Source · Select Committees · Public Accounts Committee
Recommendation 9
9
Accepted
Untested business models and contracts expose taxpayers to huge CCUS programme costs
Recommendation
Given the scale of the funding announced for the first five projects and the size of the contingent liabilities that the Department has recognised for its underwriting of the programme, the potential costs to taxpayers and consumers are huge. The Department intends to manage the risks through a series of business models that it has developed for each sector that CCUS 14 Q 12 15 C&AG’s Report, para 1.5 16 Q 12 17 C&AG’s Report, para 14 18 Government reignites industrial heartlands 10 days out from the International Investment Summit – GOV.UK 19 Written statements – Written questions, answers and statements – UK Parliament Statement HCWS211, 13 November 2024 20 C&AG’s Report, paras 1.5 and 3.4 21 CCUS0007 22 CCUS0014 23 Qq 9–10 11 may be deployed in.24 It told us that these models are structured in such a way that, apart from very small grants worth less than 2% of the overall funding envelope, the projects in the CCUS programme will only be paid once they are operating.25 It also intends to structure the contracts in such a way that projects will receive lower payments if they are not meeting certain criteria, and could be cancelled in extreme cases of under–performance.26 As yet, none of these business models or contracts have been tested in practice.27 Securing future financial returns
Government Response Summary
The department has created business models that provide the minimum subsidy required, keeps the allocation of costs and risks under review to reduce subsidy, has established assurance and control mechanisms, created a new construction team and finance lead, and will carry out monthly reviews reported via the Sponsor Function Board.
Government Response
Accepted
HM Government
Accepted
1. PAC conclusion: The Department is taking a high–risk approach by backing first– of–a–kind, unproven technologies with large amounts of taxpayer and consumer funding. 1. PAC recommendation: The Department should, as the projects it is supporting progress, make sure it is assessing on a regular basis whether taxpayer and consumer exposure is in line with expectations. This should include an assessment of whether its approach for allocating costs and risks between government and the projects is performing as intended. 1.1 The government agrees with the Committee’s recommendation. Recommendation implemented 38 1.2 The Department for Energy Security and Net Zero (the department) has created business models that provide the minimum subsidy required to support the projects, in order to realise the anticipated benefits and positive value for money. The department keeps the allocation of costs and risks between government and projects under review, with the aim of reducing subsidy over the long-term. 1.3 The department has also established the Cluster Sponsor Function, which has the objective of delivering the strategic benefits from the subsidy in the clusters. It will achieve this by monitoring progress through the cluster construction phase and beyond, identifying mitigating actions where required, and monitoring benefits, costs and cross-chain risks and implementing mitigating actions if required. 1.4 The department has taken steps to ensure that appropriate assurance and control mechanisms are established to optimise forecasting of spend profiles of projects in the government’s balance sheet and to minimise financial risks. As part of the Cluster Sponsor Function a new construction team has been created, with responsibility for monitoring construction progress and costs, proactively identifying emerging issues and initiating mitigating actions. This includes a dedicated finance lead, whose role is to manage finance processes (including budget management via the department’s finance processes, contingent liabilities, inputs into spending reviews and business planning exercise) for projects on the government’s balance sheet. 1.5 Reviews will be carried out monthly and will be reported via the Sponsor Function Board, which seeks to resolve issues as they arise to minimise the overall risk to the successful delivery of the project.