltd., SSE Plc, 2Co Energy Ltd. and Drax Group Plc are seeking funds for carbon capture projects in Britain.

Plans to capture and store emissions from Iberdrola’s 2,400 megawatt coal-fed Longannet power station may be abandoned, according to a report from the U.K.’s Guardian newspaper today. The project may “collapse within weeks”, the newspaper said, citing an unidentified senior Conservative member of parliament. The power station had applied for as much as 1 billion pounds ($1.6 billion) of U.K. funding and EU money.

“The fact they raise less money will mean there’s less funding, which might cause problems for projects,” Grant said. “With less funding overall, you might find they don’t get any projects in some countries or particular renewables or CCS categories.”

EU permits for December closed at 10.47 euros a metric ton on London’s ICE Futures Europe exchange. The contracts have fallen from as high as 18.18 euros in May, the data show, on a slowing economy that reduces factory output and damps power demand.

--Editors: Rob Verdonck, Raj Rajendran

To contact the reporter on this story: Catherine Airlie in London at cairlie@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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