Aker Carbon Capture ASA

OSE:ACC

Earnings Call Transcript 2021-Q2

[Ivar Simensen]

Good morning, and welcome to the presentation of Aker Carbon Capture's second quarter results. My name is Ivar Simensen, and I will guide you through today's event. With us today, we have Chief Executive Officer, Valborg Lundegaard; and the Chief Financial Officer, Egil Fagerland. And after they have presented, we have time for some written questions. So with that, it's my pleasure to introduce CEO, Valborg Lundegaard.

[Valborg Lundegaard, Chief Executive Officer]

Good morning. Aker Carbon Capture's second quarter included further progress on Brevik CCS project and new business opportunities. In addition to reporting the second quarter results, we are, today, excited to announce a new innovative offering. I will come back to this, but first, a short introduction to the company and the second quarter results.Aker Carbon Capture is a pure-play company, combining the agility of a startup with the strength of the Aker Group. Our focus is on the CCUS market only, and our customers will have our full attention. And for investors, this open up for investments in a pure-play company, not a conglomerate of segments.Our technology has been developed over 20 years and it is validated over 50,000 operating hours and certified for several applications by D&B. Aker Carbon Capture's technology is cost-effective, robust and flexible, meaning it can be applied to existing plants and new builds. Our proprietary process uses nontoxic biodegradable mixture of water and organic amine solvents to absorb the CO2.When our customers come to us, they want to reduce their emissions and not introduce new emissions or hazardous chemical. That is why our technology's unique HSE characteristics are also a commercial differentiator.Now the highlights of the quarter. The Brevik CCS project, the first carbon capture project at a cement facility in the world, is progressing according to plan, with key milestones achieved. On Friday, we announced 2 strategically important MOUs. Aker Carbon Capture and Iceland's Carbfix have established a partnership aimed at combining the company's complementary technologies to offer the full CCS value chain.CO2 will be captured and permanently stored underground by rapidly turning it into solid carbonate minerals or simply stone. In addition, Aker Carbon Capture has joined forces with Carbfix and Eklem Iceland, in reducing CO2 emission at Elkem Iceland's ferrosilicon plant.In June, shares in Aker Carbon Capture started trading on the main list of the Oslo Stock exchange, making the pure-play carbon capture stock eligible for trading by a wider pool of investors. Separately, Aker Carbon Capture was quoted on OTCQX in the U.S. This is the top-tier marketplace for over-the-counter, OTC, trading of stocks. Aker Carbon Capture is now established in Denmark and U.K. with local teams. This ensures that we stay close to our customers and other stakeholders. The presence in these countries also open up for further recruitment.In Denmark, we are strengthening our technology team and have successfully recruited experienced resources from the strong Danish process industry. There has been high market activity in the quarter, and studies have been awarded from several customers like waste to energy providers BIR in Norway and Viridor in U.K. and the cement producer, Nexe Group in Croatia. Aker Carbon Capture and Iceland's Carbfix have established a partnership aimed at combining the company's complementary technology to offer the full CCS value chain. Carbfix proven solution for CO2 storage is a perfect match for Aker Carbon Capture's HSE friendly, Just Catch, low-cost, modular and scalable. By accelerating natural processes, Carbfix technology rapidly transformed CO2 injected into underground formations like basalt into solid carbonate minerals or simply stone. Carbfix technology development started in 2007 and is proven from operation at the Hellisheidi plant on Iceland since 2012.The uniqueness of this partnership is that the full CCS value chain can be offered on site for emitters that are located on top of the basalt formation. No transportation of CO2 is required. Alternatively, cost-efficient, scalable mineral storage hub can be offered as part of the full CCS value chain like Carbfix plant Coda Terminal on Iceland. Geological formations that are suited for the Carbfix method basalt and other reactive rock formations are among the most common rock types on earth and can be found in every continent, including vast formation in both Europe and North America. Together with Carbfix, Aker Carbon Capture will explore CCS at Elkem Iceland's ferrosilicon plant. The 3 companies have signed an MOU for the groundbreaking work of reducing CO2 emission of Elkem's plant to carbon capture and on-site mineral storage. The core product at Elkem Iceland is ferrosilicon, which is one of the elementary raw materials for the steel industry.Today, Elkem Iceland is the second largest ferrosilicon plant in the world, with an annual capacity of 120,000 tonne.Ambitious political climate targets have been set in the quarter. The new EU climate law increases EU target for reduction of greenhouse gas emissions from 40% to at least 55% by 2030 compared to 1990 levels. Bioenergy plants are by nature carbon neutral as carbon from sustainable biomass is part of a natural biogenic carbon cycle. By adding CCS so-called BECCS, CO2 is removed from the atmosphere. There is an increased focus on carbon removals with BECCS in EU. This is, according to EU, a game changer and part of the climate and circular economy solution.64 different carbon prices mechanism are now in place, covering approximately 25 of global emissions. This is up from 5% covered 10 years ago. The recent IEA Net Zero 2050 road map describes the priority actions that are needed to ensure net zero emissions by 2050. According to IEA, this is perhaps the greatest challenge human kind has ever faced. For CCUS, the IEA road map is