Aker Carbon Capture ASA

OSE:ACC

Earnings Call Transcript 2020-Q4

[Unknown]

Good morning. My name is Ivar Simensen. I'm the Head of Communications and Investor Relations at Aker Carbon Capture. This morning, we're presenting the results for the fourth quarter of 2020. And to do that, we've got Chief Executive Officer, Valborg Lundegaard.

[Valborg Lundegaard, Chief Executive Officer]

Good morning from a very cold morning in Oslo. Fourth quarter of 2020 was the first full quarter of operation for Aker Carbon Capture. The company was established as a pure play company in August last year. It has been an exciting journey, and it's therefore a pleasure for me to present the highlights of the quarter.There may be some of you that are not familiar with Aker Carbon Capture. I will, therefore, give a brief introduction to the company. However, the main focus will be on operation, business development and outlook and illustrating how the recently announced MoUs and collaboration agreement strengthen our position in prioritized market.Aker Carbon Capture is a pure play company with a dedicated focus in the carbon capture market. Our customer will have our full attention. We will focus on technology development and cost reduction for carbon capture only. And for investors, this opens up for investments 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 technology's unique HSE characteristics are a commercial differentiator.Now to the highlights of the quarter. Aker Carbon Capture has started the delivery of Brevik CCS project, the first carbon capture project at a cement facility in the world. The EPC contract has been awarded by Norcem HeidelbergCement and the plant is scheduled to be in operation in 2024. In December, the Norwegian government approved Longship, the greatest climate project in Norwegian industry ever.This is a full value chain CCS development, including carbon capture at Norcem HeidelbergCement's plant in Brevik as well as the transportation and storage project, Northern Lights. The Longship CCS project has excess storage capacity and will further advance the carbon capture market. To strengthen our offering and position in prioritized market, we have secured MoUs and collaboration agreements with complementary partners. This enable truly integrated solutions for efficient and sustainable offerings to reduce CO2 emissions.The activity in the carbon capture market is high, in line with an increasing number of companies setting climate ambitions. Aker Carbon Capture has signed MoUs with key customers that see our technology and offerings as an efficient enabler to meet their targets. During these first months of operation, we have invested in establishment of the company. We have built a competent organization, and we have continued technology development.Going forward, we will continue to invest, laying a foundation for the growing market. We will invest in an even stronger organization and in further technology development to ensure that Aker Carbon Capture maintains the leading market position.Varying national and regional pricing initiatives impact effective carbon price. This include not only ETS, but also national tax, regional tax and fine. And in the U.S., tax credit. We have seen some remarkable development recently. The ETS price is approaching EUR 40 per tonne. Price of carbon increased with approximately 60% since November last year.In January, the Norwegian government presented its climate action plan. This included a rise in CO2 tax from NOK 590 today towards NOK 2,000 per tonne in 2030. In U.K., the Green Industrial Revolution has been launched. The target is to capture 10 million tonne per year of CO2 by 2030. And Bank of England wants CO2 prices to treble in coming years.Even though CCUS more and more is becoming part of our clients' license to operate, rising carbon prices clearly supports for growth in the CCUS market. And there are other strong signals of a growing CCUS market. In Europe, there are currently 8 large storage projects planned to be in operation mid-2020s.Norway is the front runner. The transportation and storage project, Northern Lights, is confirmed as part of Longship, and the development has started. Aker Carbon Capture supports Aker Solutions with CO2 expertise for the Northern Lights terminal at the west coast of Norway.EU has proposed EUR 102 million funding for the Porthos project in the Netherlands, in which CO2 from industry in the port of Rotterdam is transported and stored in an empty gas field beneath the North Sea. The Greensands storage project in Denmark has been certified by DNV GL for CO2 injection and storage. And other projects are moving. CO2 storage will not be a bottleneck for the carbon capture market.Aker Carbon Capture has 2 main products: Big Catch, which is a tailor-made capture plant for the biggest emission points, over 400,000 tonnes per year and up to several million tonne per year. These plants are fully heat integrated with the emitter's plant and can also be retrofitted to existing facility. The delivery time is 30 to 36 months.Then we have Just Catch, which is a mid-sized modular plant that captures up to 100,000 tonne CO2 per year. By modulizing our medium-sized plant Just Catch, we have been able to reduce the cost with 90% since 2012. The modules will be mass-produced to keep costs down. And the module plant can be transported on regular trucks on the road. Delivery time is 15 months.Then to our technology. Our carbon capture process is energy-optimized, and the technology has unique HSE characteristics with minimum emissions and liquid waste. There are several patents related to our carbon capture technology, including a patented amine solvent. When the untreated flue gas meets the solvent, CO2 binds with the amine solution and cleaned flue gas can be released on top of the chimney. The uniqueness of our patented nontoxic biodegradable 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 changing color. This will lead to corrosion, less absorption and frequent requirement for acclamation. 