Final report for One North East And NEPIC 21/12/10 - The Carbon ...

The case for a Tees CCS networkFinal Report4.5 Approaches to managing riskAs described at the start of this section, the three groups of risk described above all serveto impact the commercial risk profile of the project as a whole, as well as each of theseparate components (and therefore the exposure of all project lenders across the CCSvalue chain); the complexity described therein paints a challenging picture for the prospectof getting a CCS network off the ground in Teesside.However, the nature of at least some of the risks highlighted are not new, and legalapproaches and methods established for other large infrastructure investments can beapplied to overcome many of them (e.g. liquidated damages clauses, long-term off-takeagreements, take-or-pay contracts, non-disturbance agreements, facilities sharingagreements, collateral warranties, and so on). Therefore, using these as a basis, deriskingthe factors described previously using these types of instruments will be critical toget the project off the ground. They need to be resolved amongst participants – at least inprinciple – at an early stage of the project in order to allow passing of key investmentdecision points. There are clearly a large number of risks and challenges which need to beunderstood and managed before investment is possible and the potential projectstructuring/ownership options can be assessed (Section 6).Therefore, at the current time, any project promoter that could take the project forwardneeds to demonstrate that steps have been taken to understand these risks, and thatcontracts or agreements in principle or elements thereof are in place to manage them -even those that may occur towards the end of the project life. It is only after these stepshave been taken can serious discussion regarding private (and even public) financialsupport for the project can be sought. An overview of the potential contractual linkages fora CCS network is highlighted below (Figure 16).Although, as mentioned previously, many such arrangements are common practice toinfrastructure projects (e.g. oil and gas production and transportation projects), the natureof CCS risks and the need for public support during the demonstration phase do poseadditional complexities. Whereas many risks can be managed through traditionalcontractual arrangements, some are entirely exogenous, policy-related matters thatpresently act as potential „deal breakers‟ for the provision of any private lender. The role ofthe UK government and possibly the EU are therefore critical to managing those risks thatare genuinely unacceptable to private sector investors.43