Aker Carbon Capture ASA

OSE:ACC

Earnings Call Transcript 2020-Q3

[Ivar Simensen]

Good morning, ladies and gentlemen, and welcome to the presentation of the third quarter results for Aker Carbon Capture. My name is Ivar Simensen. I'm the Head of Investor Relations and Communications. And with me today, I've got Chief Executive Officer, Valborg Lundegaard, who will guide you through the presentation. Afterwards, we have time for some questions, which you can send in through the webcast. And with that, I'm pleased to hand over to Valborg.

[Valborg Lundegaard, Chief Executive Officer]

Good morning. It's a great pleasure to present Aker Carbon Capture's first quarterly results since the company was listed. It has been exciting months. Let us first look at the highlights. Aker Carbon Capture's highlight of the quarter came on September 21, when the Norwegian government recommended to launch Longship, a complete carbon capture storage project. Aker Carbon Capture has a contract with Norcem HeidelbergCement, for the EPC delivery of the carbon capture plant in the Longship project at the cement plant in Brevik, Norway. This will be the first carbon capture project at a cement factory in the world. The Longship project has excess storage capacity and will further advance the carbon capture market. Secondly, during the third quarter, Aker Carbon Capture was spun off from Aker Solutions and listed on the Merkur Market on the Oslo Stock Exchange following a successful private placement that raised NOK 500 million. And the third highlight, we have started the blue hydrogen journey. EU announced this summer EUR 11 billion market for retrofit of existing hydrogen production from natural gas within 2030. Our MTU has now been in -- our MTU, our mobile test unit, has now been in operation on a hydro plant in Sweden, capturing CO2 for over 3,000 operating hours. I would like to show you a short film explaining what the carbon capture business is all about. [Presentation]

[Valborg Lundegaard, Chief Executive Officer]

