Characterising risk and uncertainty for CCS investments in the UK

Ms Hannah Chalmers, University of Surrey

 Carbon capture and storage (CCS) technologies have been recognised by policy-makers and scientists as a potentially important part of a programme of activities to mitigate the risk of dangerous climate change.  In the UK, a number of projects have been proposed and Government is running a competition to identify a near-commercial scale project to receive significant support.  As CCS deployment in the UK is starting to become a real possibility in the short to medium-term future, utilities and other potential investors must identify which investments could be most appropriate for them and how they can accurately characterise key factors required to make the ‘right’ decision for their situation.  It is expected that one key component of these decisions will be a thorough understanding of the risk and uncertainty associated with CCS deployment in the UK.

This paper will outline some of the key risks and uncertainties associated with CCS investments in the UK, including technology issues, possible policy developments and the importance of considering CCS in the context of an investment portfolio.  Potential differences in operating flexibility of different technologies with associated implications for risk, uncertainty and the business case for investment will be highlighted.  The availability of methods that could allow investors to quantify risk and uncertainty will then be discussed with a particular focus on whether methods developed in financial economics, such as real options and portfolio analysis, can be adapted successfully to provide useful insights.  As well as immediate deployment of CCS, the potential role of capture-ready plants that can be retrofitted with CO2 capture later will be explored, with a particular focus on the potential value of this approach to minimise the impact of technical and regulatory risk that the project developer is exposed to.