The government has staked out financial support for UK carbon capture and storage (CCS) Track 1 projects. At the same time, ExxonMobil has pulled out of its proposed UK CCS plan. There’s a clear divide between winners and losers.

Track 1 is a good starting point for the UK’s carbon ambitions. But if it is serious about achieving its 2030 goals, the country must bring in more projects – and fast.

The government announced, on October 2, that it would provide up to £21.7 billion of funding. This is to go to two planned CCS clusters.

The funding from the new Labour government fleshes out a pledge by the previous Conservative government. It has been widely welcomed by CCS supporters. There are now clear hopes that it will spur the developers involved to push ahead.

It’s clear CCS will play a critical part in the UK’s decarbonisation plans, but it comes with a significant cost. As a National Audit Office (NAO) report in July said, the scale of government intervention is substantial.

The report warned that “risks of project failure, high upfront costs, and obsolescence” will need to be accommodated. It went on to note that the CCS plans were “going to be one of government’s largest projects financially”. As such, the Treasury will have a “crucial role to play in overseeing and managing the financial risks”.

Track 1 changes

The funding is being allocated to three of the eight Track 1 CCS projects that had advanced to negotiations for government support under the cluster sequencing programme. It also covers two CO2 transportation systems within the same CCUS clusters: HyNet North West and the East Coast Cluster (ECC).

A UK Department for Energy Security & Net Zero (DESNZ) representative confirmed the projects. At the HyNet cluster, it covers Eni’s Liverpool Bay CO2 transport and storage system, EET Hydrogen’s HPP1 CCS-enabled hydrogen plant and Protos’ CCS-enabled energy-from-waste facility.

From the ECC, the projects selected are the Northern Endurance Partnership’s (NEP) CO2 transport and storage system and the Net Zero Teesside Power (NZT Power) CCS plant. BP and Equinor are developing the latter.

The £21.7bn worth of funding for Track 1 projects will be made available over a period of 25 years. In the Labour government’s recent Budget, £3.9bn of this funding was allocated to be provided over 2025-26.

The previous government had allocated £20bn over 20 years. The sum agreed by the current government comes in slightly lower per year, given the longer timeframe.

UK carbon capture expectations

The announcement boosted expectations that more progress could follow.

“The announcement is a significant step forward for the CCUS industry and particularly the first two clusters,” Aurora Energy Research’s project leader for UK and Ireland advisory work on hydrogen and industrial projects, Marten Ford, told E-FWD.

“This will hopefully unlock final investment decisions [FIDs] on these projects,” he continued. Despite “significant hurdles” that still need to be overcome, including FIDs, construction and operation, “this decision puts the UK CCS industry on a path to delivering projects and significant carbon savings”.

Wood Mackenzie also expects the funding announcement to spur further progress.

“We expect the confirmation of the £21.7bn of funding in the Track 1 clusters to kick-start further announcements from the project partners involved in the HyNet NW and East Coast Clusters,” Wood Mackenzie’s principal analyst for CCUS research, Catherine Horseman-Wilson, told E-FWD.

“Both Eni and BP, which operate the transport and storage element of the projects, are yet to announce FID. Alongside this, we anticipate confirmation from the associated emitters of the government funding to be received for their participation in the clusters.”

Unsurprisingly, companies involved in the projects have cheered the announcement. Among them is Costain. The engineering, procurement and construction (EPC) contractor will work on the onshore CO2 gathering system and associated utilities for the ECC.

“The government confirming its commitment to CCUS investment is a hugely significant moment for UK decarbonisation – this is as close as we have ever come to making CCUS a reality in the UK,” Costain’s energy sector director, Laura Hughes, told E-FWD.

“Not only is this a positive endorsement for the industrial cluster model, tying industrial emitters, CO2 transportation infrastructure and carbon sinks together, but critically it’s a step that will soon see carbon molecules being permanently removed from the atmosphere.”

Criticism

Some have criticised the lack of clarity on Track 2 projects.

“The lack of information regarding funding for the stages which follow Track 1 is disappointing,” said Horseman-Wilson. Wood Mackenzie sees both Track 1 and Track 2 projects as “essential if the UK is to meet its 2030 CCUS goals. Given previous comments stating that government intends to deliver Track 2 clusters at pace, we expect rapid clarification of the support these projects will receive.”

In mid-October, UK Secretary of State for Energy Security and Net Zero Ed Miliband denied accusations that the government had snubbed the Acorn project. This Scottish project is one of two additional clusters under Track 2, alongside Viking in in the Humber. No funding for Track 2 projects is planned until the next Budget, which is scheduled for the spring of 2025.

In or out

While the decision to start CCS funding is welcome, there is considerably further to go.

“While this initial decision on funding is a welcome first step to building a successful UK CCS sector, we do need to see more clarity on the rest of the projects which are currently in negotiations”, said Aurora’s Ford.

This is “particularly for highly strategic industrial projects such as cement, where alternative decarbonisation options are limited. What we need to see in the longer term is a clear predictable route from project concept to funding decision to construction, to enable projects to come forward with the best possible chance of success.”