Aker Carbon Capture is a pure-play carbon capture company with dedicated focus in this market. The customers, the carbon capture technology and reducing carbon capture cost. This opens up for investment in a pure-play company, not a conglomerate of segments. Our proprietary technology has been developed over 20 years. And it's validated to over 50,000 operating hours and certified for several applications by DNV GL. When our customers come to us, they want to reduce their emissions and not introduce new emissions or hazardous chemicals. That is why our unique HSE characteristics are a commercial differentiator. In order to meet the Paris Agreement goals, a number of actions must be taken to reduce CO2 emissions. Energy efficiency and replacing fossil fuel with renewables are important. However, CCUS, carbon capture utilization and storage is also required. In 2019, IEA Estimated that in 2040, 9% of the reduction in CO2 emissions must come from CCUS. 9% represent 2,400 million tonne CO2 per year, equivalent to 50x Norway's total CO2 emissions. Recently, IEA came with an update. CCUS becomes even more important after 2040. 15% of the reduction in CO2 emission must come from CCUS in 2017. This is shown on the deep yellow curve in the slide. There is no doubt that the market potential is huge. IEA further highlighted that there is now more than doubling of carbon capture projects near final investment decision compared to 2017. This is in line with the growth we see in our pipeline. Estimated investment is USD 27 billion. There are approximately 5,200 plants globally with CO2 emissions over 1 million tonnes per year. And we see ambitions for reducing CO2 emissions being raised. In September, EU proposed 55% cut in emissions by 2030. When Longship was launched by the Norwegian government, the Prime Minister challenged the rest of Europe. For Longship to be a successful climate project for the future, other countries also have to start using this technology. And Europe is responding. The EU aims to be climate neutral by 2050. Denmark must reduce greenhouse gases emission by 70% in 2030 compared to 1990. Sweden to be carbon neutral by 2045.Aker Carbon Capture has set a clear direction for the markets and industries to be initially pursued. The Northern European market with Scandinavia, Benelux and U.K. are leading the way, and this will be prioritized. In this geographic market, we experienced high activity with studies and tenders. We also support a high number of customers seeking funding for carbon capture utilization and storage from EU's Innovation Fund. Northern Europe stands out when it comes to readiness for the CCUS business with national and regional targets, regulations and incentives, and increasing public sentiment. And then we will prioritize to deliver our carbon capture products to industrial and energy plants to enable sustainable cement, clean energy from waste, bio or fossil fuel and blue hydrogen. The whole value chain consists of carbon capture, transportation, utilization or storage. As our name suggests, Aker Carbon Capture is dedicated to the capturing of CO2, which includes the capital plant, liquefaction and intermediate storage. Transportation can be by pipeline, trucks, trains or ship. The CO2 can be utilized as a fertilizer, methanol or e-fuel production. However, for large CO2 volumes, permanent storage of CO2 is required like for Longship in a reservoir underneath the seabed. The core of our offering is the proprietary technology. This is a cartoon type sketch of the carbon capture process. I would like to take you through the principles so that you can understand the uniqueness of our technology. Untreated flue gas comes up the chimney or absorber, as we call it, an amine solution or solvent circulates in a closed loop here in the middle. When the untreated flue gas meets the solvent in the chimney, CO2 binds with the amine solution and clean flue gas can be released on top of the chimney. The CO2 rich amine solution in the closed loop is then heated to release the CO2, which can be liquefied and ready for transport. And the amine solution is rooted back to the chimney for reuse. The process is energy optimized, and the technology has unique HSE characteristics with minimum emissions and liquid waste. There are a number of patents related to our carbon capture technology, including a patented amine solvent.The uniqueness of our patented solvent was clearly demonstrated when we tested on flue gas from a coal power plant in Germany. On top, you can see how the standard amine, MEA, degraded rapidly. See the change in color. This will lead to corrosion, less absorption and frequent requirement for reclamation. On the other hand, look at the test results below with our proprietary S26 solvent. No change in color. The unique HSE characteristics of our solvent were developed through an extensive R&D program from 2008 to 2016. The program was led by Aker and involved 50 researchers from Sintef and NTNU in Norway. During the program, we were challenged by other scientists and we only focused on absorption efficiency and not sufficiently on HSE characteristics. The program focus was therefore adjusted to not only achieve excellent absorption, but also best-in-class HSE characteristics. Aker Carbon Capture has 2 main products: a tailor-made capture plant for the biggest emission points. We call it Big Catch. The Norcem contract is a Big Catch. Then we have a midsized modular plant that captures up to 100,000 tonnes CO2 per year. This plant called Just Catch is designed so that it can be transported on regular trucks on the road. The production of the modules can be mass-produced to keep the cost down. And since 2012, we have reduced the cost of Just Catch by 90%. Going forward, we will continue to standardize our products and optimize the delivery model to reduce the cost of our offerings. Today, CCUS developments require governmental funding. Our part of the economics is the cost of carbon capture. We are continuously working on reducing the cost of carbon capture through standardization of products, digitalization, industrialization, technology improvement and learning by doing. Renewables, like solar and wind, have demonstrated significant cost reduction. By modularizing our medium-sized plant, Just Catch, we have reduced, as I said, the cost with 90% from 2012 to 2019. Twence, a modulized plant. We can sell the CO2 to a greenhouse, has lower carbon capture cost than Norcem. Norcem will be our first Big Catch plant, and we expect to learn a lot from this, and standardize, and we will be able to reduce the cost for future plants significantly. The other side of the economics is the carbon price. Varying national and regional pricing initiative impact effective carbon price. This includes not only ETS, but also national tax, regional tax and fine. And in U.S., tax credit. There is still a gap between cost of carbon capture and national and regional regulations. However, we see carbon price increasing like Netherlands has communicated carbon tax to rise EUR 220 to EUR 150 per tonne by 2030. Still, we believe carbon