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.During the program, we were challenged by other scientists that 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 and MAN Energy Solutions, one of Europe's leading suppliers of compressors, have signed a technology cooperation agreement to develop energy-efficient compression solutions for carbon capture. The agreement supports the company's joint target to reduce the cost of carbon capture from industrial plants by developing solutions that require less energy.CO2 captured from the flue gas is compressed before being liquefied and ready for storage. Heat transfer from the compression system is key for overall power consumption of a carbon capture plant. Hence, the steam generated will cover nearly 50% of the power demand for Aker Carbon Capture's plant. The solution is applicable for Big Catch plants, including Brevik CCS.Today, CCUS developments require governmental funding. However, we have already seen the effective carbon price is increasing. Our part of the economics is the cost of carbon capture. We are continuously working on reducing the costs through standardization of products, digitalization, industrialization, technology development and developing efficient delivery models.Renewables like solar and wind have demonstrated significant cost reduction, like we have done for Just Catch. Norcem will be our first Big Catch plant, and we will learn a lot from this and standardize, and we will be able to reduce the cost for future big plants considerably.CCUS economics will turn positive, first for projects impacted by high effective carbon price and for low-cost developments, like a Just Catch solution, 200 meter, located in a hub or directly at a key site.Let us take a look at the status of operation and business development. There is no doubt that CCUS is part of the solution to mitigate climate change and that the long-term carbon capture market potential is huge. Aker Carbon Capture has set a clear direction for the markets and industry to be initially pursued. The Northern European market with Scandinavia, Benelux and U.K. leading the way will be prioritized. In this geographic market, we experienced high activity.Northern Europe stands out when it comes to readiness for the CCUS business with national and regional target, regulation and incentive and increasing public sentiment. We will prioritize to deliver our carbon capture products to 4 market segments: cement, bio and waste-to-energy, blue hydrogen and gas-to-power.The award of the Brevik CCS in Norway marks a milestone for Aker Carbon Capture and the whole CCUS industry. We are proud to be selected by Norcem HeidelbergCement for the complete EPC delivery of the world's first carbon capture project at a cement facility. The contract value is NOK 1.7 billion. The plant will capture 400,000 tonnes of CO2 per year and will have superior heat integration with the existing cement plant. Aker Carbon Capture's technology has been verified for application to the cement industry through extensive testing with a mobile test unit in Brevik.An experienced project execution team has now been mobilized, and Aker Carbon Capture has awarded a subcontract to Aker Solutions for engineering, procurement and project management assistance. Liquid CO2 will be transported by ship from Brevik to a terminal at the west coast of Norway. From here, CO2 will be pumped through pipelines to a reservoir beneath the sea bottom.The project is scheduled to be in operation from 2024. Again, this will be the first carbon capture project at a cement facility in the world. Cement, a sector where emissions are hard to abate, represents 6 to 8 of the global CO2 emissions. And Brevik CCS Project puts Aker Carbon Capture in a unique position for this market.The bio energy and waste-to-energy market is another prioritized market segment. And there are more than 400 waste-to-energy plants in Europe. Aker Carbon Capture's technology has been verified for application to bio/waste-to-energy industry through extensive testing with our mobile test unit at Fortum's plant in Oslo. In January, Aker Carbon Capture and Hitachi Zosen Inova signed an MoU aimed at accelerating carbon capture solutions in the waste-to-energy industry in Europe for both new and existing waste incinerators.Hitachi Zosen Inova, a major turnkey waste-to-energy plant provider, has delivered over 70 plants over the last 2 decades. We will develop a joint offering of truly integrated solutions for efficient and sustainable waste management and thus accelerate the energy transition within this industry. Last week, Aker Carbon Capture signed an MoU with Lyse and Forus Energi to explore CCS opportunities in the Stavanger/Sandnes region in southwest Norway.By 2030, Lyse aims to be climate-neutral in its own operation at the same time as it will contribute to significant emission reduction regionally, nationally and internationally. 