Over 500 industry stakeholders, academics and government officials gathered in Leeds in mid-March to discuss the opportunities for the UK to scale its emerging CCUS and Hydrogen industries. A team of McKinsey consultants and experts attended the 4th UK CCUS and Hydrogen Decarbonization Summit and reported a sense of growing momentum and cautious optimism.
Incidentally, the timing of the conference occurred the week after the UK Government’s announcement to commit £20bn to CCUS projects over the next two decades. The UK government also made a further announcement at the end of March that it has selected eight CCUS projects from Track-1 for negotiations and launch of the Track-2 process.
At this year’s Summit, several CCUS projects reported they are on the cusp of making final investment decisions (FID), contract for difference (CfD) mechanisms have developed to mitigate investment risk, and the negotiations for selected projects are commencing.
Nevertheless, despite the developments over the last year, it was recognized that some challenges remain unresolved. With this in mind, our team identified three common themes from the discussions for the successful implementation of these decarbonization technologies throughout the UK.
Cross-industrial collaboration to enable a "whole system approach" will help effective deployment of these complex projects
- Communicating lessons learnt between clusters, industries and technology companies from these “first of a kind” projects can accelerate delivery. Commercial competitiveness is necessary to deliver value, but there was recognition that pioneering decarbonization projects require increased transparency.
- A full system approach given the cross-functional complexity of these decarbonization projects. This should allow for “first mover” infrastructure to be designed to scale for future emission and demand requirements. For example, and specific for hydrogen systems, it will be important to ensure sufficient focus is given to demineralized water requirements and long-term large-scale storage options. In addition to core design requirements, aspects such as planning and permitting timelines will also need to be fully appreciated to prevent delays to commissioning.
- Carbon intensive industries, contractors, equipment manufacturers and investors remain aware and cautious about delivery of these untested projects. It will be helpful if there is open cooperation between all stakeholders when distributing risk at a commercial and operational level. At one panel discussion, the participants agreed that everyone needed to “lean in” to help allocate the risk evenly and fairly throughout all entities.
Policy can help build an attractive and sustainable commercial environment for investment
- The announcement in the Spring Budget 2023 assigning £20bn funding over 20 years for CCUS projects could help the UK lead the way on CCUS. The details of this announcement are still to be set out, once they are it should help businesses understand how the CfD (contract for difference) model will be allocated to the Track-1 and Track-2 clusters.
- UK government support for hydrogen infrastructure projects, is expected to be announced in the coming months. There was cautious optimism from representatives at the conference, but a desire to avoid complacency given the future challenges of creating hydrogen ecosystems. For example, switching from gas to hydrogen distribution infrastructure could impact supply resilience and therefore development collaboration will be important to minimize risk here. Low carbon hydrogen (green or blue) is seen as one of the only feasible mechanisms to decarbonize certain sectors such as heavy industry.
- A panel discussion, featuring stakeholders from investment banks and technology start-ups, provided context for the difficulties of securing financial backing for these “first of a kind” projects. With some low carbon start-ups entering the period in which operations have begun but no revenue has been generated – clarity of the policy-influenced business models will be crucial in order to secure commercial scale up. Different approaches to securing investment by de-risking revenue streams and equity arrangements may be essential to avoid traditionally long project lead times.
It will be critical to ensure the workforce is skilled and prepared to implement these new technologies
- The development of low carbon clusters throughout the UK at scale will require training of a new generation of technicians, engineers and construction workers. Given the time-lag it will be necessary to engage with schools, universities, and institutions now to educate the future workforce about these emerging industries. Furthermore, the need for skills growth is further exacerbated by the high level of retirements (estimated to be up to 40%) expected in these industries over the next 5-10 years.
- Transitioning to a hydrogen ecosystem will come with many challenges. Several presenters spoke about the need to prepare for the construction, maintenance and operation of hydrogen systems. Re-skilling of the existing and future workforce to understand technical and safety requirements will be needed for the successful implementation of hydrogen projects throughout the UK. For example the H100 project in Fife (a world-first hydrogen home heating project) could help educate industry and the public of the merits of transitioning to a hydrogen economy.
The journey to deliver CCUS and low carbon hydrogen at scale in the UK continues. Many agreed that they were “more confident than ever” on the deployment of these technologies, but challenges around government support decisions, investment appetite and effective collaboration remain at the forefront of discussion. Conference attendees are enthusiastic to see this opportunity materialize.