Ep169: What Sponsors Need to Know to Finance CCS Projects
Jul 26, 2021
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Join Nick Knapp and Mike Yurkerwich as they discuss the importance of carbon capture and sequestration projects in the energy transition, market drivers, financing considerations, recapture risk mitigation strategies, and proposals to enhance CCS projects in the US
CCS is integral to energy transition, boosted by legislative changes and increased tax credit values.
CCS projects require substantial investment, with opportunities in various industries and a potential for significant growth.
Deep dives
The Importance of Carbon Capture and Sequestration in Energy Transition
Carbon capture and sequestration (CCS) is highlighted as a crucial element in the energy transition, as discussed in the podcast. With the revamped 45Q guidance, companies like Cone Resnick Capital have shown a keen interest in CCS due to its role in decarbonization. Legislative changes, including increased tax credit values, have significantly improved the economic viability of CCS projects and aligned with sustainability goals, setting the stage for substantial growth in the industry.
Opportunities and Markets for Carbon Capture
CCS opportunities primarily lie in the power sector, focusing on lower-cost facilities with pure CO2, such as ethanol plants. Various industries, including natural gas, coal, biomass facilities, and hydrogen, present avenues for CCS. Globally, there are currently around 20 to 25 operating facilities, with projections indicating the potential for multi-hundred to thousands of viable projects. The investment required for CCS projects ranges from $500 million to $1.5 billion, showcasing the scale and impact of these initiatives.
Challenges and Future Outlook for Carbon Capture Projects
The main challenges facing CCS projects are their capital-intensive nature and longer construction and development timelines due to EPA requirements and monitoring obligations. Despite proven technology, there is a need for substantial upfront investment and ongoing monitoring costs. The recent legislative changes and IRS guidance have propelled momentum in the CCS industry, paving the way for future growth. The long-term success of CCS projects hinges on continued policy support, financial incentives, and market scalability, with the potential for direct pay options and enhanced tax credits on the horizon.
Nick Knapp, senior managing director, and Mike Yurkerwich, director with CohnReznick Capital, join us to talk about what sponsors need to know to finance carbon capture and sequestration (CCS) projects. We discuss what CCS is and why it is an important component of the energy transition, what the current market for CCS is in the US, the market drivers spurring growth, capital requirements for CCS projects, key financing considerations, what financing structures are most likely to increase comfort for financing CCS projects and more.
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