Carbon capture and storage: revenue transparency required

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Will it be a case of third time’s a charm for carbon capture and storage in the UK? 

Rishi Sunak has now identified four CCS projects he hopes will be built this decade. This will bolster investor confidence in a fledgling industry that has suffered many false starts over the past 16 years. Previous administrations cancelled CCS funding competitions in 2015 and 2011.

Energy companies including Harbour Energy, Shell and BP have interests in the two projects named by the prime minister on Monday. These were the Acorn scheme in Scotland, led by Macquarie-backed Storegga, and the Harbour-led Viking scheme in England’s Humber region. The UK selected two other projects, in the north-west and north-east of England, in 2021. 

Jefferies estimates that globally CCS could develop into a $600bn ebitda industry if net zero goals were achieved. For oil and gas companies, repurposing pipelines and depleted reservoirs to transport and store CO₂ emitted by power plants and heavy industry is attractive. But more transparency is needed on financing models and capital costs first. 

CCS is yet to play a significant role in the equity story of oil and gas groups such as Harbour, even though it has interests in both the Acorn and Viking schemes. Investors await more clarity on revenue streams.

The attractiveness of CCS for investors will depend on allowed returns under a regulated asset base financing model. The RAB model is used to finance UK infrastructure such as energy networks and airport terminals, and is well understood. Nevertheless CCS is uncharted territory.

Capital costs are also murky. The overall cost of the Viking project is estimated at £7bn but that includes sums expected to be invested by emitters. Harbour and its junior partner in Viking, BP, are yet to disclose the costs of the CO₂ transport and storage, although they are likely to be a minority share of the overall sum.

Companies such as Essar are in discussions with UK officials over separate funding models that will give them an incentive to invest in technologies to capture CO₂. Those also need to conclude swiftly to persuade investors to back transport and storage schemes. Planning permission must be secured too.

CCS is finally gaining momentum in the UK but many hurdles remain.

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