Analysis: UK CCS Projects Face Delays But Retain Political Support

Reports and announcements published over the last week have crystallised both the challenges facing the buildout of carbon capture storage (CCS) projects in the UK, but also how the technology retains widespread political support, including from the country’s newly elected government.

The British government and carbon capture use and storage (CCUS) project developers in the UK are just weeks away from making final investment decisions to take CCUS projects forward, but the timetable for their completion is slipping and “numerous technical issues remain”, the country’s official
spending watchdog warned last Tuesday.

The National Audit Office, which scrutinises government spending on behalf of the UK’s parliament, noted that the government’s language about delivering the first wave of CCS projects hinted at likely delays.

The British government had originally aimed to have two ‘Track-1’ CCS clusters in the northwest and east of England operational by the end of 2026, with a target of capturing and storing upwards of 15.5 million metric tons of carbon per annum under the North and Irish Seas. However, that ambition has already been scaled back to storing 8.5 million mt/year at a later date, the NAO said.

“By May 2022 [the UK’s Department for Energy Security and Net Zero (DESNZ)] was working towards the Track-1 clusters starting operations by the end of 2027, which remains its target. More recently, DESNZ has adapted this target to ‘support’ two clusters by the mid-2020s, indicating that it expects them to begin operating later,” said the NAO report.

Those Track-1 clusters are the HyNet cluster, which includes a project to capture emissions from the Essar Oil-operated 200,000 barrels per day Stanlow oil refinery, and the East Coast Cluster, which would capture emissions from the Phillips 66-operated 221,000-b/d Humber refinery and the Prax-operated
113,000-b/d Lindsey refinery. The two clusters include several other CCS projects.

“DESNZ is currently considering whether achieving [final investment decisions] across all eight [CCS] projects by September 2024 is feasible. It therefore expects to achieve FID with at least some of the Track-1 projects by September 2024, with the rest reaching FID in 2025,” the public spending watchdog said last week.

The NAO suggested that staggering the delivery of projects in the clusters had both potential advantages and disadvantages in achieving value for taxpayer investments: “It could lead to fewer projects making use of common transport and storage infrastructure. But it may also lead to earlier [emissions] reductions…In addition, DESNZ considers this approach may prevent more mature projects needing to retender contracts if they are delayed by waiting for other projects to be ready to take final investment decisions.”

Delay to CCS Projects Could Boost Carbon Prices

The British government has set a target to capture 20-30 million mt of carbon by 2030, with four clusters operational by the end of the decade. Meeting that goal would result in the capture of carbon equivalent to a quarter of the 96.8 million mt emitted last year by installations and airlines subject to the UK’s Emissions Trading System.

Capturing upwards of 30 million mt of carbon every year would consequently put a significant dent in demand for UK emissions allowances (UKA), the pollution permits which must be purchased by industrial emitters covered by the cap-and-trade ETS.

But delays in bringing CCS projects online could have expensive ramifications later in the decade and into the 2030s for those emitters, especially polluters that are unable to pass the full cost of carbon onto end-consumers. In that CCS-delayed scenario, demand for UKAs will be higher than expected, while the number of annual allowances available for purchase in the ETS will have shrunk.

Although British carbon prices have been in the doldrums for more than a year — OPIS assessed the benchmark December 2024 UK emissions allowance at £39.375 ($50.51) on Monday, down from the record settle of £97.75 on August 19, 2022 — most analysts forecast that prices will be in triple digits by the end of the decade. Such a price would force the country’s largest installations to spend almost half a billion pounds a year on UKAs if they do not decarbonize.

Technical Issues Highlighted by Report

The NAO report warned that significant practical challenges must be addressed to deliver CCS in the UK.

“Numerous technical issues remain…Pipelines need to be built to connect [CCS facilities] to onshore terminals and then to undersea sites,” the NAO said, adding that there was “uncertainty” about “how effective the solvents that projects will use to capture carbon will prove and whether proposed storage areas are viable.”

The nation’s official spending watchdog also examined the institutional capacity of the British government to negotiate effectively with project developers, pointing out that the Department for Energy Security and Net Zero had struggled to meet recruitment targets for its CCUS Directorate employees.