visioning significant growth with 1,300 million tonne of CO2 by 2030 and 5,200 million tonne CO2 by 2050.Wood Mackenzie estimates that a carbon price of EUR 130 per tonne is required to reach the 1.5-degree target. The EUA or the EU ETS price has continued to increase in the quarter. Over the last 12 months, the price has increased 170%, driven by emission targets and price mechanisms. But even more interesting is the outlook. Analyst 2030 targets range from EUR 75 to EUR 150 per tonne. The Market Stability Reserve, which was introduced in 2019, is expected to drive EU ETS prices. A faster decrease in overall available emission allowances is expected, with approximately 2.2% reduction per annum from 2021. To put EU firms on equal footing with competitors in countries with weaker carbon policies, the European Commission considers to impose a carbon border tariff on goods imported to the EU, targeting sectors such as steel, iron, cement, fertilizers, aluminum and electricity. Aker Carbon Capture is continuously working on reducing the cost of our 2 main products; Just Catch, a standard, modular plant that captures up to 100,000 tonne CO2 per year; and Big Catch, a capture plant for the biggest emission points over 400,000 tonne per year and up to 7 million tonne per year. Renewables like solar and wind have demonstrated significant cost reduction like we have done on Just Catch, where we have been able to reduce the cost with 90% since 2012. The cost can and must be further reduced. We have set a target of up to 50% CapEx reduction within the mid of the decade. There is not 1 quick fix. We have to challenge the cost in many different ways. One, technology development. We cannot rest on our laurels; two, standardization and modularization with low fabrication; three, strategic partnership, offering integrated solutions with our complementary partners; four, long-term cost-efficient supply chains; five, learning by doing. And finally, it is all enabled by digitalization throughout the full value chain.The effective carbon price is expected to increase even further. However, to turn economics positive, the cost of CCS must come down. In addition to reducing the cost of carbon capture, we have to reduce the cost across the full CCS value chain. Aker Carbon Capture and Carbfix full CCS value chain partnership is one example of how this can be achieved. Our new offering, that will be presented today, is a major step in the right direction. The carbon capture market is expected to develop into a global market. Aker Carbon Capture has, in the initial phase, prioritized European market with Scandinavia, Benelux and U.K. leading the way.Here, the interest from customers and the regulatory environment to support adaptation of CCUS are most mature. However, the United States is back in the Paris agreement. Canada has increased 2030 emission targets to 45% by 2030 compared to 2005 level. And as a consequence of this, we see opportunities emerging in North America.We will prioritize to deliver our carbon capture products to 4 market segments: cement, bio and waste-to-energy, gas-to-power and blue hydrogen. We are proud to be selected by Norcem HeidelbergCement for the Brevik CCS EPC project, the world's first carbon capture project at a cement facility. The plant will have superior heat integration with the existing cement plant and capture 400,000 tonne of CO2 per year. The EPC project commenced in January and key milestones have been achieved according to plan.The Brevik CCS project is part of Longship, the greatest climate project in Norwegian industry ever. This is a full CCS value chain development, including Brevik CCS as well as transportation and storage project, Northern Lights. Longship will be in operation in 2024.The cement industry represents 6% to 7% of global CO2 emissions. CCS is the solution to decarbonize this hard-to-abate segment. Cement companies like HeidelbergCement and Nexe Grupa have a clear strategy to reduce their CO2 emission by CCS.With Twence in the Netherlands, we have signed an EPC contract for carbon capture at their waste-to-energy plant. Planned startup of the EPC project is in Q3 this year, pending final governmental approval. This is a Just Catch modular plant, with a capacity of 100,000 tonne CO2 per year. This is a CCU development. The captured CO2 will be sold and utilized as a fertilizer at a greenhouse. Aker Carbon Capture, Ørsted and Microsoft are exploring ways to support the development of carbon capture and storage at biomass-fired heat and power plants in Denmark.Last week, Aker Carbon Capture signed an agreement with BIR to explore carbon capture at their waste-to-energy plant in Bergen on Norway's West Coast. The Northern Lights terminal is located only 60 kilometers this plant. Aker Carbon Capture and Lyse and Forus Energi will jointly deliver an EU funding application for CCS in the Stavanger/Sandnes region in Southwest Norway.Viridor is a major waste-to-energy provider in the U.K. Aker Carbon Capture is currently studying implementation of CCS at their largest plant. Hitachi Zosen Inova, Aker Carbon Capture's technology partner in the waste-to-energy segment, has delivered more than 70 turnkey waste-to-energy plant over the last 2 decades.Hydrogen is a colorless gas, but it has been given 9 different color codes describing the production process. We need both green and blue hydrogen to fight climate change. But Aker Carbon Capture's focus is the blue hydrogen market, hydrogen from natural gas provided with CCS.IEA estimates 33% and 38% of global hydrogen market to be blue in 2030 and 2050, respectively. EU has forecasted investments of EUR 11 billion for retrofitting half of the existing European hydrogen plants with CCS before 2030. This morning, it was announced that an even stronger partnership, including Aker Clean Hydrogen, Aukra Municipality, Shell and Cape Omega will explore the opportunity to establish a blue hydrogen production facility on the Aukra Island in Western Norway. Aker Carbon Capture