£100m spent on failed carbon capture tender

20 January 2017

The government did not achieve value for money during a £100m tender process on a project to develop carbon capture and storage (CCS) technology, a National Audit Office (NAO) report has said.

The way the Department of Energy and Climate Change (DECC), which later became part of the Department for Business, Energy and Industrial Strategy (BEIS), structured the competition meant the two shortlisted bids were unlikely to reduce the future cost of the technology, the report said.

Three quarters of the money BEIS spent on the competition financed engineering design studies conducted by the two shortlisted bidders. The rest of the money was spent on legal, technical and financial advisory services.

CCS is currently too expensive to be commercially viable without public subsidy and the Treasury was prepared to invest £1bn to support its development.

Although the DECC spend did improve the department’s understanding of risk and technical knowledge, the report said the value of this spending would depend on how this was used in any future CCS projects.

“There are undoubtedly challenges in getting CCS established, but the department faced an uphill battle as a result of the way it ran the latest competition… The department must learn lessons from this experience if it is to stand any chance of ensuring the first CCS plants are built in the near future,” said Amyas Morse, head of the NAO.

CCS technology is a crucial part of the government’s plan to meet its emission targets, because it can be applied to existing power stations, and it was hoped the competition would help kick-start the large-scale use of the technology.

However, the Treasury pulled its £1bn funding because it felt the cost to the public would be too high and the bids were unlikely to make the technology less expensive in the future.

The two bidders subsequently withdrew their bids.

This is the second time the government has failed to instigate CCS technology in the UK. DECC previously spent £68m on a competition that also fell though.

In a statement, a BEIS spokesman said the government had chosen to “protect consumer bills”.

“We haven’t closed the door to carbon capture and storage technology in the UK, but decisions had to be taken to control government spending and protect consumer bills. This is why the government ended the funding for the CCS competition, and ensured taxpayers were protected from significant costs when the competition closed,” he said.

He added that the UK continued to work with industry to develop CCS technology.

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