“When the Directorate was established, 51.5 full-time equivalent (FTE) staff — less than half the 103.5 FTE that DESNZ assessed it would need for 2021-22 — were in post,” said the NAO. “DESNZ considers this difference reflects the time it takes to fill vacancies. The number of staff required increased sharply, particularly as Track-1 negotiations started. By 2023-24 DESNZ calculated that it needed 206.5 FTE, compared to a staffing level of 144.5 FTE at the start of that year.”

The report did not look at whether construction contractors undertaking CCS projects might also face staffing-related issues. The UK has a “tight labor market” ExxonMobil’s senior project manager Brian Talley told OPIS in April, while many industry insiders have said that demands on contractors are likely to rise because of other energy transition-related projects.

Alex Milward, director of carbon capture utilization and storage at the Department for Energy Security and Net Zero, told OPIS during COP28 in Dubai at the end of last year that the government is alert to the possibility of worker-related issues causing delays.

“I think there is obviously a potential bottleneck which we’re working extremely hard [to avoid],” said Milward, referring to the skills base. “We map where we think the pinch points are and where the capacities are…Certainly if there is a critical element in the supply chain that’s not there, then the whole program can get [backed up], so we’re monitoring it very closely and hopefully avoiding the bottlenecks,” he added.

In response to the NAO report, Ruth Herbert, chief executive officer of the Carbon Capture and Storage Association which advocates for the technology’s development across Europe, said: “The NAO has noted that completing negotiations to support the Track-1 [CCS cluster] projects will be a very significant milestone in signalling the programme’s commercial feasibility and the government’s commitment to CCUS. We are pleased that due to continued investment from industry, Track-1 financial investment decisions are on track to be taken by September. Keeping to this timetable will demonstrate to investors that the UK is an attractive location for the net zero industries of the future.”

“CCS on power generation is set to play a key role in enabling the Net Zero Power target and industries across the UK, such as cement manufacturing, hydrogen production and energy from waste are relying on the deployment of carbon capture to reduce their emissions,” Herbert added.

Political Support Remains after Change of Government

The UK’s general election on July 4 resulted in the Labour Party coming to power, but it is not obvious that there will be any change of approach to CCS from the new government in the short-term.

One of the new government’s first announcements referenced forthcoming investment in the technology through a partnership between Great British Energy — a new state-owned company with £8.3 billion of public money — and the Crown Estate, which manages the £16 billion property land and seabed portfolio of the British monarch. The partnership “will also help boost new technologies such as carbon capture and storage, hydrogen, wave and tidal energy,” the announcement said, without offering further details.

The previous Conservative government pledged £1 billion in 2020 to help develop four CCS clusters by 2030, and it went further in its budget of March 2023 by pledging £20 billion of support over a 20 year period.

OPIS asked the Department of Energy Security and Net Zero last week if the new government will maintain that commitment.

“We are taking immediate action to implement our plan for clean power by 2030, while continuing to develop cutting-edge technologies like carbon capture, usage and storage, which the NAO recognises will help to decarbonise our economy,” a spokesperson for DESNZ said in response.

“This technology is vital to boost our energy independence…The initial cluster projects are nearing the first financial investment decisions this year, which are expected to create jobs and bring in billions of public and private investment into our industrial heartlands,” the government added.

Although Rachel Reeves, the new chancellor in charge of the UK’s public finances, put a few large transport infrastructure projects on ice on Monday, there was no suggestion that the Labour party’s support for CCS will change. CCS projects also command strong backing from trade unions affiliated with Labour, and several members of the new cabinet were photographed before the election visiting CCS project exhibitions at business and political conferences.

Reeves has backed the development of the technology in several public statements, noting at a business conference on February 1 this year that C-Capture — a CCS technology company developing amine- and nitrogen-free solvents — is located in her own Leeds West constituency and “at the frontier
of the energy transition,”

On a visit to the company’s premises last year, Reeves hailed “the incredible work taking place [at the site] on carbon capture and storage. It’s these types of businesses that show the huge potential we have as a region and a country to be a world leader in the industries of the future.”

Reporting by Anthony Lane, alane@opisnet.com
Editing by Yazdi Merchant, ymerchant@opisnet.com

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