8| Business risks faced by early CCS projects
The principal financial risks associated with anticipated revenue, costs and technical/operational aspects of CCS projects were identified to inform the discussion of business models for early CCS projects.
Early CCS projects are likely to consist of dedicated transport and storage facilities matched with each source. This study concentrated on the risks associated with projects of this nature. A more mature CCS industry may well consist of multiple projects with a shared infrastructure - many capture projects feeding into a CO 2 pipeline network which is then linked to a multitude of storage sites.
The configuration of these early projects means they are likely to face additional business risks. Three key areas of business risk and their mitigation were investigated: Revenue stream risks, Cost risks and Technical and Operational risk (Figure 21).
Figure 21
The key areas of business risk.
Revenue streams - the power station will be the principal source of income to any CCS project selling 'low-carbon' electricity to the market. Uncertainty over gas, coal and carbon prices in the long term brings with it uncertainty regarding the gross margin for power generators. Furthermore, the UK electricity generation mix is likely to evolve in the years to 2020 both as a result of policy and in response to commodity prices; more nuclear and renewables capacity could result in lower usage levels of CCS plants and therefore lower overall revenues.
Costs - Capital costs ( CAPEX) form the single largest source of cost uncertainty and are likely to dominate the character of overall schemes. The technologies of pipeline systems and storage sites are better known than those of other elements, so their capital costs are more certain. However, these form a large proportion of the total capital requirement so any overrun will have a disproportionate impact on overall project returns. Uncertainty in the thermal efficiency of CCS plants will give rise to significant elements of risk in the operational cost ( OPEX), through fuel costs. The relative novelty of CCS technology and the risks associated with it suggest that the costs of financing early projects will be higher than those of more mature technologies.
Technical and Operational risks - There will be significant cost savings from learning effects. Technical and operational efficiency will also improve with experience. The two areas most likely to achieve significant improvement are the power plant (which currently accounts for approximately two thirds of lifetime costs in each CCS scheme) and storage sites. Pipelines are much more of a known quantity, and levels of operational risk can be well estimated in advance. Some additional financial risk may be associated with the construction of early CCS power plants, where delays are more likely than for conventional stations because of the complexity of the projects.