10 min read 28 Oct 21
The emerging sector of carbon capture and storage (CCS) has been in the headlines following the latest announcements from the Government on its plans to achieve the UK’s net zero 2050 target. Following the announcement, Nick Cooper, CEO of Storegga Geotechnologies, Head of M&G’s Catalyst private assets team Alex Seddon, and M&G equity portfolio manager Randeep Somel sat down to discuss their reactions to the news, what this means for current projects and would-be customers, and where private sector investment opportunities will lie.
M&G: How is Carbon Capture and Storage (CCS) emerging as a solution to help tackle climate change?
Nick Cooper, CEO of Storegga: Scientific consensus is that we need to be removing eight gigatons of carbon dioxide from the atmosphere by 2050 if we want to limit global warming to 1.5 degrees. Planting more trees will only remove two gigatons, so we need to find other ways to remove six gigatons from the atmosphere.
This is where CCS comes in. It captures carbon at the point of emission – from power generation plants or from industrial processes – or direct from the air – and stores it underground, permanently. Storegga’s main CCS project, Acorn, will store carbon in deep subsea geological formations, just off the coast of NE Scotland, and will repurpose existing oil and gas pipeline infrastructure to transport to the store.
M&G: What is the potential of CCS – how big are we talking?
Nick Cooper, CEO of Storegga: CCS is now being considered by researchers and policymakers as a crucial component in the net zero “toolbox”. But if we want to meet Paris goals, CCS roll out needs to accelerate. Today only 40 million tonnes of carbon are stored – so we need more than a 100 fold increase in CCS between now and 2050. It is a huge rollout almost equivalent to reproducing the oil and gas industry in less than 30 years.
The good news is that the UK has a lot of storage resource: about 90% of Europe’s total storage geology sits in the waters between the UK and Norway. The UK has the potential to help fulfil our own net zero requirements through CCS, but could also help other countries to decarbonise.
M&G: The UK Government has run a process to allocate funding for CCS projects across the UK and has just announced that the Acorn project and Scottish Cluster met all the selection criteria, but was chosen as a Phase 1 reserve. How have you reacted to that news?
Nick Cooper, CEO of Storegga: We were disappointed because we think Acorn is a very credible, cost effective project using existing brownfield infrastructure and a skilled workforce in NE Scotland. With Phase 1 UK Government funding, we felt confident the project could have been operational from the end of 2025, a year or two ahead of any other project. But we’ve had unanimous support from our other partners and stakeholders in pushing ahead, even if means it might not be operational as soon as we wanted. Everyone recognises the crucial role CCS needs to play in addressing carbon emissions: but we think all the UK CCS clusters should be progressed to get them onstream as soon as possible.
M&G: Some critics say CCS is prohibitively expensive – is that justified?
Randeep Somel, M&G portfolio manager:
It is expensive. But a decade ago, solar power and offshore wind were seen as prohibitively expensive. Newer technologies cost more than existing technologies because they haven’t yet reached economies of scale. Prices start to come down as more investors step in and the technology gets better. Why is the UK already the world leader in offshore wind power? We are on an island with strong winds, surrounded by shallow water: the perfect conditions for offshore wind turbines. But importantly, with government support and private capital the UK has been able to build the world’s two largest wind farms – which have shown how offshore wind can work, and helped drive costs down. What is important is collaboration between governments and private capital to get new projects up and running.
M&G: Another criticism of CCS is that it’s a comfort blanket for the oil and gas companies….
Randeep Somel, M&G portfolio manager: One third of carbon emissions today are from very difficult to abate areas – such as long haul aviation and the manufacturing of steel and cement. These sectors are unlikely to be electrified, therefore we need a different solution to reduce those emissions in order to reach net zero by 2050. CCS can be part of the solution.
M&G: Do you think we are likely to see progress on carbon pricing at COP26, which could help make the economics of CCS more attractive more quickly?
Randeep Somel, M&G portfolio manager: I hope so. The difficulty with carbon pricing is that if one region or country puts it in place, they can put themselves at a short to medium-term disadvantage when it comes to global trade and other areas. This is why forums like COP26 are so important. The environment is a global matter, and carbon pricing needs to be a global matter.
M&G: Why has Catalyst (a £5 billion private assets mandate) recently invested in Storegga, when CCS is still at such an early stage?
Alex Seddon, Head of M&G Catalyst: Yes, it is early stage – but with Catalyst, we can invest at this point in the cycle because we take a long-term view. This flexibility allows us to help companies like Storegga develop complex, long-term projects like Acorn.
CCS technology is an absolutely essential part of the global transition to net zero and we believe that Storegga’s Acorn project is the most cost-effective project of its kind in the UK. Because Catalyst has a strong sustainability focus, we really like the fact that Acorn uses existing infrastructure, taps into huge UK storage capacity, and will preserve and create over 21,000 UK jobs.
M&G: As a shareholder, what is your reaction to the Phase 1 announcements?
Alex Seddon, Head of M&G Catalyst: When we underwrote this investment, we did not invest on the basis of whether it fell into Phase 1 or Phase 2. Instead, we took a long-term view on the importance of the technology, the value of the Acorn project and Storegga’s ability to execute. The Government’s selection is disappointing but our belief in the management team and the technology and the need for this project is absolutely unchanged.
M&G: Innovative CCS projects like Acorn will require a lot more private capital than Catalyst alone can provide. Where do you see additional investment coming from?
Alex Seddon, Head of M&G Catalyst: We are relatively unusual in being able to get involved in projects like this at a very early stage. But once CCS assets become operational and regulated there are very big pools of capital globally looking to invest in green infrastructure – including insurers and pension funds with long term liabilities which they want to match against a steady income stream.
M&G: Are there any CCS investment opportunities in the public markets yet?
Randeep Somel, M&G portfolio manager: The industry is still in its early stages and as a result, there are not many listed entities with direct exposure to CCS out there yet. But it’s an area that we keep a very close eye on from an investment perspective because as the technology matures there will be some potentially big opportunities out there.
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