6 June 2025 Energy and Infrastructure

Unlocking the Potential of Carbon Capture in the Energy Transition

Scaling-up domestic and cross-border carbon capture utilisation and storage (CCS) projects is key to many countries’ net zero ambitions, and CCS offers great potential to realise value for captured emissions as global carbon markets evolve. The UK’s recent landmark financings for system-scale projects offer many valuable insights to the market.

Linklaters have advised on all of the financed CCS transactions which have reached financial close in the UK. In the first of two articles on the topic, Mark Russell, Maryam Adamji and Isabella Peplinski of Linklaters discuss the learning points from these transactions and how they are applying these on their other global projects.

It is no overstatement to say that the first generation of truly large-scale CCS projects reaching financial close with support from a wide range of lenders marks an important inflection point in progress towards global energy transition. 

Not only do the Liverpool Bay, Net Zero Teesside and Northern Endurance Partnership projects pave the way for reduction of hard-to-abate emissions in the UK, but they also set a robust framework for mitigating many of the tough issues commonly faced by major low-carbon infrastructure projects. Whilst “one size fits all” has always been the antithesis of project financing, and the UK’s approach may not be a blueprint universally rolled out elsewhere, across the three projects many key bankability questions that have long been barriers to deployment in the CCS industry have been answered, with valuable conclusions that can be drawn for future projects elsewhere.

Learning from experience: the UK’s regulated approach

The Contract for Difference (CfD) mechanism and the Regulated Asset Base with Government Support Package (RAB/GSP) structure, which form the basis of the government business models for emitters and transportation and storage projects, respectively, are derived from similar models that the UK government has used to support renewable generation and major infrastructure projects. As such, CCS frameworks have been designed with investability in mind – the long-term revenue certainty these arrangements offer have underpinned investments for years on projects where commercial viability for private sector developers depends on stable cash flows.

The application of these models to CCS is the product of learning in the wake of previous government-backed CCS initiatives, as well as the evolution of similar models deployed in analogous contexts (most notably, CfD support to facilitate scalable deployment of renewable electricity generation and RAB/GSP models to enable private development of greenfield utility infrastructure). 

The UK government’s decision to adopt a common infrastructure model for transportation and storage via a RAB/GSP structure intentionally seeks to minimise investors’ exposure to cross-chain risk, while at the same time facilitating:

  • oversizing of infrastructure to ensure scalability;
  • streamlined integration of multiple emitter projects;
  • appropriate allocation of responsibility for risks that sit within the private sector’s control; and
  • reduction of government support (and adjustment of capital returns, in the case of the RAB/GSP model) over time, as the market matures and investor confidence increases.
Other risk mitigation measures

Whilst the UK’s regulatory regime has proven capable of attracting significant equity and debt capital, there remains a lot of emphasis on the private sector to ensure: 

  • robust contracting arrangements supervised by strong and experienced sponsors, with appropriately calibrated performance guarantees from technology providers; 
  • an insurance market  able to underwrite CO2 leakage risk (including in respect of subsea reservoirs); 
  • successful decommissioning of legacy hydrocarbon assets connected with the future CCS infrastructure; and 
  • matching of supply and demand by synchronisation of FID/completion timelines between users and emitters.
Framework for success

Crucially, these projects have demonstrated that there is healthy appetite among lenders and sponsors for exposure to this new asset class; something that could not be taken for granted just a few years ago. This hasn’t been facilitated by government capitulation; the complex suite of contractual and regulatory support arrangements provided by government does not by any means equate to a full “wrap” and there remains a high level of risk retained by the private sector, including lenders. 

With a sophisticated array of risk mitigation measures and tools utilised by project stakeholders to secure investment across a wide range of risks, the projects provide a rich seam of inspiration for policy makers and developers seeking to unlock the potential of their CCS project opportunities elsewhere in the world. 

This article first appeared in the PFI Global Energy Report 2025 https://www.pfie.com/pfi-reports/2259515/pfi-global-energy-report-2025