Capital Power Corp. CPX-T is warning that it may have to shelve plans for one of Canada’s largest carbon-capture projects, at its gas-fuelled Genesee Generating Station in Alberta, as it grows impatient with negotiations around a deal to use federal dollars to provide revenue certainty.
In the process, the Edmonton-based power generator is highlighting Ottawa’s need to decide how far it’s prepared to go, after raising expectations, in guaranteeing that industrial decarbonization will be profitable for companies that produce or use fossil fuels.
Capital’s frustration, expressed by senior vice-president Jason Comandante in an interview, is ostensibly with the Canada Growth Fund (CGF). The $15-billion federal financing agency, launched in 2023, has the task of delivering variations of carbon contracts for differences (CCfDs). These would be agreements that guarantee a minimum value for emissions-reduction credits earned under the country’s industrial carbon-pricing system.
“At some point, we need to get to a final discussion with Canada Growth Fund – which is, can we land on a structure and a price within that structure that’s going to allow us to move forward,” Mr. Comandante said, calling progress to date disappointing. “If we can’t, then we will park the project.”
Patrick Charbonneau, the Growth Fund’s chief executive officer, pushed back against the complaint. While declining to discuss negotiations with any one company, he said there has been strong momentum toward more CCfD-style deals since the agency reached its first such agreement – with Entropy Inc., a carbon-capture subsidiary of Advantage Energy Ltd. AAVVF – in December.
Indeed, the CGF is known to be in advanced negotiations with other proponents of large-scale carbon-capture projects, including Germany’s Heidelberg Materials, which wants to build the world’s first cement plant with full-scale carbon capture in Edmonton.
And executives from other, somewhat smaller companies seeking backing for various forms of carbon-capture projects spoke positively of their early interactions with an agency that seems to have hit the ground running in its first year.
But that doesn’t necessarily mean that what the Growth Fund is offering is the right fit for everyone. Among some companies with the biggest potential carbon-capture projects, which also includes the Alberta oil-sands giants in the Pathways Alliance, there is a sense that neither the agency’s size nor its marching orders align with their needs.
Drilling into Mr. Comandante’s specific complaints, it becomes clear that the frustration is really more with the government that created the CGF, and mixed messages that it’s sent since first floating CCfDs in its 2022 Emissions Reduction Plan.
Ottawa appeared then to be embracing the idea, put forward by advocates such as the think-tank Clean Prosperity, that CCfDs could be offered in a relatively broad-based and straightforward way.
The basic pitch was that many carbon-capture and other emissions-reducing projects could be unlocked if industry knew that the industrial carbon price would go up as planned to $170 per tonne by 2030 (no sure thing given potential changes in government) and that a robust credit-trading market would take shape. So Ottawa would guarantee a floor price for credits, somewhere (not too far) below $170, and be contractually obligated to make up the difference to companies if they weren’t trading for that much.
Over the following two years, that plan was refined into the new Growth Fund spending up to $7-billion of its total budget improving credit-value certainty as its managers (from the Public Sector Pension Investment Board, to which the fund was entrusted) see fit. At points, Ottawa seemed to be suggesting that could set a template for a wider program, but it has more recently been pointing to the CGF as the sole vehicle.
There are a few reasons why that’s causing friction with companies such as Capital Power.
The most obvious is scale. Mr. Comandante noted that the Genesee project could capture more than 3 million tonnes of carbon annually. Basic math suggests that could easily eat up half of the $7-billion allotted for these contracts, which he suggested is probably more than the CGF wants to commit.
Mr. Charbonneau brushed away that concern. “Size is not a problem today to get deals done,” he said, since the CGF has thus far committed only about $1-billion of its industrial decarbonization allocation. He expressed optimism that, if the agency proves it can get good deals done, the government will eventually recapitalize it as needed.
Still, the CGF’s imperative to stretch its budget as far as it can go is clearly contributing to complaints about the kinds of deals being made available.
The initial deal with Entropy seemed to be a shot across the bows of Capital, Pathways and others with big asks. It has a per-tonne price of $86.50, well below what other companies are seeking.
It’s also structured as an offtake agreement, rather than a CCfD per se, meaning the CGF commits to buying carbon credits when they’re generated. It can then sell those credits itself, potentially satisfying the expectation that it will keep turning its initial allocation over.
Although Mr. Charbonneau said the CGF is being flexible rather than trying to structure every deal the same way, the precedent showed that it’s driving a hard bargain.
That’s a good start to navigating a complicated mandate requiring it to back projects that wouldn’t be financially viable otherwise, while generating enough returns to break even across its portfolio. It’s just not what the likes of Capital thought was on the table from Ottawa.
It’s up to the government to decide how much of a national concern that is.
It could reasonably take the position that it can’t afford to de-risk every carbon-capture project – leaving it to companies to sharpen their pencils and compete for a relatively few available deals.
But if so, it will need to do a much better job of expectation management.
In February, Clean Prosperity released modelling by Navius Research suggesting that the country could forgo up to 33 megatonnes of emission reductions by 2030 absent widely available CCfDs.
Many of the carbon-capture projects that would make up that total are not yet at the investment stage where the CGF or anyone else needs to consider them. But as more of them get there, the calls – for Ottawa to either develop a broader CCfD program, or clearly commit to expanding the CGF’s budget as needed – will grow louder.
Adam Radwanski