With the recent UK “Green Day” announcements confirming the government’s support for CCUS, interest in UK CCUS projects is expected to continue to grow. While there are significant opportunities for investors, careful consideration will be needed to navigate a number of industry specific issues to achieve a successful CCUS project.

By Beatrice Lo, JP Sweny, Simon J. Tysoe, Evelyne Girio, James Richards, and Alexander Leighton

As governments and businesses around the world have committed to decarbonisation and achieving net zero by 2050, there has been growing activity in the development of, and investment in, carbon capture, usage and storage (CCUS) technologies. As the UK has one of the greatest carbon dioxide storage potentials of any country in the world (the UK Continental Shelf in the North Sea, accounting for approximately 85% of Europe’s carbon dioxide storage potential and able to safely store 78 billion tonnes), CCUS is a key focus for the government’s decarbonisation ambitions.

This was confirmed by the government’s announcement on 30 March 2023, the UK’s “green day”, that CCUS will form a critical element of the Net Zero Growth Plan as part of the Powering Up Britain plan. (See Latham’s recent blog post for more.)

The government is also supporting the development of CCUS projects by providing up to £20 billion in funding for early deployment of CCUS and proposing frameworks (known as “business models”) aimed at incentivising investment in CCUS infrastructure projects throughout the UK in order to achieve the goal of capturing 20 to 30 million tonnes of carbon dioxide per year by 2030.

We therefore expect increased interest in the CCUS sector in the UK and see both opportunities and challenges for investors and lenders considering UK CCUS projects, a few of which are featured below.

Revenue Support

A key revenue stream for new UK CCUS projects will be the government support from a relevant business model for each part of the value chain. The government has proposed support for:

  • the transport & storage (T&S) segment of the CCUS supply chain through the Transport & Storage Regulatory Investment (TRI) business model, which aims to establish an economic regulatory regime (ERR) coupled with a user-pays revenue model and government support package (GSP);
  • power generation with carbon capture through the Dispatchable Power Agreement (DPA) business model; and
  • industrial plants with carbon capture through the Industrial Carbon Capture (ICC) business model.

All three of the business models feature forms of government funding and revenue support previously used by the UK, but each is heavily modified (see high level summaries in the boxes at the end of this post).

The government aims to support four multi-project “clusters” focused on a storage site, each of which demonstrate the full value chain. The aim is to have these operational by 2030. East Coast Cluster and Hynet are the first clusters (Track – 1). The government selected eight predominantly DPA and ICC projects from within those clusters to proceed to negotiations for support via the relevant business models. A competition to select the next two clusters is open to applicants until 28 April 2023.

Investors and lenders will need to understand, and be familiar with, the relevant business model for the project and the interaction between the different business models and how key risks are allocated (e.g., timing mismatch between completion of the T&S network and the carbon capture plant and other project-on-project risks).  

Key Challenges for Investors

Some of the key risks that investors will need to consider are set out below.

Completion Risk

While a number of CCUS projects are operational globally (mostly concentrated in North America), CCUS has not yet been deployed at scale in the UK. Given the few precedent projects which have been constructed in the UK, investors will need to give careful thought to construction risks (including delays, failure, or material technical under-performance), which may impact the ability to complete the project on time and to budget. None of the government business models offer pre-operational revenue support. Investors should be aware that lenders may seek to limit their exposure to construction risks by, for example, asking investors to provide completion support in the form of debt service undertakings from other creditworthy group entities or imposing requirements for additional equity contributions in the case of a significant delay in the construction phase.

Project-on-Project Risks

Under the proposed TRI model, T&S projects bear the risk that users of the T&S network will not be connected on time and therefore will not receive the expected revenues from use of the network. The underutilisation of the network such that the T&S company (T&SCo) consistently fails to achieve its allowed revenue could result in the T&S network becoming a stranded asset, though the GSP does seek to mitigate stranded-asset risk by entitling the T&SCo to compensation from the government in this scenario. The government is also seeking to mitigate the risk of stranded assets by initially developing the T&S network at separate clusters in the North East region before developing a UK carbon network.

Emitters in the carbon power generating and industrials sectors also face the risk that failure to connect to the T&S network will prevent them from transporting and storing captured carbon — though the proposed DPA and ICC business models do provide some protection in respect of failures and delays caused by the T&SCo.

The success of a CCUS project in the UK is therefore highly dependent on simultaneous establishment of the T&S network and user base (i.e., the industrial carbon capture, waste, CCUS-enabled hydrogen, CCUS power plant facilities), which is recognised by the government through its “cluster” process.

