02 June 2022
Insuring the Unknown Quantity: BECCS
Establishing the risk profile of any new technology is never an easy task. The stakes are raised further, however, when the technology is integrally – if controversially – linked to global decarbonization efforts. This is the story of bioenergy with carbon capture and storage.
Attitudes to bioenergy with carbon capture and storage (BECCS) are mixed. In the years after the Paris Agreement, the technology was hailed as one of the pivotal technologies for limiting global warming to the desired levels. More recently, it has been seen more as a ‘tempting chimera’, whose supposed benefits simply do not stand up to scrutiny.
BECCS: what’s the fuss about?
BECCS technologies feature prominently in the roadmaps to achieve Paris Agreement goals this because they are among a small group of solutions known as negative emissions technologies (NETs). These go further than most net-zero technology options in actually reducing the concentration of carbon dioxide (CO2) in the atmosphere, and so helping extend the global carbon budget. BECCS is a particularly attractive NET because it has the dual benefit of generating clean electricity. Also in its favour: there is at least one large-scale BECCS plant already in commercial operation in the US bioethanol industry. In the UK, BECCS has been recognized by the Department of Business, Energy and Industrial Strategy (BEIS) as offering ‘great potential’ for supporting the country achieve its climate goals.1 The UK is also home to the world’s only demonstration project to capture CO2 from a large-scale 100% biomass-fired power plant boiler, at Drax in North Yorkshire.
Now the bad news
With all that said, BECCS sceptics are not hard to find, and there is growing acceptance that enthusiasm for the technology in earlier decarbonization pathways was overdone. Critics point out that, despite the concept being around for some time now and projects such as Drax, there are still no commercially-operating BECCS plants in the power industry. Some also question whether the technology is in fact carbon negative. In addition, there are practical insurance concerns when it comes to implementing BECCS on any sort of scale, at both new-build facilities and as retrofits to existing biomass power plants. As BEIS itself admitted recently, the range of risks and uncertainties that could impact the investability of BECCS plants in broad.3 These include both capital cost uncertainties and market-based risks (e.g., electricity prices, biomass costs and carbon prices), as well as risks associated both with the biomass supply chain and the downstream transport and storage of CO2. The last of these could be particularly problematic, since CO2 transport and storage will fall outside the control of BECCS developers. This will likely require some form of commercial framework to mitigate potential loss of revenue from an inability to produce negative emissions.
Who will pay? Subsidising BECCS
When it comes to the availability of finance for BECCS projects, there are more hurdles. Biomass subsidies ended in the UK in 2017 and there has been little, if any, new developments since then. Implementing an economic framework and support mechanism for BECCS – or NETs more generally – is therefore ‘considered essential’, according to BEIS. The subsidies needed are likely to be substantial, although the precise level of support will ‘depend on technology development and risk allocation to government and developers’. Yet public subsidy for BECSS will face opposition. In addition to the points noted above, land use could be another potential flashpoint. Although Drax is committed to using biomass from forestry waste, widespread adoption of BECCS will require the growing of specific biomass crops, reducing the availability of land for other uses (such as food production), as well as impacting biodiversity. ‘Policymakers should be skeptical about a future that is uniquely or heavily reliant on BECCS, and instead prepare for and implement alternative mitigation options as soon as possible’, concluded researchers at the Grantham Institute. More recently, in April 2022, the European Science Academies echoed these concern, cautioning policymakers to ‘look before they leap’ before committing taxpayers money to back the technology. All of these myriad risks and uncertainties will likely need, at the very least, a business continuity insurance response in order to allow BECCS projects to get off the ground at any sort of scale.
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With no commercial-scale reference for carbon capture, establishing a risk profile is not easy
Enigma, paradox, conundrum: defining the risk profile of BECCS
There is also uncertainty around the technology (or more accurately, technologies) involved in BECCS. Although biomass-to-energy is an established industry, the bolting-on of carbon capture is not. With no commercial-scale reference project currently available, establishing a risk profile is not easy. Consider the implications of retrofitting an existing biomass plant. Adding a carbon capture facility raises a variety of insurance concerns. At the most fundamental level, when you add equipment to a site (even when that equipment is well understood, which is not the case here), the nature and size of risk will change. Consequently, the insurer will expect to understand the risks of the technology, how those risks are to be managed and how they impact the overall site risk profile. But for BECCS, the answers to these questions are something of an unknown quantity. For example, many carbon capture technologies are solvent based. Is that solvent going to create a risk for the rest of the operation? Does it present an explosive or fire risk? Do existing onsite fire protection systems provide adequate capacity to cover the expanded site footprint? Further questions are raised when the solvent in question is not an industry standard product, such as the solvent being trialed at Drax. As with any new technology, working with a broker, such as Gallagher, who understands the risks, and can support risk management and planning, will be important for businesses looking for insurance coverage of a BECCS installation, whether purpose built or retrofit.
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