is working with the development partners on the carbon capture part of the project.In May, Aker Carbon Capture entered into partnership with SINTEF for R&D. Together, we will explore new capture technology for hydrogen production units, which complements our existing and qualified capture technology for blue hydrogen from steam methane reforming. Haldor Topsoe, the world's leading technology provider for hydrogen production from natural gas, is Aker Carbon Capture's partner for cost-effective blue hydrogen. Together, we will offer a complete solution for low-carbon hydrogen production, both retrofits of existing plants, but also new blue hydrogen plants.The fourth and last prioritized market segment is carbon capture for gas-to-power plants. The U.K. industrial decarbonization strategy is to capture 10 million tonne per year of CO2 by 2030 across 4 industrial hubs. Two clusters will be selected for Track 1 after a funding competition. Both clusters will have an offshore CO2 storage site. The plan is to be in operation by 2026. The second track will be in operation by 2030. This has accelerated the U.K. market. There are several opportunities for delivery of Big Catch carbon capture plants in the pipeline, including BP's Net Zero Teesside side and SSE Keadby 3 and Peterhead. The design capacity for each of these carbon capture plant is between 2 million and 2.2 million tonne per year CO2. This is more than 5x the Brevik CCS.Aker Carbon Capture and Siemens Energy are developing combined offerings for carbon capture solutions that can be applied to gas turbines and gas-fired power plants to provide sustainable solutions for the 21st century. But finally, as announced in the introduction, here, it is our new innovative offering. Aker Carbon Capture takes the challenge to accelerate the CCS market.Aker Carbon Capture is excited to announce a truly innovative offering, Carbon-Capture-as-a-Service, carbon capture made easy. Now it's time to bring the full value chain together, enabling source to storage decarbonization. Our customer will simply pay per ton CO2 captured. We will handle the CO2 to the full value chain from point of emission to permanent storage. We will provide and operate the carbon capture facilities. Transport and storage will be embedded in the service through strategic partnerships. Through standardization, digitalization, scale and full value chain integration, Carbon-Capture-as-a-Service will not only accelerate the market, but also accelerate cost reductions.Aker Carbon Capture will remain a technology-driven innovator in the CCS space and maintain a capital-light business model. Needed investments from building and owning the plants will be financed through a separate yield company to optimize the overall cost of capital. The yield company will be established by Aker Horizons in cooperation with Aker Carbon Capture. And we will invite third-party capital that has long-term capital deployment perspective and shared view on the importance of decarbonization.Interest from companies that want to reduce their industrial emission has skyrocketed. However, to most of these clients, CCS is a totally new concept that requires upfront investments and a variety of contracts and interfaces from securing financing to separate contacts for each step in the value chain as well as a number of contracts throughout the operational lifetime. Many companies that want to reduce emissions through CCS have been held back by the complexity and commitment required to act.Now, Aker Carbon Capture, a pure-play carbon capture company, can offer Carbon-Capture-as-a-Service, an integrated offering that covers everything a customer needs to reduce emissions by CCS, it is carbon capture made easy.To date, there are 13 CO2 storage hub under development or in early planning in Europe. The focus in the market has been on the large emitters linked to these various storage projects. However, there are more than 700 relevant emitters across Europe that are medium-sized. Aker Carbon Capture's standardized Just Catch is a perfect match for this market. It's modular, scalable, affordable and has short delivery time. With the standard of Just Catch, we can unlock synergies for medium-size emitters located in the proximity of a CO2 hub or for a customer with a portfolio of emitters.With Carbon-Capture-as-a-Service, we will offer our customers flexibility for phased implementation of CCS, starting with 1 train of the full CCS value chain and then grow with an additional train if preferred. The customer will simply pay per ton captured CO2. So what will this new offering with lower customer barrier entry mean for Aker Carbon Capture. We will build foundation for long-term service revenues, increase exposure to the full CCUS value chain, remain a technology-driven innovator in the CCUS space, providing technology, EPC and service offerings and maintain a capital-light business. Needed investment for building and owning the plants will be financed through a separate yield company to optimize the overall cost of capital. And again, this yield company will be established by Aker Horizons in cooperation with Aker Carbon Capture. And we will invite third-party capital that has long-term capital deployment perspective, and shared view on the importance of decarbonization. I am sure you want to learn more about our new offering, Carbon-Capture-as-a-Service, carbon capture made easy, and you will. You are all invited to join us for Capital Markets Day on September 9. We are looking forward to give you all a deeper understanding of Aker Carbon Capture, our products and business model, and to introduce you to some of our key customers and partners. So with strong signals for CCUS market growth, and an even stronger market position for Aker Carbon Capture, including a new service offering with lower customer barrier of entry, our target remains our ambition is to secure contracts to capture 10 million tonne per annum CO2 by 2025.Thank you. And over to our CFO, Egil Fagerland.

