'Dispatchable Power Agreement': Government unveils new CCUS support plan

The UK's plans to deliver a series of zero carbon industrial hubs took a major step forward today with the publication of long-awaited proposals detailing how the government intends to unlock investment in the first wave of carbon capture, usage, and storage (CCUS) projects.

The Department for Business, Energy, and Industrial Strategy (BEIS) released the UK's first official CCUS framework, which confirms plans for a new system of Dispatchable Power Agreements (DPA) that will see CCS operators contracted to provide low carbon power.

The government said the contracts would define important UK business models, such as CO2 capture rates and testing requirements, so as to provide industry and investors with "a solid policy framework to base their business and investment decisions upon" and allow them to move "forward with confidence, knowing the UK Government is backing them step by step".

"Businesses need to know that the UK is the best place for carbon capture investment," said Climate and Energy Minister Graham Stuart. "Today we are giving one of our biggest signals to date, and showing that the UK's CCUS industry is open for business."

The DPAs represent a crucial plank in the government's plans to invest up to £1bn to support the establishment of CCUS in at least two industrial clusters by mid-2020s, and four by 2030 at the latest.

The government announced that the proposed HyNet cluster in North-West England and North Wales and the East Coast Cluster in the Teesside and Humber had been selected as the first two hubs eligible for support.

However, companies working on plans to capture carbon dioxide from power and industrial plants in the two hubs have been waiting on confirmation on precisely how much funding they can expect from the government and how the subsidy regime to enable the initial wave of projects will operate.

The government said today's update on future CCUS business contracts will provide vital clarity and crucial technical information to the three power generating CCUS Projects shortlisted for support.

The DPAs are set to be modelled on the government-backed contracts for difference (CfDs) regime, which sees clean power generators bid for contracts that provide them with a guaranteed price for the power they deliver. The regime has been credited with rapidly driving down the cost of renewable power to a point where clean power is cheaper than power provided by fossil fuel power plants.

The DPA will differ slightly from CfDs in that they incorporate an Availability Payment, linked to facility performance, which aims to incentivise the availability of low carbon, non-weather dependant dispatchable generation capacity. The Availability Payment will be calculated and paid regardless of whether a facility is dispatching, and so will not incentivise facilities to displace lower cost and lower carbon sources of generation such as renewables and nuclear.

As such, it will be designed to unlock investment in a number of CCUS projects that can provide low carbon power at times when weather-dependent renewable power is not available, bolstering grid security while still driving down emissions.

BEIS said the update would allow developers and in particular the three Power CCUS projects shortlisted for support to move onto the due diligence phase of the government's Cluster Sequencing Process, which would enable full visibility of the contract ahead of negotiations getting underway.

The update is likely to be welcomed by CCS developers, which have privately grown frustrated at the government's failure to provide clarity on a policy framework that has the potential to unlock billions of pounds of investment in projects that are widely regarded as critical to decarbonising the UK's industrial hubs.

However, the nascent sector remains controversial with some green groups, who argue that CCS projects are likely to prove hugely expensive and could be used to justify continued investment in new fossil fuel exploration projects.