The theme of the roundtable was to consider and discuss current challenges and opportunities in respect of the delivery of CCUS and Hydrogen Projects in the UK. This covered four principle areas:
- policy & regulation;
- funding & bankability;
- challenges to and opportunities for deliverability; and
- emerging routes to market.
The key takeaways from the roundtable were as follows:
- There is a general feeling that the UK CCUS and Hydrogen industry has 'turned the corner' and is entering a critical phase coming out of its early development. Not surprisingly, its continuing success is predicated by a combination of factors, which are: access to funding, attractiveness of incentives, clear regulatory frameworks and overall market confidence. There is a now question of how to best scale the industry beyond the current clusters and hubs based around heavy industry.
- The government is seen as responding in a very positive way towards the development of the cluster and hub model and CCUS/Hydrogen development. This is supported by both forthcoming legislation and recent budgetary announcements concerning investment in CCUS and Hydrogen. However, the right incentives also have to exist (tax credit and contracts for difference schemes etc.) to encourage first and early movers to invest more and scale the industry. The industry would also welcome detailed proposals in respect of the gas shipping and transportation regulatory model.
- A constant theme is the need for collaboration and partnership at all levels of the industry. This is still a nascent technology, subject to ongoing refinement and there is considerable benefits in sharing experience, technological know-how and co-operating within clusters and hubs.
- Cluster and hub governance can risk posing a real challenge to its success. It is foreseeable that a cluster/hub will have a number of main delivery partners and a series of other off-takers hoping to connect to its network. These are all individual entities with their own requirements and priorities and are largely promoting on an individual basis - whether making investment decisions, acquiring their own funding and/or achieving their own operational consents. There is a need to achieve delivery of clusters and hubs in an organised way, not only in the early phases but as the cluster/hub matures. Although some loose organisation may be possible, there is a risk of friction of who leads or is 'in charge of' a cluster/hub. Government will need to play a role in bringing together the parties within a cluster/hub, making sure that the relationships are fair and tensions are avoided. A code similar to that for the gas network could assist in developing code governance for those within a cluster/hub and those wishing to connect into it.
- In terms of funding, there is capital to deploy. There are funders who understand the industry, but the funding market may not entirely have a full appreciation of the risk / reward dynamic yet given the industry has not fully matured. At present it is perceived by some that there is a clear benefit in being a first mover and early investor.
- In terms of challenges to delivery in respect of consenting, as clusters. hubs and networks are formed of several related projects, there is a considerable 'consenting burden' in bringing them forward and challenges in consenting in parallel due to cumulative effects and need for data sharing. The scale of regulatory consents and compliance needed cannot be underestimated, with multiple Development Consent Orders, Town and Country Planning Act planning permission applications and associated licences being required. Tens of thousands of pages of material will need to be prepared and submitted to conclude the initial stage of setting up a cluster/hub. It is hoped that legislative changes and consent processes will catch up to reduce some of the consenting burden as the technologies start to mature.
- In terms of delivery and resource, given the number of challenges that exist to bring these projects and clusters/hubs forward, there is a need to gather lessons learned and develop and share good practice in the UK. Whilst parties will wish to retain competitive advantage, learning in isolation will not assist in scaling technological development. As the industry evolves it will be necessary to seek to drive down future costs, which could be achieved by simplifying technology, taking advantage of economies of scale, standardisation and modularisation of plant and equipment.
- Regarding the emerging routes to market, detail is expected soon of the Government's finalised business model so this can be modelled by developers and funders alike in the context of de-risking 'merchant' risk, especially for private off-taker focused businesses.
- Specifically concerning green hydrogen development, the top risk profile is considered to be the lack of electricity grid connections and grid capacity constraints. There is a risk of not being able to obtain enough green electricity baseload at the right locations for new green hydrogen plants. In England in particular, electrical infrastructure capacity constraints currently exist which will likely impact the timely roll out of green hydrogen projects, unless addressed urgently.
DWF continues to monitor the progression of the sector and is assisting early investors and promoters with their plans to realise the development of CCUS projects and the commercial production of hydrogen in the UK
Darren Walsh, Global Head of Energy, commenting on the event and the challenges and opportunities for the UK said, "With the climate emergency affecting us all and the legal obligations faced by all sectors of the UK economy, the pathway to net zero and the need to decarbonise is both a huge challenge and opportunity for the UK. Government Policy is now clearer than it has been for two decades and with industry leading the development of scaling up CCUS clusters and hubs and striving to develop world-scale green and low carbon Hydrogen production, there is now a genuine and positive movement in the UK. Continued support and clear direction by the UK Government is essential, together with a collective and collaborative approach from industry, with funders and capital markets taking bold steps to invest at this early stage to ensure this nascent industry grows at pace over the next 10 years."
A big thank you to our excellent roundtable panel:
- John Waldron, Head of Policy Development – Power CCUS, Dept for Energy Security and Net Zero
- David Irving, Business Development Manager, Altrad Babcock,
- David Parkin, Project Director, HyNet,
- Daniel Hulbert, Lead Contract Manager, Bespoke & New Schemes, Low Carbon Contracts Company
- Chloe Evans, Assistant Director of Banking & Investments, UK Infrastructure Bank
- Rajesh Kedia, Senior Banking Adviser, UK Infrastructure Bank
- Femi Omoniyi, Project Manager West Yorkshire Combined Authority
- Mohamed Amin, Technical Sales, Clarke Energy
- James Mitchell, Technical Sales Manager, Green Technologies, Clarke Energy
- Lazaros Exarchakos, Country Manager, UK, EP UK Investments
- Matt Norman, Head of Generation Innovation, H2V
- Alan Acquatella, Pipeline & New Energies Infrastructure Segment Leader, Schneider
- Julia Dubinina, Industrial Hubs Manager, Shell