By Nina Chestney
LONDON (Reuters) - The British government has reduced to two from four the number of proposed carbon capture and storage (CCS) projects it will consider for 1 billion pounds in funding, Chancellor George Osborne said in his budget statement on Wednesday.
The two preferred bids are Shell and SSE's 1,180-MW combined cycle gas plant in Peterhead, Scotland, and Drax's 304-MW coal plant in North Yorkshire.
"The government intends to take forward two CCS projects to the detailing planning and design stage of the competition," the government said in its budget document.
"This represents the next step in the 1 billion pound CCS commercialisation programme," it said.
Dropped from the selection process were Petrofac's 570-MW coal-gasification project in Grangemouth and Progressive Energy and GDF Suez's 330-MW coal-gasification project in Teesside.
A final investment decision will be taken in early 2015 on the construction of up to two projects, the Department of Energy and Climate Change said in a statement.
The government is counting on CCS to reduce greenhouse gas emissions and provide jobs, although commercialisation is thought to be around a decade away in Britain.
CCS helps fight climate change by trapping and burying greenhouse gas emissions from power plants and heavy industry.
CARBON SUPPORT RATE
From April 1, a carbon price floor will be introduced in Britain to ensure UK companies pay a minimum price for emitting carbon dioxide (CO2).
In Wednesday's budget documents, the government set the carbon price support rate for the 2015-16 tax year at 18.08 pounds per tonne, significantly higher than expected.
The government previously suggested support rates of 12.06 for 2015-16 while it has set a support rate of 9.55 pounds per tonne in the 2014-15 tax year.
EU carbon prices for delivery in 2015 currently trade around 3.50 pounds, meaning British power generators could face carbon bills several time higher than their EU counterparts.
"The government will continue to provide support to energy intensive industries to compensate for the indirect cost of the CPF in 2015-16. Further details will be announced in the next spending round," the budget document said.
British energy companies and environmentalists have criticised the carbon price floor, saying it will push up the cost of energy, create the highest electricity bills in Europe and put British firms at a disadvantage compared to EU rivals.
Osborne also announced the government will support the manufacture of ultra-low emissions vehicles in Britain with new tax incentives.
(Additional reporting by Susanna Twidale; editing by Jason Neely)