Government Support Risk, Including Change in Law

CCUS projects are highly dependent on the government’s ability to implement and maintain an adequate support regime, not just to support revenue but also to create the market. Application of the regulated asset base (RAB) model to a situation in which the build costs are unknown, project interface risks are high, and the demand appetite is also unknown is riskier than typical historical applications where the demand/ usage is to a degree known. There will be a lot of pressure on projections/ modelling (including in respect of construction costs) and the “last resort” option of discontinuation. The RAB regime is also less well-developed than the DPA model in terms of government thinking and the development of model project documents. Non-UK investors will also likely want to consider bilateral investment treaty options.

Co2 Leakage

Since the aim of a CCUS project is to capture carbon, a major storage leak would be a key risk to the project. Investors and lenders will need to consider the impact of leaks on revenue streams (including in the context of the cost of allowances under the UK ETS scheme) and ensure that there is a clear allocation of contractual liability in respect of leaks at various stages of the CCUS supply chain. Insurance may be a potential solution for the risk of carbon dioxide leakage. For the T&S network project company with a TRI business model, it is also proposed that a GSP would provide protection for the risk of carbon dioxide leakage when commercial insurance solutions are unavailable.


With continued strong commitment from the government and the unique role CCUS has to play in decarbonisation and achieving net zero ambitions, interest in UK CCUS projects is expected to gain momentum. While there are significant opportunities for investors, careful consideration will be needed to navigate the key risks in order to achieve a successful project.

TRI Model Summary
— This model relates to the T&S company (T&SCo), a privately owned company that will be responsible for the development, construction, financing, operation, maintenance, expansion, and decommissioning of the T&S network.

— The TRI framework is based on the established regulated asset base (RAB) model approach given the similarities between CCUS T&S infrastructure and other regulated utilities networks (such as the gas and water networks), including high upfront capital costs, customers who must be physically connected, and the potential for monopolies to develop.

— Revenue is generated within the context of an ERR (similar to other regulated utilities). Under the ERR, a regulator (most likely Ofgem) licenses the T&SCo and oversees key parameters, including an allowed revenue, related adjustment mechanics, and price controls.

— The TRI framework incorporates a user-pays revenue model whereby users of the T&S network pay fees to the T&SCo. T&SCo will recover its allowed revenue as users pay the T&S fees. The T&S fees will be determined by a methodology to cover the costs incurred by T&SCo in running the network plus an allowed return. This is likely to be set by the government and industry in the first instance and will be informed by guiding principles such as non-discrimination and transparency.

— The revenue model and ERR are supplemented by the GSP. This protects the T&SCo (not the T&S network users) against the defined high-impact, low-probability risks of CO2 leakage and stranded asset risk to the extent that private commercial solutions (namely insurance) are unavailable.

Dispatchable Power Agreement Model Summary
— A DPA is a 10-to-15-year agreement (based on the renewables Contracts for Difference (CfD) Allocation Round 4 standard terms and conditions) with the Low Carbon Contracts Company. Funding will be through a supplier levy (similar to the CfD regime), meaning the cost will ultimately be borne by consumers.

— A regular “availability” payment will be payable for the plant (both capture and generation) being available (i.e., payable even if the power plant is not dispatching).

— A “variable” payment will be payable, which is intended to account for the additional cost of running a power plant with a capture facility compared to an unabated plant. This is intended to incentivise the plant to generate ahead of a hypothetical similar unabated reference plant.

— The combination of both an availability and variable payment element of the DPA is intended to enable a plant to operate flexibly to provide certainty to investors.

Industrial Carbon Capture Model Summary
— The ICC business model is based on a 10-year contract with the option for up to five one-year extensions.

— The ICC business model aims to incentivise the deployment of CCUS technology in the industrials sector and is composed of two key parts:

(1) A grant for up to 50% of total capital costs can be awarded to approved projects, though development (i.e., pre-FEED and FEED) costs are not covered. The grant money will be sourced from the £1 billion Carbon Capture and Storage Infrastructure Fund.

(2) Ongoing revenue support via an ICC Contract with payments covering capex (plus a return), opex, and T&S fees. The project will be paid the difference between a reference price (based on carbon price trajectories) and a strike price on the basis of captured CO2. The capex payment rate and strike price for ICC contracts will be negotiated bilaterally for each project. The capex payment rate will apply from the start of operations to either the point at which capex has been repaid or the end of year 10 (whichever is sooner), and the strike price will apply for the duration of the ICC contract.

— Successful projects in the waste industry will be offered a separate Waste ICC Contract.

The authors would like to thank Sarala Baskaran for her contribution to this blog post.