The lack of clarity on Track 2 funding renders Acorn and Viking unable to progress.

But Horseman-Wilson said there could be an opportunity for those projects outside the government’s cluster sequencing process. “For example, transport and storage projects, which can move forward with their own source of funding, might be able to offer alternate options for emitters who are seeking to abate emissions sooner.”

Bigger goals

The UK carbon capture industry has the goal of sequestering 20-30 million tonnes per year. To achieve this, it will need to expand its clusters and develop additional capacity.

Ford said there was a need for partnership, between industry, local and national government. “This is why we need to see clear predictable routes from project concept to funding to construction,” he said.

It also makes it more important that those projects winning support be successful. The industry will need to navigate various challenges to achieve this.

“The industry needs to actively work on getting the right people into the right roles to make these projects a success,” said Hughes. “The complexity of these schemes means there is a need to recruit for a range of skills, from project management to technical expertise with people at all levels of experience. This is why we’re supporting an essential skills programme that aims to reach more than 5,000 people to help inspire the next generation of talent.”

Given the long-term nature of the government’s CCUS programme, Hughes said maintaining momentum was key.

“Government and industry must work together to move things forward and find ways to replicate models across the country, not just in Track 1 clusters,” she said. “Decarbonisation must be equitable across the UK’s industrial regions.”

Setbacks

There are signs of trouble. Exxon’s decision to cancel its Solent CO2 plan is one such setback. The plan was a crucial part of the proposed Solent Cluster.

The US-based supermajor said it had spent three years working to secure the necessary government policies and market conditions. These were necessary to support the “significant” investment required to develop CO2 storage in the English Channel and develop connecting pipeline infrastructure, it said.

However, it had concluded that these conditions are not currently in place in the UK.

Horseman-Wilson said ExxonMobil’s decision was “surprising”. She noted the company’s Fawley refinery is one of the anchor emitters in the Solent Cluster. Wood Mackenzie estimates it to “be “be the most emissions-intensive refinery in the UK”.

The analyst noted that Exxon has a number of CCS projects around the world. “And local opposition to the planned CO2 pipeline likely pushed reconsideration of the project in light of more favourable opportunities elsewhere, with better lead times and funding options,” she added.

Alternative options

And the cancellation of ExxonMobil’s plans does not rule out a different developer pursuing a similar project.

“While this is a potential setback for the Solent Cluster, as it was widely believed that ExxonMobil would be the awardee for a carbon licence in the English Channel, results of the licence round are yet to be announced,” Horseman-Wilson continued. “Another transport and storage player could be in the mix with alternate development plans,” she said.

Horseman-Wilson added that Wood Mackenzie still sees a number of projects outside the clusters making progress in the UK.

“Eni’s Bacton Thames Net Zero, Perenco’s Poseidon and Harbour Energy’s Medway Hub could all be options for Solent Cluster emissions and are projects which are not receiving government support,” she said. “These join other UK projects including Morecambe Net Zero and 7CO2, which are also making progress outside the cluster sequencing framework.”

Next steps

There is need for CCS to grow further, particularly in the power sector. The National Energy System Operator (NESO) published its proposals recently setting out the need for CCS.

NESO said there were operators ready to deliver CCS-backed power by 2030. However, it also warned this would be a first of a kind deployment in the UK.

To achieve the government’s objectives, NESO set out various paths. Looking at power mixes, the choice is either achieve 50 GW of offshore wind by 2030 or add around 2.7 GW of new dispatchable power, mostly likely gas-fired plant with CCS.

NZT Power, one of the projects winning support from the government, could help deliver this. It will generate up to 860 MW of power, while capturing up to 2mn tpy of CO2.

Confidence

Overall, the UK carbon capture sector is gaining momentum.

“We have seen projects in development for some time now and the announcement should hopefully push these projects forward to [FID] and then construction,” said Ford. “These would be vital signs of progress and delivery.”

HyNet and the ECC will also be key to demonstrating the viability of the CCS cluster concept. This brings together the public and private sector and different types of companies and industries.

“The economics have to stack up to underwrite both public and private investment, but with the right policy environment, we believe that this can be achieved – and moreover it is going to be demonstrated with the East Coast Cluster and HyNet,” said Hughes.

“At a fundamental level, investors need certainty that more projects like the CCUS scheme in Teesside will go ahead. The government’s 10-year investment strategy is a welcome step in the right direction which we hope will elicit confidence across the private sector.”

Making a first move

It is imperative to get CCS progress moving. The government’s move, committing to financial support of Track 1, is a strong start.

Narrowing down support to the handful of projects is a viable choice to support progress, rather than spreading too thinly. But more is essential.

Government typically shies away from picking “winners and losers”. But quite clearly it has done so with its support for Track 1 projects. The question of whether approving the initial projects is enough to get the ball rolling remains open.

Exxon’s cancellation is a warning sign. It signposts some of the challenges the industry is facing in the UK, not least around local opposition.

The future of UK carbon capture has found some momentum, it must not squander it. High-level support should help address some of the challenges, for instance around skills development. But Track 2 – and what happens after that – are still up for grabs.

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