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Will the third attempt at implementing carbon capture and storage (CCS) in the UK be successful?
Rishi Sunak has now identified four CCS projects that he hopes will be constructed within this decade. This announcement aims to build investor confidence in an industry that has faced multiple setbacks over the past 16 years. Previous administrations canceled funding competitions for CCS in the year 2015 and 2011.
The Acorn scheme in Scotland, led by Macquarie-backed Storegga, and the Viking scheme in England’s Humber region, led by Harbour Energy, Shell, and BP, are the two projects named by the prime minister on Monday. The UK government selected two other projects in the north-west and north-east of England in 2021.
According to Jefferies, if global net zero goals are achieved, the CCS industry could grow into a $600 billion ebitda industry. Oil and gas companies find repurposing pipelines and depleted reservoirs for the transportation and storage of CO₂ emitted by power plants and heavy industries appealing. However, further transparency is needed regarding financing models and capital costs.
Despite having interests in both the Acorn and Viking schemes, CCS has not yet played a significant role in the investment narrative of oil and gas companies like Harbour. Investors are awaiting more clarity on revenue streams.
The attractiveness of CCS for investors will depend on the permitted returns under a regulated asset base financing model. The RAB model, well-known for financing UK infrastructure such as energy networks and airport terminals, is utilized. Nevertheless, CCS remains uncharted territory.
The capital costs are also unclear. While the overall cost of the Viking project is estimated at £7 billion, it includes contributions expected from emitters. Harbour and its junior partner, BP, have yet to disclose the costs associated with CO₂ transport and storage, although they are likely to make up a minority share of the total sum.
Companies like Essar are in talks with UK officials about alternative funding models that will incentivize investment in CO₂ capture technologies. These discussions need to conclude quickly in order to persuade investors to support transportation and storage schemes. Additionally, securing planning permission is crucial.
CCS is finally gaining momentum in the UK, but considerable challenges still lie ahead.
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