A company proposing to use carbon capture and storage technology to create clean electricity from landfill waste has become the second to secure a carbon price backstop contract through the Canada Growth Fund.
Calgary-based Gibson Energy Inc., a publicly traded company that operates crude oil pipelines and crude oil storage terminals in North America, is developing what would be Canada’s first waste-to-energy facility with carbon capture technology.
The Alberta facility would divert solid waste otherwise headed to the City of Edmonton’s landfill and incinerate it to create electricity. Carbon capture technology at the site would trap the greenhouse gas emissions produced as part of the process, ensuring none enter the atmosphere.
Gibson said Tuesday it has reached a deal with the $15-billion federal Canada Growth Fund that will help it accelerate the development of the project.
Under the terms of the deal, Gibson would own 50 per cent of the project, while the Canada Growth Fund would have a 40-per-cent stake. Varme Energy, the Canadian subsidiary of Norwegian-based Varme Energy AS, will be involved in the development and construction of the project and will own the remaining 10-per-cent stake.
Included in the deal is a carbon price assurance mechanism through which the Canada Growth Fund commits to purchasing 200,000 tonnes a year of carbon credits generated by the project at an initial price of $85 a tonne for a 15-year term.
This type of carbon offtake agreement, sometimes referred to as a carbon contract for difference, essentially guarantees that if the price of carbon falls below a certain level in the future, the Canada Growth Fund will pay the difference.
Proponents of carbon capture and storage, a process which traps harmful emissions from industrial processes and stores them safely underground, say these types of contracts remove some of the risk of investing in pricey emissions-reducing technology. They ensure companies will still be able to make money even if the existing industrial carbon price structure changes or is eliminated.
This is because captured carbon doesn’t have any value on its own as a product, but can lower a company’s own carbon tax expenses by reducing its overall emissions. In addition, companies that deploy the technology can generate carbon credits to sell to big polluters looking to offset their own emissions.
The Canada Growth Fund, which was created in late 2022 by the federal government to help reduce the risk private investors assume when they invest in new technologies, has received approximately 100 proposals from companies exploring decarbonization projects.
The Gibson Energy project is the fund’s fourth investment and the second project to be awarded a carbon contract for difference.
“What I like about this project is it clearly fits the mandate of [the Canada Growth Fund],” Patrick Charbonneau, president and chief executive officer of Canada Growth Fund Investment Management Inc., said in an interview.
“And that’s to unlock projects that would otherwise not happen relying only on private-sector capital.”
Mr. Charbonneau said the Canada Growth Fund expects to have additional deals to announce in the coming months.
Gibson and its project partners expect to make a final investment decision on the landfill-waste carbon capture project early next year, with a target start date in 2027.
In an e-mailed statement, Gibson Energy’s chief financial officer, Sean Brown, said the company has made its own commitment to get to net-zero emissions by 2050 and sees the waste-to-energy project as one way to advance that goal.
“It fits well with what Gibson seeks to do in our core business,” Mr. Brown said. “It presents a platform with stable, long-term cash flows, and a potential opportunity for growth in the energy transition space.”
Lucas Arender of The Daily Hive also reports Canada Growth Fund invests in waste-to-energy facility in Alberta:
An Alberta-based project that aims to turn banana peels into electricity is the latest to sign a deal with Ottawa’s clean energy investment arm.
What happened: The Canada Growth Fund will take a 40% stake in a Gibson Energy-led waste-to-energy facility in Edmonton. The deal guarantees that the feds will buy 200,000 tonnes of carbon credits from the project annually, starting at $85 apiece over the next 15 years.
- These pricing guarantees, known as carbon contracts for difference, ensure that if the price of carbon falls below a certain level, Ottawa will pay the difference.
- That assurance alleviates some of the financial risks associated with developing the largely unproven tech, while the industry waits for a carbon credit market to develop.
Why it matters: Carbon pricing is the pillar of Ottawa’s climate strategy. Just under half of the $15 billion in the Canada Growth Fund’s piggy bank is allocated for such carbon pricing deals, a mechanism that the feds see as essential to encouraging cleantech investments.
Big picture: This is the fund’s fourth investment since its launch in 2022, three of which have gone to Alberta-based companies. It has put $90 million into Eavor Technologies, a geothermal energy company, and $200 million into Entropy, a carbon capture company.
The Canada Growth Fund issued a press release on this deal here and below:
Edmonton, June 11, 2024 –Canada Growth Fund Inc. (“CGF”), Gibson Energy Inc. (TSX: GEI) (“Gibson”), and Varme Energy Inc. (“Varme”) are pleased to announce a strategic partnership (the “Partnership”) to accelerate the development of Canada's first waste-to-energy facility with carbon capture technology (the “Project”). If successful, the Project will be located on Gibson land in the Heartland-area and will have the capability to process 200,000 tonnes per annum of municipal solid waste, diverting residential garbage from landfill. Such waste will be received pursuant to a 15-year contract that has been entered into by Varme and the City of Edmonton.
This proposed greenfield waste-to-energy facility, which would be constructed by the Partnership and operated by Gibson, would have integrated carbon capture equipment enabling the Project to incinerate municipal solid waste and produce carbon-negative electricity. A front-end engineering and design (“FEED”) study is underway, and a final investment decision (“FID”) by the Partnership is planned in early 2025, with commissioning targeted in 2027.
The Project supports the advancement of technologies fundamental to achieving a net-zero electricity grid across the country. Integrated waste-to-energy and Carbon Capture and Storage (“CCS”) has significant potential to be replicated in municipalities across Canada and to put Canada in a position to export this expertise globally. By accelerating local waste diversion, the Project will increase the supply of carbon negative electricity in Alberta by avoiding harmful methane emissions. Governments globally, including the Government of Canada and the Government of Alberta, have identified rapid reductions in methane emissions as key to limiting near-term climate impacts.