[Egil Fagerland, Chief Financial Officer]

Hello. I will now take you through the key financial highlights of the second quarter before we move on to Q&A. Bear in mind that all numbers that are mentioned are in Norwegian krone. Let's start with the income statement. Overall revenue for the second quarter was NOK 69 million, which was up 9% compared to the previous quarter. This reflects increasing activity on the Brevik CCS project, which is progressing as planned.We also saw increased activity for feasibility studies in the second quarter. Our reported second quarter EBITDA was negative NOK 47 million, which was a decrease of NOK 24 million from the previous quarter. The negative EBITDA was driven by increased activity related to sales and tenders, technology development, digitalization and a recent move from Euronext Growth to Oslo Stock Exchange. The period included limited contribution from projects due to no recognized margin on the Brevik CCS project. Profit is normally recognized first when a project reaches a high level of certainty in cost estimates.Now to the cash flow development. We ended the first quarter with NOK 484 million in cash and cash equivalents. In the second quarter, we had a loss before tax of NOK 49 million, representing a cash outflow. Net current operating assets ended the second quarter at negative NOK 176 million, which represented a cash inflow of NOK 117 million in the quarter. This was mainly driven by the received payments for achieved project milestones on the Brevik CCS project, which is expected to cover payables in the coming 2 quarters.In total, overall cash and cash equivalents ended the second quarter at NOK 552 million. Thank you for listening. That concludes our presentation today, and we then move on to Q&A.

[Ivar Simensen]

Thank you, Egil, and thank you, Valborg. We now have time for a couple of questions. And the first 1 comes from James Carmichael from Berenberg. How are you thinking about the revenue from CCS as a service? Will that be a flat fee or potentially variable with a link to the CO2 price? And following up, are there any particular sectors where capture as a service has generated more interest than others?

[Egil Fagerland, Chief Financial Officer]

Yes. So I'll take the first part of this question, I think. So for -- what we see is that CO2 emissions and the cost of CO2 emissions varies across customer to across customer, industry to industry and even region to region. We also see that a lot of our customers that we're talking to are starting to budget with a cost for carbon about EUR 100-plus per tonne from 2030 and onwards. So we will seek to develop a pricing model that is transparent and closely linked to the alternative cost for the customer. And we also are willing to discuss prices linked directly to the ETS prices or variable prices with roofs, and also, we would like to discuss fixed prices. So all these are optional for us.

[Valborg Lundegaard, Chief Executive Officer]

Yes. And when it comes to the second part of the question regarding the segments, well, one would initially believe that emitters around 100,000 tonne per year fit for Just Catch could be the perfect match for our Carbon-Capture-as-a-Service. And we find a lot of those emitters in the waste-to-energy segment. But in our discussions with customers, we actually also see that large emitters, like in the cement segment, find that it could be very attractive to have a phased development and start with the Carbon-Capture-as-a-Service and Just Catch to get started in reducing their CO2 emissions.

