U.K. Slashes Hydrogen and Carbon Capture Funding

Written by Martin Lynch, European News Editor for IIR News Intelligence (Sugar Land, Texas)

Summary

Clean hydrogen and carbon capture and utilisation and storage (CCUS) projects are the biggest losers in the U.K. budget, losing £700 million (US$943 million) in funding.

Hydrogen and Carbon Capture Hit Hard

The U.K. government has cut funding for clean hydrogen and carbon capture and utilisation and storage (CCUS) projects by £700 million (US$943 million) in its latest budget. 

The Labour-led government, under its new Prime Minister Andy Burnham, said the cuts were necessary to boost the nation's defence and formed part of £2 billion (US$2.7 billion) in cuts that the Department of Energy Security and Net Zero (DESNZ) was asked to make earlier this summer. The cuts will see capital grants for hydrogen projects cut by £500 million (US$674 million) while a £200 million (US$270 million) commitment to Scotland's leading carbon capture project, Acorn, by the previous Chancellor of the Exchequer Rachel Reeves, has now been withdrawn, throwing the future of the project into doubt. 

According to Industrial Info Resources data, there are 12 Acorn-related projects worth US$571 million in investment. The budget stated: "DESNZ is reprioritising its budget to contribute towards the Defence Investment Plan. The government is prioritising delivery of mature carbon capture, usage and storage (CCUS) and hydrogen projects at the Teesside, Merseyside and North Wales clusters, maintaining grant funding for the Viking cluster while exploring progressing projects in development through private investment and government loan or equity investments, subject to approval. This will save £200 million capital grant from CCUS and £500 million from hydrogen."

No New Grants

Chancellor John Healey said future CCUS or hydrogen projects that require state support, including the now de-funded Acorn, will have to get either a loan or equity investment from the government. Healey has scrapped a previously planned levy on gas grid operators, which would have helped fund hydrogen production. 

Major CCS Projects Secure

Previously announced funding amounting to £9.4 billion (US$12.7 billion) for the HyNet cluster project in northwest England and the East Coast Cluster project across the heavily industrialised Teesside region remains untouched. Development funding for Humberside's Viking cluster is also secure. Industrial Info Resources is tracking 18 projects associated with Viking worth almost US$1.3 billion in investment. The multi-faceted project, under development by Harbour Energy and partners, is a carbon capture transport and storage network for the Humber region, which is targeting 10 million tonnes a year of U.K. emissions reductions by 2030 and up to 15 million tonnes a year by 2035. A newly planned 55-kilometer (km) underground pipeline will transport captured CO2 from south of Immingham to the former Theddlethorpe Gas Terminal (TGT) in Lincolnshire. From there, it will reuse the existing 120 km offshore gas pipeline to store it in depleted gas reservoirs 2.7 km beneath the southern North Sea. The main pipeline has planning consent and it has development funding, but no final investment decision has been made yet.

Acorn CCS in Serious Trouble 

The withdrawal of the £200 million (US$270 million) commitment to Scotland's leading carbon capture project, Acorn, casts serious doubt on the future of the project. Promoted as a low-cost decarbonisation initiative located in northeast Scotland, it proposes to reuse existing legacy pipelines as the transport and storage backbone for the broader Scottish Cluster, a coalition of industrial, power and hydrogen businesses aiming to reduce carbon emissions across the U.K. It has the potential capacity to transport up to 20 million tonnes of CO2 per year at peak operation. Last December, the project was dealt a blow when lead developer Storegga withdrew from the project. No replacement developer has been found. 

Reaction to the Cuts

Members of Scotland's government called the cuts a "betrayal." SNP Economy Secretary Stephen Flynn said: "What a betrayal from Andy Burnham. He's quite happy to take Scotland's gas, he's quite happy to take Scotland's oil, he's quite happy to take the revenue that flows from it. But in return he chooses to withdraw £200 million worth of grant funding for carbon capture and storage in the North East of Scotland. The Acorn Project is key to Scotland's energy transition - a project that's key to creating 10,000 to 15,000 potential new jobs in the North East of Scotland."

Clare Jackson, chief executive officer of the Hydrogen U.K. association told Gasworld: "Reductions in capital grants and decisions deferred to next year's spending review mean businesses still need greater certainty." 

Olivia Powis, chief executive of the Carbon Capture and Storage Association (CCSA), welcomed the security of existing CCS investment but warned there is now increased uncertainty in the sector. "The stated direction of travel for future CCUS funding, moving towards equity and loans, and the cuts seen to both Hydrogen and CCUS support do increase the level of uncertainty for both mature and future projects. Our security also depends on retaining foundational industries, including cement and chemicals, for which CCUS is essential. Loans and equity investments...could offer a route forward, but industry urgently needs clarity on how these mechanisms will work, when funding will be available and how they will enable final investment decisions in this Parliament."

Key Takeaways

• The U.K. government has cut funding for clean hydrogen and carbon capture projects by £700 million (US$943 million).
• The withdrawal of a £200 million (US$270 million) commitment to Scotland's leading carbon capture project, Acorn, casts serious doubt on the future of the project.
• Industrial Info Resources is tracking 12 Acorn-related projects worth US$571 million in investment.

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).