capture is a good business, even before breakeven. It is simply part of many of our customers' license to operate. Let us continue with operations and business development. Aker Carbon Capture was listed at Merkur Market 26th of August, less than 6 weeks after the company was announced. So for many, this has been a sprint, but for others, a marathon. Almost 20 years of technology development and patiently waiting for commercialization of the market, which is happening now. We raised NOK 500 million in a private placement process. This will fund future technology development. Today, we are listed on Merkur Market on the Oslo Stock Exchange, but we have an ambition of mainboard listing in 2021. Aker Carbon Capture have over 27,000 shareholders, an increase of 3,500 since day 1. And last but not least, we have an engaged and competent Board of Directors. The time for commercialization of CCUS is now. This summer, we signed a framework agreement with Norcem HeidelbergCement for the EPC delivery of a complete CO2 capture plant in Brevik, Norway. The capture for this plant will be 400,000 tonnes CO2 per year. The contract has neutral cash flow and the value is NOK 1.7 billion. We are currently preparing for start-up of the EPC contract at the turn of the year. We have a strong execution model with Aker Solutions, building on the track record of complex projects. The plant will be in operation from 2024. Provided final approval by the Norwegian Parliament, this will be a flying start for our company. Norwegian government launched Longship September 21. Longship is the greatest climate project in Norwegian industry ever. The project will lead to emission cuts and facilitate development of new technology and thus, new jobs. The government has proposed to first implement carbon capture at Norcem cement factory in Brevik. Longship also comprises funding for the transport and storage project, Northern Lights, a joint project between Equinor, Shell and Total. Northern Lights will transport liquid CO2 from capture facilities to a terminal on the West Coast of Norway. From there, CO2 will be pumped through pipeline to a reservoir beneath the sea bottom. Longship has excess storage capacity beyond the 400,000 million tonne per year from Norcem and this will accelerate the carbon capture market. We have started the blue hydrogen journey. Our mobile test unit has now been in operation over 3,000 hours on a hydrogen plant in Sweden, and the results are very good so far. We will continue testing till the end of the year, and we will also do a feasibility study of implementation of full-scale carbon capture at the plant. EUC, an EUR 11 billion market for retrofit of existing hydrogen production from natural gas with carbon capture within 2030. Many people ask me, blue or green hydrogen? But for me, the answer is simple. We need both. With Twence in the Netherlands, we have signed a contract for carbon capture at the waste-to-energy plant. This is a Just Catch modular plant. More like containers with a capacity of 100,000 tonne CO2 per year. The captured CO2 will be sold and utilized at a greenhouse. We expect the contract to start early 2021. Like Norcem, the Twence contract has neutral cash flow and will be provided final governmental funding, another flying start for our company. Vattenfall has set a great target. We want to make fossil-free living possible within 1 generation. We are proud to have signed an MOU with Vattenfall to accelerate carbon capture plants in Sweden and Northern Europe. Vattenfall operates 15 bioenergy plants in Sweden, Germany and the Netherlands. And like many other Swedish companies, Vattenfall has an ambition to achieve negative emissions in waste and bio CCS plants. Let's now look at summary and outlook. There is no doubt that the long-term market potential is huge. Only in Northern Europe, our initial prioritized market, there are 463 industrial sites with emissions of more than 100,000 tonnes per year. And that only includes our targeted industries: cement, bio and waste-to-energy, gas-to-power and blue hydrogen. Our pipeline has continued to grow, and we've had a number of requests since our company was listed in August. The third quarter in 2020 has been busy with studies, tenders and supporting our customer in their application for EU funding. New transport and storage infrastructure projects, and it's not only Longship. A number of projects are planned throughout Europe. They will pave the way for a number of carbon capture projects. And including bio and waste-to-energy plants in Scandinavia, like Vattenfall, Forus Energy and the Danish Arc Amager Bakke. Copenhagen has set an ambition to become the world's first capital to become carbon neutral by 2025. So they are in a hurry. We see U.K. moving. It's impressive how U.K. transitioned from coal to wind. Now the focus is on carbon capture. And we are working on new gas-to-power plants with carbon capture. Energy company like SSE and BP planning their Net Zero Teeside development are behind this mega scale project. And these have dedicated storage. And as the world's first provider of carbon capture for a cement plant Norcem, the market opens up for Aker Carbon Capture for even larger cement plants like Alborg Portland in Denmark. CO2 emission from cement represents 6% to 8% of the world's total CO2 emissions. So what is our ambition? We will create the leading sustainable carbon capture company. We contribute to clean air, clean energy and clean industry and, indirectly, good health. And our technology's unique HSE characteristics are a commercial differentiator. Our ambition is to secure contracts to capture 10 million tonne per annum CO2 by 2025. This corresponds to emissions from 5 million cars. Carbon capture is an emerging market. We see higher activity, and we see contract model varying. There will be a mix of EPC contracts like we see for Norcem and Twence, but also license contracts with higher margin. And earlier than expected, Aker Carbon Capture will take a developer role. Carbon capture as a service where we offer the whole value chain to our customers. And this will contribute to accelerate the whole carbon capture business. We want to make a difference. Then our near-term priorities. We have to successfully deliver the Norcem project. This is our most important reference project. It is large scale, and it's the world's first carbon capture plant on a cement facility. Then we will continue to develop opportunities in prioritized markets. And we've set a clear direction. We want to focus on Northern Europe, cement, bio and waste to energy, gas to power and blue hydrogen initially. We will realize programs to drive down carbon capture cost through standardization of products, digitalization, technology, development and efficient delivery model. And finally, we will position for strategic markets through partnership. Again, carbon capture and utilization and storage is an emerging market. We must take an active role developing the market. And the MOU with Vattenfall is an excellent example of this. Thank you very much. And now we'll open up for Q&A.