[Ivar Simensen]

Great. Now we have 2 questions from Rachel Fletcher from Morgan Stanley. When can we expect you to start providing Carbon-Capture-as-a-Service? And the second question is, could you talk about the CapEx implications of this business model?

[Valborg Lundegaard, Chief Executive Officer]

Well, maybe I can start, and then you can continue.

[Egil Fagerland, Chief Financial Officer]

Yes.

[Valborg Lundegaard, Chief Executive Officer]

So the starting point really depends on when storage is available. And as I said, there are 13 storage projects now being planned for in Europe. Northern Lights will be the first in operation in 2024. So you can calculate back our delivery time today for Just Catch is 16 months. We expect to reduce that and so on. But we really like to be ready when the storage project come on stream. So we are in dialogue with customers right now in order to sign up for the new offering.

[Egil Fagerland, Chief Financial Officer]

Yes. And as to the CapEx requirements, we -- since we are starting a separate yield company together with Aker Horizons, this company will be set up to optimize the cost of capital for carrying these assets, and we expect the yield company to call off Just Catch units as contracts are maturing. And we will then, as Aker Carbon Capture, lease them back from that yield company, and we then expect to continue to remain capital light.

[Ivar Simensen]

Okay. And a different topic on the market. Question from [ Anders Rosenlund ] at SEB. Are you no longer involved in the Amager CCS development that's in Denmark, for you Valborg?

[Valborg Lundegaard, Chief Executive Officer]

Well, we cannot mention all the customers that we are in dialogue with in this quarterly presentation. But the Danish market is certainly moving forward. We stay in close contact with the key customers in Denmark, including ARC. And I believe that there is a good reason for us having set up a local entity in Denmark because we believe that market will move forward.

[Ivar Simensen]

Great. And there's a question from Victoria McCulloch at RBC Markets. It's, when do you expect to start recognizing a margin for the Brevik CCS project? Is this associated with any specific milestone or timing?

[Egil Fagerland, Chief Financial Officer]

Well, when the cost estimates are more firm, we will start recognizing profit on projects. Normally, you could assume around 20% progress, but that's not the firm number. We will look into the cost estimates and their firmness before we start recognizing.

[Ivar Simensen]

Great. Now we have a question from [ Camila Nelson ] at [indiscernible]. The focus seems to be mainly on the capturing technology, but are you also offering storage solutions? Valborg?

[Valborg Lundegaard, Chief Executive Officer]

Yes. So as presented, transportation and storage will be through strategic partnership. You saw one example today with Carbfix on Iceland and their unique technology for on-site storage. But of course, in the Brevik CCS project, we are part of the big Longship full value chain development. And we are in dialogue with storage providers in various countries because we see that local storage is important.

[Ivar Simensen]

And there's a question from Frederik Lunde of Carnegie. Carbon-Capture-as-a-Service, how should we think about the required contract lengths?

[Egil Fagerland, Chief Financial Officer]

So I think we're still exploring the contract lengths, but we are looking into 15- to 25-year contracts to make this model work well. But of course, depending on how we're able to work down our cost curve this will be evaluated.

[Ivar Simensen]

-- great. And there's 1 more from [ Anders Rosenlund ] at SEB. Can you split operating costs in the same way you have done in the past several quarters? For you, Egil, on operating costs.

[Egil Fagerland, Chief Financial Officer]

Yes. Well, we can certainly come back to more details on the operating costs in the half year report as well. There are more details in the notes on the operating costs.

[Valborg Lundegaard, Chief Executive Officer]

But maybe we should just add on. Our focus this last 6 months, as the previous 6 months, has been to invest in the company. We are investing in technology development. We are investing in recruitment and the development of the company.It's been important for us to be listed on the main list of Oslo Stock Exchange and at OTCQX. And of course, this you can find in the OpEx numbers.

[Egil Fagerland, Chief Financial Officer]

Yes.

[Ivar Simensen]

Yes. We have 1 -- or a few final questions from [Nicolai Kofoed at Clarksons. On timing, when can we expect the first CCS as a Service projects to come? And then do you have any capacity target for self-owned carbon capture plans? And will these projects be included in your 10 in 25 target?

[Valborg Lundegaard, Chief Executive Officer]

They are certainly included and confirms our target for 10 in 25.

[Ivar Simensen]

That is great. Thank you very much, Egil and Valborg and thank you for your questions. And that concludes our broadcast for today. Thank you.