In the United Kingdom, there has been significant investment and research into both H2 and CCUS technologies, with the government setting ambitious targets for their deployment to achieve net-zero emissions by 2050.
H2 refers to hydrogen, a clean energy carrier produced through various methods like electrolysis. It's utilized in fuel cells for electricity generation and as a clean fuel in transportation and industry. CCUS stands for Carbon Capture, Utilization, and Storage, a set of technologies aimed at capturing carbon dioxide emissions from industrial processes or power generation and either storing them underground or utilizing them in other processes to prevent their release into the atmosphere.
A team of McKinsey consultants and experts joined over 750 industry stakeholders from 300 companies at the 5th UK CCUS and Hydrogen Decarbonization Summit in February. This year’s summit saw a 5-fold increase in attendance compared to the first conference held in 2020, reflecting an increased level of interest from stakeholders.
As with previous conferences, there was reflection on progress over the last year. This included renewed optimism for the emerging hydrogen industry following the recent funding announcement from the HAR1 (Hydrogen Allocation Round) for 125 MW of production across 11 projects. On the other hand, this was tempered by a consensus that CCUS has made less progress than expected. Notably, the Contract for Difference (CfD) terms have yet to be agreed for the Track-1 clusters from the £20bn funding allocation, delaying final investment decisions (FIDs) for these projects.
As many of these projects edge closer to reality, key stakeholders continue to detail what would be required to design, construct and operate the CCUS & hydrogen ecosystems. It was emphasized by many that the UK has come a long way, but continued momentum is needed to avoid falling behind peers. With this in mind, our team observed 5 key themes emerging from the summit.
A decarbonization framework for UK CCUS and hydrogen has laid the foundations for project delivery
- Progress across regulatory frameworks and business models has enabled Track-1 (HyNet and East Coast Cluster) and Track-2 (Viking and Acorn) clusters to be in a position to confirm their FIDs once CfD commercial terms have been reached. Meanwhile, the wider UK CCUS project pipeline continues to grow, with over 90 million tons per annum of potential carbon dioxide storage in planning phases across 12 hubs in total.
- The recent 125 MW Hydrogen Allocation Round was welcomed by many as a significant first step to deployment towards the 10 GW 2030 target. Although it was acknowledged that additional transportation pipelines and storage sites are needed, which currently don’t have any financial support mechanism.
- As projects edge closer to reality, other hard-to-abate industries outside of core clusters are preparing to leverage the infrastructure that will be developed. For example, energy-from-waste and cement plants, which are located throughout the UK are looking to link to future pipeline systems.
New challenges are expected as projects begin to transition to execution
- More elements of these value chains are in development, which will be crucial to ensure a fully functioning system. We heard from companies who are planning to develop CO2 port terminal storage infrastructure, operate CO2 shipping services, provide hydrogen powered mobile generators and build modular nuclear reactors for “pink hydrogen”. Initiatives to address the skills gap across these value chains will also be needed. This gives a flavor of the future complexities and opportunities from these industries.
- A new wave of contracts will need to be agreed as projects move into detailed design and construction. In one panel discussion, there was broad agreement that contracts should be designed to limit excessive risk for engineering, procurement and construction companies and other third-party contractors, which could result in unnecessary delays.
- CO2 pipelines and hydrogen production plants will need to receive planning approval for projects, which can often be near urban communities. Engaging stakeholders to manage expectations and highlight the benefits of these projects early in the process will be critical.
Lessons are emerging from first-of-a-kind (FOAK) projects
- Large point source emitters are keen to learn how FOAK construction processes and supply chain management can help reduce emissions and costs. Some are hopeful that these projects could even be built with minimal or no government support, potentially enabling them to fast-track deployment.
- There was a renewed call from stakeholders to adopt a systems thinking approach to optimize interconnected ecosystems. It will be important to ensure right-sizing of infrastructure along the value chain to reduce costs and maximize value for companies (e.g., hydrogen backbone pipelines).
Further developments for the buildout of other sections of CCUS and hydrogen value chains
- Presentations from the UK government Department for Energy Security and Net Zero (DESNZ) highlighted the progress that has been made and the next steps for CCUS industry maturity. In 2024, the department is preparing a call for evidence on non-pipeline transport, a consultation on third-party access, a call for evidence on CO2 imports and a consultation on competitive allocation for CCUS.
- DESNZ is supporting the buildout of the hydrogen sector through the support of two hydrogen T&S projects by 2030, which is seen as crucial to maximize value from production projects. There are also plans for consultations on transmission blending and power usage, potentially incentivizing additional use cases.
Continued momentum can prevent delays and maintain UK competitiveness
- Global competition for investment and industry focus is seen to be increasing. The availability of subsidy support through the US Inflation Reduction Act and new EU legislation could see resources moving around. A survey by the CCSA suggested that one third of projects stated that they are considering relocating their developments overseas without access to CO2 infrastructure or CCUS support
- In the near-term, collaboration to enable stakeholders to move in lockstep to build-out Track-1 & 2 clusters, and measures to minimize uncertainty were seen as key to support progress.
The sense of urgency to scale the UK’s CCUS and hydrogen industry remains as high as ever. A theme that emerged was to “pursue pace, not perfection”, followed by “however fast we go, we need to go faster”, which underscored the sentiment of many at the conference. It seems clear that businesses are eager to switch to the next phase of deployment and are preparing to tackle the challenges that will come with this.
This article was edited by Thomas Farrar, a manager of communications, based in McKinsey’s London office.