Public-Private Partnerships (PPPs) in UK Project Finance: Carbon Capture, Utilisation & Storage

Project Finance is a major legal practice area focused on the funding of large-scale, capital-intensive energy and infrastructure projects. In a typical project finance deal, a consortium of lenders secures their investments against the assets and future cashflows of the project itself, rather than from its sponsors’ broader balance sheets.

To facilitate this, the sponsors set up a special purpose vehicle (SPV), whose purpose is to manage, maintain, and execute the project. This confines their liability for the project to the equity stake they hold in the SPV, reducing their exposure to risk. Such ring-fencing of liability via the use of an SPV is why project finance is often referred to as a form of “limited recourse” or “non-recourse”financing.

Due to competing interests between sponsors and lenders, this kind of risk allocation is a central aspect of project finance. Indeed, lenders will commonly seek to mitigate their own exposure to risk through a range of measures, including syndicating their loans amongst a sufficiently large consortium of creditworthy banks and institutions, inserting stringent contractual protections into any agreements they make with the project sponsors and SPV, and undertaking extensive technical, legal, and financial due diligence into the project and its sponsors. 

Together, these measures ensure that risk is adequately mitigated from the lenders’ perspective, which increases the project’s bankability, attracting the financing it requires to get off the ground. 

Public-Private Partnerships in CCUS

In emerging sectors deemed to have public benefit, but where commercial viability is still developing - like Carbon Capture, Utilisation and Storage (CCUS) - governments may provide additional financial support to reduce risk to lenders and attract private investment. This is exemplified by the UK Government’s previouscommitment of up to £21.7 billion over 25 years to support the development of two “track-1” CCUS clusters, aiming to capture and store 20-30 million tonnes of CO₂ annually by 2030.

The mechanisms by which this support is given tends to vary by project, but can include Contracts for Difference(CfDs), tax incentives, and direct grants or subsidies. This government support, combined with the capital thatcommercial lenders then provide through syndicated debt financing, illustrates the “public-private partnership”model often associated with project finance.

Net Zero Teesside (East Coast Cluster)

The East Coast Cluster is one of the UK’s flagship CCUS initiatives. Located in the industrial regions of Teesside and Humber, its main focus is Net Zero Teesside Power (NZT Power), a gas-fired power station fitted with carbon capture technology, designed to produce up to 742 megawatts of low-carbon power and remove up to two million tonnes of CO₂ per year.

NZT Power uses an SPV principally sponsored by BP and Equinor. It is co-located with the Northern Endurance Partnership (NEP), another project co-owned by BP, Equinor and TotalEnergies, responsible for transporting and storing captured CO₂ beneath the North Sea. Both SPVs have previously secured syndicated debt financingtotalling a reported £8 billion between them, underpinned by long-term government revenue support mechanisms through the UK’s “Track-1” CCUS programme. Approximately £4 billion of these funds will be spent on securing leading engineering, procurement and construction contractors for NZT Power and NEP, aimed atensuring they are delivered on time and effectively.

HyNet North West (Liverpool Bay Cluster)

HyNet is another Track-1 project, focused on decarbonising industry in the Northwest of England and North Wales. It plans to combine low-carbon hydrogen production, CO₂ capture from heavy industrial emitters, and repurposed pipeline infrastructure to transport captured CO₂ into offshore storage in depleted gas fields beneath Liverpool Bay. 

Similar to the East Coast Cluster projects, HyNet uses an SPV structure that reduces project risk to sponsors, and leverages government financial support to attract private investment from lenders, thereby facilitating large-scale syndicated debt financing. In April 2025, the Liverpool Bay CCS project reached financial close on its £2.5 billion debt package with commercial banks. 

Conclusion

Because CCUS technologies are still developing at scale, projects require innovative financing structures that provide revenue certainty and reduce lenders’ risk. This can be achieved through a variety of government supportmechanisms.

Yet such interventions also raise questions about opportunity cost, particularly amid tight UK public finances and persistent debates over CCUS’s effectiveness. A February 2025 House of Commons Public Accounts Committeereport labelled CCUS as “unproven” and “high-risk”, and queried whether taxpayers will ultimately benefit from such investments. Alongside these concerns, the government is consulting on whether the Storage of Carbon Dioxide (Access to Infrastructure) Regulations 2011 remain suitable with regard to CCUS applications.

Nevertheless, contracts for the two Track-1 clusters have already been signed, with two more projects in the works under “Track-2” (the Acorn project in Scotland and the Viking project on the east coast of England).Therefore, assuming the government’s legally binding target to reach net-zero by 2050 remains, CCUS appears likely to remain central to the UK’s decarbonisation strategy. It has even been reported that to maintain lender confidence in the industry, “change in law” clauses have been included in the first CCUS financing agreements, protecting lenders against potential reductions in future support and encouraging continued investment amid uncertainty over the long-term stability of these public-private partnerships.

Image by Number 10 via WikimediaCommons