UK relaunches $1.6 billion carbon capture competition

LONDON (Reuters) - Britain relaunched on Tuesday a 1 billion pound ($1.6 billion) competition for one or more power plants to capture and store carbon (CCS), five months after the government's first attempt to finance the technology failed due to spiraling costs.

The Department of Energy and Climate Change (DECC) said it was already in discussions with developers of CCS projects to find an appropriate minimum electricity price level for the technology to be awarded to projects through so-called contracts for difference, on top of the competition funding.

The selected project or projects could sign front-end engineering and design contracts with the government by the end of this year or in early 2013, and the plants are expected to start operating between 2016 and 2020.

"(CCS) could be an absolute global game-changer. We think this could be a hundred thousand jobs to the UK in the 2020s," said Britain's Energy Minister Charles Hendry on Tuesday.

The CCS industry could contribute 6.5 billion pounds per year to the UK economy by the end of the 2020s through exports of knowledge and products, the government said.

But the technology is commercially unproven and costly to build, while there is little experience globally so far in developing such complex plants.

Britain's previous CCS competition failed in October when the last bidder, Scottish Power's Longannet power plant, withdrew on the issue of how much government funding would be needed.

"One of the criticisms of the previous competition was that we weren't flexible enough, and so what this one is really about is listening to the industry more, being a bit more flexible and looking at what's actually going to work," said a DECC spokesman.

Several companies, such as British power producers Drax and SSE or network operator National Grid, plan to apply for government funding for the projects they are involved in.

Companies face a July 3 deadline for submitting full applications and have to register their interest with the government by April 13.

To qualify for funding, CCS projects have to have a power plant and carbon capture facility based on the British mainland and a storage site located offshore.

Britain's previous CCS competition failed in October when the last project, Scottish Power's Longannet power plant, withdrew its bid after discussions collapsed with the government about how much funding was needed.

($1 = 0.6244 British pounds)

(editing by Jane Baird)

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