[Ivar Simensen]

Yes. Thank you, Valborg. We do have some questions. And the first one comes from [ David Farrell ]. And he is asking, can you give some color on the growth in concept and feasibility studies throughout this year?

[Valborg Lundegaard, Chief Executive Officer]

Well, our long list is so long that we decided not to give a specific number. As I said, we've had a number of requests from our customer after our listing. It seems like they now see this market is moving, and they are certainly aware of our technology. The pace of which the various companies are moving forward varies a lot. We suddenly see companies really accelerating their development since they've set new targets on a corporate level, while others need more time with governmental discussions and so on. But there is no doubt that our overall pipeline has grown substantially since we listed the company.

[Ivar Simensen]

Okay. Next question is from [ Anders Rosenlund ] at SEB. On Twence, you have previously indicated construction start on the Twence project in January 2021. Is this still the case?

[Valborg Lundegaard, Chief Executive Officer]

Well, of course, we are not in control of the dialogue in EU and Brussels and Twence has. So we are ready to start, and we are just waiting for that final approval. And we have been working on this project for a long time. We continue the dialogue with Twence. And as I said, we expect to have this early 2021.

[Ivar Simensen]

There's a question from Øystein Vaagen at Fearnley Securities . With the growing market opportunities, has there been any development in your NOK 16 billion opportunity pipeline?

[Valborg Lundegaard, Chief Executive Officer]

Certainly. And I think I said that already. But it's hard to quantify because there are so many requests, and we try to evaluate which do we really believe will be in short term, meaning within 2025 and more long term. So it varies. But it has certainly grown since listing.

[Ivar Simensen]

Okay. It's a question from Martin [ Morten Stall.] He says, what do you mean by neutral cash flow for the Norcem and Twence projects?

[Valborg Lundegaard, Chief Executive Officer]

Well, as you are aware, we raised NOK 500 million in the private placement process, and many have asked us, will this be used for funding the Norcem and Twence project? No, it will not. These projects have neutral cash flow, and it enable us to use the funding that we raised for technology development. And we have very clear ambitions how we want to further develop our technology. We want to develop our existing technology. We want to develop new technology. And also, we're watching the market. And if there is an opportunity, maybe of an interesting acquisition, this is also something we would look into. So you shouldn't be surprised if we come to the market for more funding, but that is not for funding Norcem and Twence.

[Ivar Simensen]

Okay. There's a question from Eivind Garvik at Carnegie. Could you provide a little more flavor on the dynamics of a license contract?

[Valborg Lundegaard, Chief Executive Officer]

Yes. So a license contract is where we offer our technology, certainly for a fee. It also gives a very clear design basis, how the plant can be built. So these contracts are smaller in revenue than a large EPC contract, but certainly much higher margin. And as I said for the ambitions and the target we've set, we see now that there will be a mix of various contracts. And there are other contracts like the developer role when we look into carbon capture as a service, where we say to our customers, emitters that we can handle all your CO2 emissions. And then we come in with our plant and capture the CO2, and we buy into transportation and storage capacity and offer the whole value chain. So that is why it's so important for me to highlight these different business models.

[Ivar Simensen]

And on that topic, there's a follow-up question from [ David Farrell ] on what is the split between license contracts and EPC in the 10 million tonne target?

[Valborg Lundegaard, Chief Executive Officer]

Yes. I wish I knew. Because as I said, we are talking to so many customers these days. And -- but our ambition is certainly to grow this business. And that is why we also take a more active developer role. Because we see, as pure play, a carbon capture company, we will have access to green funding, which could be attractive. And this can contribute to accelerate the market as such.

[Ivar Simensen]

Okay. If we have time for one or two more. Just one question from [ Morten Stall ] and what does your current turnover consist of?

[Valborg Lundegaard, Chief Executive Officer]

Well, I think what you see right now, I've been quite open. It's the Norcem and Twence contracts that we see in coming up next year. Right now, for this quarter, you see activity related to studies, tenders and support to our customers when it comes to EU funding. And we've seen very high activity on the EU applications. So it's going to be interesting to see the outcome of that.

[Ivar Simensen]

Okay. And finally, we have a question from [indiscernible] at [indiscernible]. What are the main drivers for reducing the cost of your technology going forward?

[Valborg Lundegaard, Chief Executive Officer]

Yes. We want to develop this market, and we see that the cost needs to come down. And it is a mixture of what we can contribute to is to reduce the cost. Of course, then we will also see political discussions of increasing carbon prices. But we want to reach breakeven, and we want to see economics turning positive. And then we will work with standardization of our products and digitalization and work with our supply chain to get long-term agreements and so on because this will accelerate the whole market.

[Ivar Simensen]

Okay. Thank you, Valborg. That concludes our presentation and Q&A session for today, and we thank you all for your attention. Thank you.

[Valborg Lundegaard, Chief Executive Officer]

Thank you.