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The UK government has agreed to compensate developers of an £8bn gas-fired power station and carbon capture project if much of the scheme is blocked in court by an environmental campaigner.

The guarantee was given this year to the project in north-east England, which would be the UK’s first large-scale carbon capture initiative if it goes ahead as planned, according to documents seen by the Financial Times.

The power station in Teesside is being developed by BP and Equinor, while TotalEnergies also has a minority interest in pipelines and a storage site under the North Sea for carbon captured from the station and other sites.

The Department for Energy Security and Net Zero agreed to compensate the companies if planning permission for the onshore part of the project was revoked as a result of an ongoing legal challenge.

The compensation could run to billions of pounds if the court process drags on and depending on how much money has been spent, according to modelling seen by the FT that indicates the figure could reach £6bn if planning permission is revoked as late as 2027.

The UK’s National Wealth Fund, recently established by the Labour government, may also provide interim funding for the projects to keep work running while developers decide how to respond to any adverse court decision, according to the documents.

The agreements highlight how legal action has become a key consideration for energy groups as they develop projects in the UK. The documents were shown to the FT by SourceMaterial, an investigative journalism group.

The Equinor-BP venture behind the gas-fired power station is known as Net Zero Teesside Power. It is developing the pipelines and storage site alongside TotalEnergies in the Northern Endurance Partnership.

A spokesperson for both groups said: “Net Zero Teesside Power and Northern Endurance Partnership have agreed a solution with government . . . which allowed these nationally significant infrastructure projects to proceed to financial close.”

The energy department said: “All contracts have undergone robust due diligence processes, prioritising value for money for taxpayers and economic growth.” 

The National Wealth Fund said carbon capture was “one of our priority sectors” and that it was focused “on removing barriers to private investment to sustain and accelerate the rollout of CCUS [carbon capture usage and storage] projects which drive growth across the UK.”

BP, Equinor and TotalEnergies declined to separately comment.

Sir Keir Starmer’s Labour government has made a big bet on carbon capture technology, announcing in October up to £21.7bn in support for the technology over 25 years.

Its provision for the sector includes direct revenue support, licences to charge consumers, and protection against risks and contract termination.

Some green campaigners are opposed to the technology, arguing that it risks prolonging fossil fuel industries without capturing all their emissions, and that there is a danger of tying up investment that could be better spent on renewables.

The Teesside project is the first big carbon capture scheme to receive government backing as part of Labour’s plans to decarbonise the UK’s electricity system by 2030.

The gas-fired power station will be operating by 2028 with the capacity to supply more than 1mn homes, with about 2mn tons of carbon dioxide per year captured and stored, according to the developers.

Last week, ministers announced they had signed contracts with the projects, allowing them to reach financial close, but details of the full extent of the support were not disclosed.

Ed Miliband, energy secretary, described the project as “the government’s mission to make the UK a clean energy superpower in action”.

Ministers told parliament last month the government’s maximum exposure to the Teesside project and similar schemes around Liverpool was £34.4bn but that the likely figure was far lower.

The Teesside power station as well as the onshore pipelines were given planning permission by the former Conservative government in February.

Andrew Boswell, the campaigner who is challenging the project in court over its carbon footprint, told the FT the government had taken an “extraordinary risk” for potential compensation “to industry, lenders and investors who were not prepared to take the risk themselves”.

In his court case, he argues that the government had not given “legally adequate” reasons for concluding that the project would help the UK’s decarbonisation goals when planning permission was granted.

His challenge to the onshore planning permission was rejected by the High Court, but he was allowed to appeal and a hearing is due to take place at the Court of Appeal in March.

Separately, ministers said last week that they were considering limiting the number of times claimants could request a judicial review of large infrastructure projects to avoid slowing down development. 

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