Referral of the proposed CCUS Transport and Storage Regulatory Investment Model Support Scheme by the Department for Energy Security and Net Zero

The Subsidy Advice Unit (SAU) has accepted a request for a report providing advice to the Department for Energy Security and Net Zero (DESNZ) concerning its proposed Carbon Capture Use and Storage (CCUS) Transport and Storage Regulatory Investment Model Support Scheme.

From:
Competition and Markets Authority
Published
25 June 2024
Case type:
SAU referral
Case state:
Open
Market sector:
Energy
Opened:
24 June 2024

Administrative timetable

Date Action
6 August 2024 SAU’s report to be published
8 July 2024 Deadline for receipt of any third-party submissions (submissions after 5pm on this date may not be taken into account)
24 June 2024 Beginning of reporting period

Request from DESNZ

24 June 2024: The SAU has accepted a request for a report from DESNZ concerning the proposed CCUS Transport and Storage Regulatory Investment Model Support Scheme. This request relates to a Subsidy Scheme of Particular Interest.

The SAU will prepare a report, which will provide an evaluation of DESNZ’s assessment of whether the scheme complies with the subsidy control requirements (Assessment of Compliance). The SAU will complete its report within 30 working days.

Information about the scheme provided by DESNZ

To support progress towards the UK’s legally binding 2050 Net Zero target, the government has a policy ambition of storing 20-30Mt (million tonnes) of CO₂ per annum by 2030, increasing by 6 Mt CO₂ each year from 2031 through Carbon Capture Usage and Storage (CCUS) which will provide for the transportation and permanent storage of the CO₂.

The CCUS Transport and Storage Regulatory Investment Model (TRI-Model) Support Scheme (the Scheme) is designed to incentivise the deployment of the first two CCUS Transport and Storage networks in the UK. The Scheme will provide a set of support mechanisms to Transport and Storage Companies (T&SCos).

In accordance with the Energy Act 2023, the TRI-Model is based on an economic regulation funding model where T&SCos may be granted a Licence from Ofgem to transport and store CO₂. This entitles T&SCos to charge their customers a regulated revenue (’Allowed Revenue’) which includes a reasonable return on their capital investment. The government has designed the TRI-Model to enable and stimulate market-based solutions to the risks associated with the deployment of the Transport and Storage network. In most cases, risks are therefore borne by the private sector or addressed by specific Licence mechanisms.

However, there are some residual high impact and low probability risks for the Transport and Storage network which cannot be supported by the private sector and are not addressed by the mitigation mechanisms in the Licence. The Scheme will therefore provide a set of support mechanisms providing T&SCos protection against these risks. The policy objective is to attract sufficient private investment and mitigate risks where the market is not able to do so. These mechanisms are interconnected and cannot be offered separately. They are:

  1. The Revenue Support Agreement: Designed to cover demand-risk. It mitigates against shortfall in revenue collection by the T&SCos compared with the Allowed Revenue, in circumstances beyond the control of the T&SCos.

  2. The Supplementary Compensation Agreement: Part of the wider Government Support Package, the T&SCos are contractually obliged to procure available commercial insurance to cover the risk of CO₂ leakage (or other specified significant irregularities) arising from asset damage/malfunction or geological conditions at the T&SCos’ CO₂ store. The Supplementary Compensation Agreement provides an insurance-like product to support T&SCos (up to specified limits) in the event that commercial insurance is unavailable or has been exhausted.

  3. Discontinuation Compensation: also governed by the Government Support Package: the Secretary of State will have the right to discontinue (or curtail support to) the Supplementary Compensation Agreement and the Revenue Support Agreement once specified thresholds of support have been reached. If the Secretary of State does exercise their right to discontinue, the T&SCos will be entitled to a discontinuation compensation to compensate debt and equity investors.

  4. Decommissioning Shortfall Agreement: a commitment to cover for any shortfall in the decommissioning fund in highly unlikely scenarios which are not resolved via the Licence.

These protections will be available for the lifetime of the Transport and Storage assets, expected to be 25 years. The Supplementary Compensation Agreement will run longer to also cover the post-closure period, which could be a minimum of 20 years from the cessation of injection. More details can be found in the CCUS: Update on the Business Model for Transport and Storage - Heads of Terms, December 2023.

The beneficiaries of this Scheme were selected via the Track-1 Cluster Sequencing Process, which ran in 2021. You can find an independent evaluation of this process on GOV.UK. Proposed Transport and Storage leads were selected as part of the wider cluster.

The eligibility criteria for Track-1 clusters were:

  • the cluster must be able to credibly demonstrate that it can be operational by 2030
  • the cluster must be located within the UK
  • the cluster must meet the definition of a CCUS Cluster, which is defined as Transport and Storage network and an associated first phase of at least 2 CO2 capture projects

Information for third parties

If you wish to comment on matters relevant to the SAU’s evaluation of the Assessment of Compliance concerning the proposed CCUS Transport and Storage Regulatory Investment Model Support Scheme, please send your comments before 5pm on the date stipulated in the timetable above. For guidance on representations relevant to the Assessment of Compliance, see the section on reporting period and transparency in the Operation of the subsidy control functions of the Subsidy Advice Unit.

Send your submissions to us at ccustransportandstorage2024@cma.gov.uk, copying the public authority: ccus.ts.subsidycontrol@energysecurity.gov.uk.

Please also provide a contact address and explain in what capacity you are making the submission (for example, as an individual or a representative of a business or organisation).

Notes to third parties wishing to make a submission

The SAU will only take your submission into account if it can be shared with DESNZ. The SAU will send a copy of your submission to DESNZ together with its report. This is to allow the public authority to take account of the submission in its decision as to whether to make or modify the scheme or its assessment. We therefore ask that you provide express consent for your full and unredacted submission to be shared. We also encourage you to share your submission directly with DESNZ using the email address provided above.

The SAU may use the information you provide in its published report. Therefore, you should indicate in your submission whether any specified parts of it are commercially confidential. If the SAU wishes to refer in its published report to material identified as confidential, it will contact you in advance.

For further details on confidentiality of third party submissions, see identifying confidential information in the Operation of the subsidy control functions of the Subsidy Advice Unit.

Contacts

Published 25 June 2024
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