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 with a capacity of 100,000 tonne CO2 per year. The captured CO2 will be sold and utilized as a fertilizer at a greenhouse. We expect the contract to start second quarter this year, pending public funding.In third quarter, we -- 2020, we announced 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.Growing the CCUS market requires collaboration among the various stakeholders. That is why we have prioritized partnership with leading companies in the bioenergy and waste-to-energy market segment.Blue hydrogen. The third of our prioritized segments is hydrogen produced from natural gas with CCUS. Our mobile test unit has completed testing and verification of Aker Carbon Capture's technology at Preem's hydrogen production unit in Sweden. We have also completed a study for application of full industrial scale carbon capture at the plant.Haldor Topsoe is the world's leading technology provider for hydrogen production from natural gas. We are proud to have signed an MoU with Haldor Topsoe with the intention to offer a complete solution for low-carbon hydrogen production, both retrofit for existing plants, but also new blue hydrogen plants. Decarbonizing the existing hydrogen market by adding carbon capture is the key to unlock the emerging hydrogen market in Europe and the collaboration with Aker Carbon Capture and Haldor Topsoe aims to accelerate this process. EU has identified a market of EUR 11 billion before 2030 for retrofit of existing hydrogen production from natural gas with CCS.The fourth prioritized market segment is carbon capture for gas-to-power plants. This application was actually where we started the testing of our technology with a mobile test unit when this was delivered in 2008. The carbon capture market for the gas-to-power segment is in U.K. today. There are several opportunities for delivery of Big Catch plants in the pipeline, each with capacity up to several million tonnes per year of CO2 capture.This includes opportunities like BP, Net Zero Teesside, SSE Thermal Keadby 3, and Acorn. In U.K., the Green Industrial Revolution has been launched. The target is to capture 10 million tonne per year of CO2 by 2030.Let us now have a look at the outlook. In our dialogue with customers, we experienced an increased interest in CCUS. A market view was -- on CCUS was recently published by Rystad. Taking into account both known projects as well as new prospects that may come on-stream second half of the decade, there is an expectation of a 38% annual growth rate from 2020 to 2025.This corresponds to total investments of up to USD 9 billion in 2025, with 80% to 90% of the investments in Europe and North America. Several large companies are launching climate ambitions and CCUS investment plans. This includes energy companies like BP, ExxonMobil and Vattenfall, and industrial and process industries like HeidelbergCement and Yala as well as IT and technology companies like Microsoft and Amazon.So coming back to our prioritized market. We will prioritize to deliver our carbon capture products to industrial and energy plants in Northern Europe to enable sustainable cement, clean energy from waste, bio or fossil fuel and blue hydrogen. There are about 500 industrial plants with emissions of more than 100,000 tonne per year in this market. Aker Carbon Capture currently has 8 ongoing project studies for different customers. 14 carbon capture projects applied for funding from EU Innovation Fund in October 2020.Feedback on the funding is expected first half of 2021. Aker Carbon Capture were involved in several of these projects and have supported our customers in the application process. So with strong signals for the CCUS market [ got ] and a stronger market position for Aker Carbon Capture in our prioritized segment, I can only confirm that our target remains. Our ambition is to secure contracts to capture 10 million tonne per year CO2 by 2025.Going forward, the following will be prioritized. The Brevik CCS EPC project is our most important reference project. It is a large Big Catch project and the world's first carbon capture on a cement plant. Successful of the project -- successful delivery of the project is a must.Then we will take an active role in developing the CCUS market through partnerships. That is why we have entered into MoUs and cooperation agreements with leading companies in our prioritized segments. This strategy will continue. We will contribute to accelerate the CCUS market by reducing the cost of carbon capture. We will continue with standardization, digitalization, industrialization, technology development and learning by doing. And we will develop efficient delivery models.And finally, we will continue developing opportunities in prioritized markets in accordance with our mission, enabling emission-free industries and energy solutions to carbon capture.Thank you for listening.

