The government has launched a £20m competition to encourage the development of innovative carbon capture and storage (CCS) systems and components.

Companies are being invited to bid for a share of the pot, which will be used for pilot-scale demonstrations of the technology and improving the UK supply chain as part of a four-year, £125m CCS research and development programme led by the Department of Energy and Climate Change (DECC).

CCS is one of the four pillars of the government’s energy policy and it estimates the UK could support an industry worth as much as £6.5bn a year by the late 2020s.

However, although the UK’s first CCS pilot opened at Ferrybridge, Yorkshire, last year, using more than 20 UK-based companies for parts and services, the technology has yet to be deployed at scale.

Six industrial sized projects are planned, but the huge capital costs mean most will only be developed if they receive European funding or a share of the £1bn the government has set aside to support the development of up to four commercial-scale plants. A competition for that fund is set to be launched in the coming weeks.

A DECC spokesman said the new innovation fund would complement the £1bn commercialisation programme, with awards to a few big projects or as many as 10 smaller projects likely to be made by late summer.

Energy and climate change secretary Ed Davey said the funding would help the UK become a world leader in CCS.

“CCS will play a vital role in ensuring we develop a low carbon energy mix,” he said. “By supporting research and development, this £20m competition is an important step towards making cost-competitive CCS a reality by the 2020s.”