UK to compensate developer after 8bn gas plant project blocked by court

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The British government has agreed to compensate developers of most of its $8 billion gas-fired power plant and carbon capture projects if they are blocked in court by environmental activists.

Guarantees were given this year for a project in northeast England that, if proceeded as planned, would be the UK's first large-scale carbon capture initiative, according to a document seen by the Financial Times.

The power station on Teesside is being developed by BP and Equinor, and TotalEnergies has a minority stake in pipelines and storage sites underground in the North Sea to store carbon captured at power stations and other sites.

The Department of Energy Security and Net Zero have agreed to compensate the company if planning permission for the onshore part of the project is canceled due to ongoing legal challenges.

Modeling seen by the FT suggests compensation could run into billions of pounds, depending on how much court proceedings are delayed and spent, and if planning permission is canceled by 2027 at the latest, the figure could reach £6 billion.

Britain's National Wealth Fund, recently established by the Labor government, may provide temporary funding to help developers continue to operate projects while they decide how to respond to an unfavorable court decision, according to the document.

The deal highlights how the energy group has made legal action a key consideration when developing projects in the UK. This document was released to the FT by investigative journalism group SourceMaterial.

Aerial photo of Teesside currently undergoing redevelopment APS (UK)/Alamy

The Equinor-BP venture behind the gas-fired power plant is known as Net Zero Teesside Power. The Northern Endurance Partnership is developing the pipeline and storage site with TotalEnergies.

Spokespeople for both groups said: Net Zero Teesside Power and the Northern Endurance Partnership have agreed a solution with the government to ensure nationally important infrastructure projects are financially concluded.

The Department of Energy said: All contracts have gone through a robust due diligence process that prioritizes value for money for taxpayers and economic growth.

The National Wealth Fund said carbon capture is one of our priority areas and we are focused on removing barriers to private investment to sustain and accelerate the rollout of CCUS. [carbon capture usage and storage] These are projects that are driving growth across the UK.

BP, Equinor and TotalEnergies declined to comment separately.

Keir Starmers' Labor government has invested heavily in carbon capture technology, announcing in October up to $21.7 billion in support for the technology over 25 years.

Provisions for the sector include direct revenue support, a license to charge consumers, and protections against risk and termination.

Some environmentalists oppose the technology, arguing that if it doesn't capture all of the carbon emissions, it risks prolonging the fossil fuel industry and tying up investments that could be better spent on renewable energy.

The Teesside project is the first large-scale carbon capture scheme to receive government support as part of Labor's plan to decarbonise the UK's electricity system by 2030.

According to the developer, the gas-fired power plant will be operational by 2028, capable of supplying power to more than 1 million households, and will capture and store about 2 million tons of carbon dioxide per year.

Ministers last week announced that a contract had been signed for the project and that it had reached financial close, but details of the scale of support were not disclosed.

Energy Secretary Ed Miliband described the project as part of the government's mission to make the UK a clean energy superpower.

Ministers told parliament last month that the government's maximum exposure to the Teesside project and similar schemes around Liverpool was $34.4 billion, but the likely figure was much lower.

Teesside Power Station and the onshore pipeline were granted planning permission by the former Conservative government in February.

Activist Andrew Boswell, who challenged the project in court over carbon emissions issues, told the FT that the government had taken huge risks for potential rewards to industry, lenders and investors who were not prepared to take the risks themselves. said to

In his court action, he argued that the government had not provided legally adequate reasons to conclude that the project would help the UK's decarbonization goals if planning permission was granted.

His objection to the land planning permission was dismissed by the High Court, but his appeal was allowed and a hearing will be held at the Court of Appeal in March.

Separately, ministers said last week they were considering limiting the number of times claimants can seek judicial review of large infrastructure projects to avoid delays in development.

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