[Unknown]

Okay. Thank you, Valborg. And we now have time for some questions that we have received from the audience. And the first question comes from James Carmichael at Berenberg asking what can you say about the expected phasing of revenue from the Brevik CCS contract?

[Valborg Lundegaard, Chief Executive Officer]

Well, the Brevik CCS contracts, a total contract value of NOK 1.7 billion with final delivery in 2024. So of course, the revenue will be spread over that period. Going forward, we are now in the engineering phase. We are working on placing purchase orders. And of course, we will also have an increased revenue when we are starting fabrication in Brevik.

[Unknown]

Great. Then there's a question from Oystein Vaagen at Fearnley Securities. Can you give some color on the feedback you've received from Preem regarding the MTU at Lysekil?

[Valborg Lundegaard, Chief Executive Officer]

Yes. That's a pleasure. Thank you for asking that third question. The -- our technology worked really flawlessly. And Preem is now really eager to continue and exploring full-scale implementation of carbon capture at our hydrogen plant.

[Unknown]

Got it. And then there's another question from [ Morgan ] and others. Could you give us an update on Twence and the process for the EPC contract?

[Valborg Lundegaard, Chief Executive Officer]

Yes. So as I said, we expect this contract to be finally funded second quarter this year, which allows us to start then. The contract we -- Twence has placed with us already. Twence has confirmed several times now that second quarter is their expectation. We believe that what has delayed the award slightly is the approval from the EU regarding funding from the Dutch government related to a competitive position. And EU has had quite a struggle with the COVID situation. So there are some delay in the system.

[Unknown]

Okay. And we have 2 questions from Michael Alsford of Citi. First one is when do you see the crossover point between the cost of CCS and carbon prices? And the second question is can you explain how Aker Carbon Capture's technology differentiates versus peers?

[Valborg Lundegaard, Chief Executive Officer]

So the crossover is of course the $1 million question, and we cannot control all of it because it's the carbon price. But I think the signals we have seen recently, both with the ETS price and also what we hear from governments and Bank of England and so on is that, yes, carbon price will increase. What we can do something about is the delivery and the cost of carbon capture. And we see a big potential in reducing the cost and now in particular, for Big Catch projects.But when it comes to breakeven, it will vary. With the Twence project, where we have an efficient Just Catch delivery, and the CO2 is sold to greenhouse as a fertilizer, of course, we are very close to breakeven. But other projects may have a longer way to go. So it will vary depending on project to project.

[Unknown]

And the second question is how our technology differentiates versus key peers?

[Valborg Lundegaard, Chief Executive Officer]

Yes. So we see now a number of newcomers really would like to enter the carbon capture market. And we are very certain that our technology, which we have developed and invested in now over almost 20 years, is superior. And as I have presented, yes, we are talking about efficient absorption of CO2 up to 95%, but also the superior HSE characteristics. And the feedback that we get from our customer is that they see this as very important going forward and more and more important as the focus on all our customers is reducing emissions.

[Unknown]

Okay. There's a question from Frederik Lunde at Carnegie is where is the mobile test unit going next? And will you consider ordering more mobile test units to accelerate business development?

[Valborg Lundegaard, Chief Executive Officer]

Yes. So we already have a contract for the mobile test unit, and it's going to Poland. And it's quite interesting because this is for a char production. And this put us an opening for us in a new segment, char delivery to the process industry. So we're just preparing for that move. If we will have more mobile test unit? Well, it depends a bit. We see it's important to use the mobile test unit to verify the technology.We have -- we are quite certain that our technology works on the segments that I just presented, but we also see that many customers would like to start in a phase development and really bring in the mobile test unit and even maybe add a liquefaction part to it so that it can actually be stored. So yes, that may happen.

[Unknown]

Okay. Thank you. Now there's a question from [ Thomas Nes ] at Sparbanken Markets. It says based on the activities and improved market circumstances, do you think it's possible to exceed your 10 million tonne in '25 targets? And if so, will you be able to deliver the required amount of systems in 2025?

[Valborg Lundegaard, Chief Executive Officer]

Yes. So well, this is the target that we've set now. This market is evolving very, very fast. And that is why we really see that we need to strengthen the organization. You have all seen that we have invested in building up the organization. We are continuing doing so. We are out now in the market recruiting more people because we see increased interest. And we will continuously evaluate the market position. But however, right now, that target remains.

[Unknown]

Okay. Time for 1 or 2 more questions. Here's one from Amy Wong at UBS. You talked about modularizing and building in bulk. What's the state of the supply chain? Where are you building these? And is it easy to qualify suppliers?

[Valborg Lundegaard, Chief Executive Officer]

Yes. So currently we have delivery models based on low-cost fabrication in Europe, but what we will also explore other low-cost fabrication locations. And I think what we see is when the number of Just Catch deliverables increased, we can really see the effect of this efficient delivery model.

[Unknown]

Great. And the final question for the session comes from Anders Rosenlund at SEB is with new carbon capture initiatives using very alternative technologies, what kind of insight do you have in the new company's technologies? And have you acquired or bought into competing technology developments in the past 12 months?

[Valborg Lundegaard, Chief Executive Officer]

Well, I think if we really did something spectacular on the M&A side, we will certainly announce it. But having said that, there are a number of newcomers that find this market interesting. We know how complex it is to industrialize technology. It takes time. It takes a lot of experience to bring it from lab-scale into a full-scale application like we're doing in Brevik. But having said that, we want to stay ahead on technology. We want to be the leader.We will continue to develop our technology. We will continue to develop new technology. And we will work with partners, research institute, universities and maybe also look into M&A, if that is an opportunity. We -- technology-leading is a key in this market.

[Unknown]

Okay. Thank you, Valborg. That concludes our presentation for this morning. We thank you for listening and for posting your questions. Thank you.

[Valborg Lundegaard, Chief Executive Officer]

Thank you very much.