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CCS: Mobilising Private Sector Finance

Date
20 September 2010
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CCS: Mobilising Private Sector Finance

The Climate Group and the Ecofin Research Foundation are working on a joint initiative to assess, and possibly stimulate, private sector financing for first generation industrial scale carbon capture and storage (CCS) projects. This brief report provides an overview of initial findings from a European perspective.

We canvassed over 30 private sector capital providers about the risks and returns of a post-combustion, new build, coal-fired power station. The following messages are emerging:

1. Debt… not yet. Ample debt may be available but only if three pre-requisites can be addressed:

  • An indicator of performance across the whole capture and generation chain must be provided by a well-regarded equipment supplier or contractor.
  • Major sponsors who have successfully managed sizable and complicated construction projects must be involved.
  • Economics of CCS must have a route to being competitive with other forms of generation, without public funding.

2. Not for specialist equity. Specialist equity, such as private equity or infrastructure funds, will not be mobilized to finance demonstration projects. Private equity sees demonstration of CCS, like technology funding – requiring high returns across a spread of projects.

3. On the balance sheet… but limited in scale. 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.

4. Demonstrations helped by the private sector… but for two, not eight projects. It is generally agreed that government sources will provide part of the funding for CCS demonstration projects and that will be topped up by private sector sources. Limited private sector funding, adequate for just two CCS demonstrations, according to recent findings, means that a multitude of CCS demonstration projects cannot be pursued.

5. Government funding needs to focus on fewer CCS demonstration projects. Public sector financial support for CCS from European sources needs to be focused on far fewer projects instead of being spread over numerous CCS technologies. This will ensure some of the challenges are faced – and hopefully overcome.

We intend to build on our initial findings through additional interviews with capital providers to widen the geographic reach as well as explore other examples of possible CCS projects such as enhanced oil recovery and/or retrofitting. We will disseminate these findings to stakeholders such as capital providers, project developers and policymakers, in order to help break down the identified barriers.

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