- 20 September 2010
- Debt market needs three key issues addressed
- Specialist equity likely to be fringe
- Limited corporate balance sheet funding possible
- Mobilising multi-disciplinary teams not an issue
- Storage not a concern
The finance sector appears ready to invest in the global deployment of Carbon Capture and Storage (CCS) subject to three prerequisites, according to a new report launched today by The Climate Group and Ecofin Research Foundation in New York as part of Climate Week.
The report, “Carbon Capture and Storage: Mobilising Private Sector Finance”, was funded by the Global CCS Institute. It provides insight into the views of private sector capital providers on financing first generation industrial scale CCS projects.
A joint team - The Climate Group and Ecofin Research Foundation - canvassed more than 30 private sector capital providers to understand their view on the risks and returns of a hypothetical post-combustion, new build, coal-fired power station.
The in depth engagement with capital providers highlighted that there may be debt available for CCS projects but only if three prerequisites are addressed:
- a performance guarantee across the entire generation and capture chain
- projects include sponsors with a strong reputation and track record
- CCS must have a route to being competitive without public funding.
It was also revealed that it was unlikely that specialist equity would be involved in fiancing demonstration projects. Infrastructure funds do not take high technology and construction risks such as those linked with CCS, while the expected returns from CCS are too low for it to appeal to private equity providers.
On a more positive note, bond holders or equity holders from the big pension funds or insurance companies are comfortable with corporates using their balance sheets to finance CCS, but only as long as the scale is limited to just a couple of percent of group assets.
Dale Seymour, Senior Vice President, Strategy, Global CCS Institute, said: “This report gives important insights into how the financial community views the risks associated with early mover, first of a kind CCS projects. These kinds of learnings are critical to addressing challenges to CCS demonstration projects. We look forward to continuing to work with The Climate Group to deepen engagement with the financial community on this issue.”
Chris Rowland, Director at the Ecofin Research Foundation said: “We were surprised at the level of engagement from senior decision makers in financial institutions and their readiness to consider funding CCS, however, there are some difficult issues that need to be addressed to turn this readiness into willingness.”
Rupert Posner, Global Director of Energy at The Climate Group said: “These findings suggest that to meet the G20’s goal of broad deployment of CCS projects by 2020, public funding of CCS may need to be more focused, instead of spread across a suite of projects. The findings also indicate that for CCS projects to attract private capital, it is essential that heavyweight sponsors such as utilities, fuel suppliers and equipment manufacturers are involved.”