The Partnership will collaborate to advance the development of the flagship Heartland project. Pursuant to the terms of the Partnership, should the Project reach a positive FID, Gibson, CGF and Varme would have a 50 percent, 40 percent and 10 percent ownership interest, respectively. In addition, CGF would provide a carbon price assurance mechanism in the form of a Carbon Credit Offtake (“CCO”) to purchase up to 200,000 tonnes per annum of compliance grade carbon credits generated by the Project at an initial price of $85 per tonne for a term of 15 years. The Project would retain the ability to sell up to 100,000 tonnes per annum of carbon emission reductions into alternative carbon markets, including as Bioenergy with CCS (“BECCS”) atmospheric carbon removal credits. The features of the proposed CCO, notably its large scale and its long-term fixed-price, build on CGF’s past transactions and help to de-risk and accelerate private CCS investment by establishing revenue certainty for Canadian projects. The Project benefits from this innovative CCO structure by having its compliance carbon credits de-risked while retaining the ability to sell high value carbon dioxide removal credits to leading corporations and brands.
Before I get into this particular deal, a little reminder about the Canada Growth Fund (CGF):
As outlined in the Technical Backgrounder issued by the Government of Canada’s Department of Finance in November 2022, CGF is designed to address the current limitations of Canada’s climate-related policy, and its associated funding and capital allocation processes.
In December 2022, CGF was incorporated as a subsidiary of the Canada Development Investment Corporation.
In Budget 2023, the Government of Canada announced that the Public Sector Pension Investment Board (“PSP Investments”) would act as the independent and exclusive investment manager of CGF. PSP Investments incorporated Canada Growth Fund Investment Management Inc. (“CGF Investment Management”) as its wholly owned subsidiary to provide the full suite of investment management services to CGF.
By partnering with PSP Investments, CGF benefits from PSP Investments’ deep investment expertise and track record across a broad range of sectors and strategies, a mature and scalable operational ecosystem and a governance framework that is independent and at arm’s length from the Government of Canada, allowing CGF to rapidly and successfully deliver its mandate. CGF Investment Management’s activities are operationally distinct from PSP Investments’ pension investment mandate, and the assets of CGF and of PSP Investments are not commingled.
As the parent of CGF Investment Management, PSP Investments’ Board of Directors has adopted the PSP Investments and Canada Growth Fund Conflicts Policy to address the risk of any real, potential or perceived conflicts of interest in the context of the investment management services provided by CGF Investment Management to CGF. The policy and any disclosure made pursuant to the terms thereof can be found here.
I always get asked about the CGF and its ties to PSP Investments.
PSP was tasked to run the $15-billion Canada Growth Fund independently from the government.
It's a government funded fund but PSP is managing it at arm's length and
they have the expertise to scale it up relatively quickly. And this is done separately from PSP Investments so there's no overlap whatsoever.
Last August, Patrick Charbonneau, Senior Managing Director and Global Head of Infrastructure at PSP Investments was appointed to be the new head of the federal government’s $15-billion Canada Growth Fund.
Patrick has extensive experience in renewable energy and he and his team are ramping the CGF very nicely.
As stated in the second article above, this is the fund’s fourth investment since its launch in 2022, three of which have gone to Alberta-based companies. It has put $90 million into Eavor Technologies, a geothermal energy company, and $200 million into Entropy, a carbon capture company.
The investment in Calgary-based Gibson Energy Inc., a publicly traded company that operates crude oil pipelines and crude oil storage terminals in North America, is in its development of what would be Canada’s first waste-to-energy facility with carbon capture technology.
Now, I don't know about you but investing in a company proposing to use carbon capture and storage technology to create clean electricity from landfill waste is pretty cool stuff.
Human beings produce a lot of garbage so I can only hope this proves to be an extremely successful venture that is then exported throughout the world.
Sound ambitious? Maybe but if it works, this technology will go global and in a huge way.
That is what the CGF is doing, investing in diverse projects that use less mature technologies and processes (proven in pilots but not yet widely adopted) to reduce emissions across the Canadian economy. This includes, but is not limited to, carbon capture and storage, hydrogen and biofuels.
It also invests in clean technology companies, including small and medium enterprises (“SMEs”), which are scaling less mature technologies that are in the demonstration or commercialization stages of development and in projects and companies (including SMEs) across low-carbon or climate technology value chains, including low-carbon natural resource development.
Again, it is a government funded fund but the process and decisions are strictly at arm's length which is how PSP Investments manages its overall assets from its pension clients.
The fund aren't comingled and the CGF is managed apart from PSP.
Also worth noting how this deal had a carbon offtake agreement (from first article:
Included in the deal is a carbon price assurance mechanism through which the Canada Growth Fund commits to purchasing 200,000 tonnes a year of carbon credits generated by the project at an initial price of $85 a tonne for a 15-year term.
This type of carbon offtake agreement, sometimes referred to as a carbon contract for difference, essentially guarantees that if the price of carbon falls below a certain level in the future, the Canada Growth Fund will pay the difference.
It makes sense to have these agreements as they incentivize companies to innovate, not worrying about what happens if the price of carbon falls.
Anyways, I'm not going to cover every CGF deal but it's worth keeping your eye on their activities as they're doing important work funding innovative energy projects.
Below, Gibson's Sustainability Team chats about their newly launched Sustainability Report (from a year ago on their inaugural podcast).