Out-Law News 4 min. read

UK government launches carbon capture usage and storage programme

The UK government has kicked off the search for the first industrial carbon capture, usage and storage (CCUS) clusters and projects, confirming a 9 July deadline for initial cluster submissions.

In the wake of a consultation held earlier this year to determine the sequencing of project clusters, the government announced it was launching Phase 1 of the process. This will seek to identify at least two CCUS clusters whose readiness suggests they are most suited to deployment in the mid 2020s to sequence on to ‘Track 1’ of the process. Details on the process for identifying 'Track 2' clusters is expected in October this year.

Phase 1 of the Track 1 process could also see the identification of reserve clusters meeting the necessary eligibility criteria.

An eligible cluster must involve a transport and storage network – for example pipelines and an offshore storage facility – capable of safely transporting and storing carbon dioxide (CO2), together with at least two CO2 capture projects. It must also be located in the UK, and be able to credibly demonstrate that it can be operational by 2030.

Phase 2 of the process will be to identify the individual projects to connect to the chosen Track 1 clusters, that will enter into negotiations to access the government support packages. Such projects are not necessarily those that are already part of the Track 1 clusters, though these projects might be well positioned for support.

Phase 2 is for industry, power and hydrogen focused capture projects. Although there are specific criteria for each category, all capture projects must be located in the UK, have access to CO2 transportation and storage and able to demonstrate they can be operational before the end of 2027, which means they must also be at pre-Front End Engineering and Design (FEED) stage by December 2022. This is the stage at which projects have undergone feasibility studies, including potential cost estimates and specification around the technological solution.

Capture projects sequenced on to Track 1 will have the first opportunity to be considered for government support, for example from the £1 billion Carbon Capture and Storage Infrastructure Fund (CIF) which will primarily support capital expenditure on transport and storage (T&S) networks and industrial carbon capture projects. The government is also exploring ways to encourage private sector investment into carbon capture and storage, and the Track 1 projects would be first in line for such investment.

The CIF will primarily contribute to the capital costs of establishing T&S infrastructure and industrial capture projects, through capital contributions or grants to projects.

However, the government said being sequenced on to Track 1 did not mean that support would be awarded.

The government is expecting to announce the successful Track 1 clusters from 25 October 2021.

Phase 2 of the process will invite applications for projects connecting to the Track 1 clusters, with a likely deadline of November or December 2021. However, the government said flexibility was key for the Phase 2 timeline and it could progress projects more swiftly if it felt this offered better value for money, and would not have a material impact on cluster timelines.

Revenue support to hydrogen-based projects will be allocated mainly through Phase 2 of the process. The government said it will shortly consult on a planned hydrogen business model, which will help select projects and provide revenue support to overcome the existing “cost challenge” of producing and buying low carbon hydrogen against cheaper high carbon fuels.

Projects that apply for support through the hydrogen business model will also be eligible to apply for capital co-funding from the £240 million Net Zero Hydrogen Fund, announced last year.

Eligibility criteria set out for hydrogen projects under Phase 2 of the CCUS sequencing process is be similar to that for power and industrial projects. However, hydrogen producers must additionally have identified and signed an agreement with off-takers for their hydrogen. Any use of hydrogen leading to a reduction in carbon emissions will be counted as a valid off-taker.

It is also acknowledged that the planned hydrogen business model consultation may result in additional criteria for such projects being introduced.

Energy expert Stacey Collins of Pinsent Masons, the law firm behind Out-Law, said: “The latest documents from BEIS contain a clear vision for what a successful CCUS cluster looks like, as well as what is required of the industry, power and hydrogen capture plants that link into it. The clusters have been positioning themselves for this selection process for some time, and we’ve already seen an acceleration in the engagement between the cluster promoters and their potential industrial, power and hydrogen partners.”

“With the UK’s hydrogen strategy expected in June and its net-zero strategy in autumn, there is growing momentum in the UK’s bid to become a world leader in decarbonisation solutions and technologies. The key message is that although some clusters and projects may be deployed sooner than others, every industrial cluster will ultimately need to be decarbonised. That’s certainly in the government’s mind.”

Along with the consultation response (25 page / 336KB PDF) and an update on the CCUS business models, the government also set out a roadmap for a CCUS supply chain (14 page / 293KB PDF) in the UK. It said it was essential for CCUS supply chain companies to realise the economic benefits of the CCUS programme and to that end laid out a vision to achieve this.

The roadmap includes mapping of the CCUS supply chain, identifying skills and capability gaps, as well as opportunities for the sector. The government said it would develop a ‘Fit for CCUS’ programme to ensure UK companies were ready for CCUS deployment, and assess the skills and capabilities necessary.

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