For the first time the Carbon Capture and Storage Association (CCSA) held a Member’s Discussion Forum to consider the next steps for UK CCUS. Slaughter and May were delighted to host the event and to welcome senior industry representatives to our offices in London on 15 June.
The panel, chaired by Ruth Herbert (CCSA Chief Executive), considered the UK Government’s latest CCUS announcements and what’s next for Track-2, Track-1 expansion and beyond. I joined Chris Manson-Whitton (CEO of Progressive Energy Ltd), Guy Appleton (CFO and MD of New Energies at Kellas Midstream), Nicola Cocks (Head of Regulation and Policy at Storegga) on the panel.
We agreed that the UK’s geography presents a unique opportunity to successfully cover the UK’s CO2 storage needs and to develop a market for CO2 imports from the EU. The business models that are currently being developed by the Government with input from CCSA members are helping to build the right base to do so. However, these need to be sufficiently flexible to accommodate the CO2 markets of the future. A key focus of the discussion was, therefore, to assess what will be required both in the short-term and in the longer-term, to turn this opportunity into success.
My key take-aways:
Chris emphasised that the UK’s well-suited geology, the clusters of coastal emitters and the good overall strategy that is being deployed all present an excellent opportunity to develop a very strong and internationally competitive CCUS sector. Based on current projections, the UK has greater storage potential than is needed to meet the UK’s domestic emissions reductions targets. This opens the opportunity for the UK to offer storage to emitters from beyond its shores. Nicola’s vision captured this market potential, envisaging in the not all too distant future a ship leaving port in Germany and deciding, on a cost basis, to head to the UK rather than say Norway or the US, to deliver its CO2 cargo for storage.
The key to unlocking this potential is the rapid development of the UK’s CO2 transport and storage infrastructure that will form the cornerstone of the sector’s development. This needs to be operational as quickly as possible.
The announcements of the £20bn Government funding envelope, the Track-1 capture project negotiations, the Track-2 expressions of interest and the promise of an expansion to Track-1 capture projects have all been encouraging. But Ruth highlighted that industry is still awaiting the Government announcement of time-lines for Track-2 and Track-1 expansion. The panel observed that the lack of certainty as to when a project may be able to apply for support could, in the worst case, lead to projects that could have been viable being abandoned. To ensure that momentum is kept high, panel members called for a clear timeline setting out the stages for the expansion to Track-1 and the development of Track-2.
The current selection process, with lumpy allocation rounds and a lack of visibility on timelines for future rounds, runs the risk of congesting supply chains as projects seek to commission at the same time and making it difficult for projects to arrange longer term financing. The panel acknowledged and agreed with the need to focus on value for money. However, Guy emphasised that using the current approach for future rounds is likely to increase costs for projects and therefore ultimately drive down the value for money that can be offered.
We also discussed the importance of providing industry with visibility on the expansion of both the ranges of emitters eligible to apply and the types of storage covered by the business models, as well as on the role of shipping-based CO2 transport. It is time to make tangible progress on the business models Greenhouse Gas Removals and Power BECCS, and to provide clarity on how non-pipeline CO2 transportation can integrate into the transport and storage regulatory investment model.
The need to keep up momentum is important not only for achieving net zero targets but also for building strong supply chains and keeping expertise in the UK. Attention to detail in the business models and the more extensive protection against cross-chain risks, for example, were highlighted as key differentiators in the UK’s approach vis-à-vis the US’s tax credit-based approach under the Inflation Reduction Act. However, the US’s model, while potentially riskier for project developers, offers far greater investor certainty through its simplicity, which is in turn allowing for quicker development of projects and the establishment of supply chains and job creation.
Overall, the sentiment across the discussion was that the UK business models are approaching the right balance – and that DESNZ should be commended for the work done to-date in developing those models – , but, in the face of growing international competition, the UK must make sure that it takes full advantage of its strong starting position and avoids further delays which may result in both losing viable projects and the UK being left behind in the process of developing CCUS expertise and supply chains.