Published in April 2023, the CCUS Net Zero Investment Roadmap (the “Roadmap”) made big promises in relation to Carbon Capture Usage and Storage (“CCUS”), stating that it “will play a critical role in the transition to net zero by 2050”. The Roadmap further stated that:
The UK is well placed to lead in CCUS globally with:
"The Roadmap also set out the government’s plans to create a 'supportive regulatory environment', referring to the Energy Bill, now the Energy Act 2023."
The UK is a first mover; we are aiming to support the establishment of two CCUS clusters by the mid-2020s and a further two by 2030, through which we aim to capture 20-30MtCO2 per year.
These were big claims given the lack of legislation at the time, but the Energy Act 2023 should help make these aspirations a reality.
The Roadmap lays out two sets of industrial CCUS clusters: ‘Track-1’ to be delivered in the mid-2020s, and ‘Track-2’ to be delivered by 2030.
Track-1 currently includes eight projects located across HyNet and the East Coast Cluster: five of these are industrial carbon capture projects and they sit alongside 1 power project and 2 hydrogen projects. The Roadmap stated that “government will launch a process, later in 2023, to enable further expansion of Track-1 clusters beyond the initial Track-1 deployment, identifying and selecting projects within HyNet and East Coast Cluster – including the Humber – and their associated stores as they become viable, to be operational by 2030”. This expansion process is still awaited.
Track-2 seeks to establish two further CCUS clusters. An update in July 2023 confirmed the government’s conclusion that “Acorn and Viking [transportation and storage] T&S systems, due to their maturity, remain best placed to deliver our objectives for Track-2, at this stage, subject to final decisions, due diligence, consenting, subsidy control, affordability and value for money assessments”.
"The Act 'establishes the legislative framework,… for the economic regulation of CO2 Transport and Storage, Industrial Carbon Capture, and low carbon hydrogen business models'."
The Roadmap also set out the government’s plans to create a “supportive regulatory environment”, referring to the Energy Bill, now the Energy Act 2023. The Act “establishes the legislative framework, … for the economic regulation of CO2 Transport and Storage, Industrial Carbon Capture, and low carbon hydrogen business models”. According to the Roadmap, that legislative framework “is designed to attract private finance and remove market barriers to investment, providing long-term revenue certainty needed to establish and scale up these industries across the UK”.
Other areas covered by the Roadmap included:
In a speech on 17 October 2023 to the Carbon Capture & Storage Association, Secretary of State for Energy Security and Net Zero, Claire Coutinho, stated that her department “will be publishing a vision for the CCUS sector later this year”, which “will provide a long-term picture of an expanding sector to bolster investor confidence”.
While the Energy Act can give us some information about the direction of travel, much of the detail remains to be established. No doubt industry is eagerly awaiting the promised vision for the CCUS sector.
"Clearly, there is still a lot of work to be done in determining the details of the broad-brush framework described in the Energy Act. "
The Energy Act expands the principal objectives and general duties of the Gas and Electricity Markets Authority (“GEMA”) and the Department of Energy Security and Net Zero (“DESNZ”) to cover activities related to CCUS. Specifically, their principal objectives include protecting “the interests of current and future transport and storage network users” and promoting “the efficient and economic development and operation of transport and storage networks, having regard to the need for licence holders to be able to finance their licensable activities”. As for the existing principal objectives and general duties (set out in section 3A of the Electricity Act 1989), those applying to CCUS are broad and far reaching, and include promotion of competition and compliance with decarbonisation targets.
Section 4 of the Electricity Act 1989 lists several activities that require a licence or an exemption; otherwise participation in these activities is an offence. This is known as the “general prohibition”. The Energy Act (s7) creates new licensable activities across the whole of the UK:
In relation to the first activity, the person who “operates” a site for the geological storage of carbon dioxide is the person who carries on or (where different) controls activities at the site. These licensees are referred to as “T&S companies”.
In relation to the second activity, a “licensable means of transportation” is defined as:
in each case, which is used (with or without other means of transportation) for transporting carbon dioxide all or part of the way to a site for the geological storage of carbon dioxide.
Powers similar to existing ones are also created in relation to: (i) exemption orders, (ii) powers for GEMA to grant and modify licences and (with DESNZ approval) set out procedures for licence applications, (iii) powers for DESNZ to introduce competitive tenders for licences (similar to the OFTO regime) and an interim power to grant licences.
In terms of providing for certainty to establish investor confidence, the Energy Act 2023 certainly enables that. Sections 39 and 40 require Ofgem to:
"Investors and developers should take comfort from the provisions which provide a clear direction of travel and demonstrate the government’s commitment to establishing a thriving CCUS industry."
In addition, the energy special administration regime is extended to cover T&S companies (ss42-45), and DESNZ is authorised to make transfer schemes where licences of T&S companies are to be terminated (ss50-52). These measures should give industry participants comfort when dealing with these newly formed and newly licensed entities.
Longer term revenue certainty is also addressed. The Energy Act includes (at s57) provisions for DESNZ to make provision in regulations about revenue support contracts (including the funding of liabilities and costs in relation to such contracts). “Revenue support contracts” covers a broad church including:
Additional powers, for example the ability to appoint a “carbon capture allocation body”, are included for DESNZ to give effect to the revenue support arrangements described in the Energy Act. The provisions seem to envisage an arrangement similar to that which governs the Contracts for Difference scheme.
Clearly, there is still a lot of work to be done in determining the details of the broad-brush framework described in the Energy Act. However, investors and developers should take comfort from the provisions which provide a clear direction of travel and demonstrate the government’s commitment to establishing a thriving CCUS industry.
If you have questions about these new provisions, or if you are exploring entry into the CCUS industry, please contact the authors or your usual WFW contacts.
