Getting to Final Investment Decisions Part 5: Top 5 Risks to Investing in CCUS

Part 5: Top 5 risks to investing in CCUS 

When considering a CCUS project, doing your due diligence is more than critical, it’s vital to achieving a project’s final investment decision (FID). With a laundry list of risks – everything from technical to reputational – each project presents unique challenges. In this post, we highlight five key risks that can impact project viability and success. 

Politics, policy and pricing  

In part 4 of this series we discussed how CCUS projects rely heavily on government programs to support direct revenue streams. However, this creates risk from a political and policy perspective. So, what is the worry? That government incentives and enabling regulations for projects could be changed or eliminated down the road.  

For example, in Canada changes to the long-term outlook of carbon credit pricing may be impacted by shifting priorities from both provincial and federal governments. North America’s oldest industrial carbon pricing system, Alberta’s TIER program has provided a stable foundation for compliance and investment decisions, though evolving emission reduction requirements may still impact the supply and demand of these credits.  

To mitigate financial risks, CCUS projects need stability and remedies. Industry and energy transition think tanks have recommended greater transparency and adjustments in credit markets to make them easier to understand, and financial tools like Carbon Contracts for Difference to guarantee credit prices and reduce investment risk. These types of mechanisms can improve the overall return for CCS projects while drastically reducing the financial risks of project investments.  

Labour supply 

CCUS projects require a substantial workforce and highly trained staff to operate and maintain CCUS equipment. For example, the construction of the Boundary Dam CCS facility in Estevan, Saskatchewan employed about 1,700 contractors and SaskPower employees during peak construction alone. That is almost five million person-hours of work! 

Remote project locations and time-limited investment incentives can also increase labour supply risks. In North America, the biggest government incentives [45Q in the United States and the CCUS Investment Tax Credit (CCUS-ITC) in Canada] include various labour requirements that must be met to receive the full value of project incentives. If multiple projects are taking advantage of these time-based incentives within the same region, there will be added pressure in terms of labour costs and securing a limited availability of high-skilled workers.  

A workforce experienced in the construction and operation of industrial plants, pipelines and disposal wells is critical for keeping costs low and ensuring smooth operation of facilities. Projects may need to coordinate with labour organizations to help meet timelines and demands.  

Supply Chain 

Another critical component to any major project’s success is the supply chain. Disruptions can lead to significant delays, cost overruns and even project failure. Projects can reduce risks to its supply chain by addressing the following elements: 

• Ensure access to a consistent and reliable supply of materials and equipment by identifying key suppliers, assessing their reliability, and establishing contingency plans for potential disruptions (e.g. natural disasters, market volatility or geopolitical tensions) early in project planning.
• Acquire specialized equipment in a timely fashion as any delays in equipment delivery can stall construction and operational phases leading to increased costs. Equipment with long lead times from purchase to installation (upwards of multiple years) need procurement planning and vendor engagement to avoid delays in execution. The timing of receiving equipment also impacts the eligibility for government incentives such as the CCUS-ITC, which can create greater risks for projects with long-lead-time equipment. To understand how the CCUS-ITC timeline impacts supply chains, see our Supply Chain Model.
• Create efficient logistics and transportation systems by coordinating with transportation providers, ensuring compliance with regulations, and managing customs and import/export requirements for equipment. When there’s a solid system in place, projects can reduce lead times and minimize unforeseen costs. 
• Modularization and pre-fabrication are an effective way to reduce project risks related to significant cost inflation. Numerous capture technology providers have begun offering standard models that are factory built and ready for install at capture facilities. The availability of these pieces will continue to increase with greater project demand and clustering. 

Long-term liabilities 

For CCS to be a viable emission reduction tool, the captured CO2 must be stored permanently. Permits for carbon storage require Monitoring, Measurement and Verification plans which ensure projects remain in compliance with regulations during and after project operations.  

Long-term liabilities are project-specific, as each project will have risks associated with geological variability that defines the storage reservoir. On top of all other assessments companies do during project planning, they must also assess any post-closure risks or liabilities and include them in project costs.  

Here are the three key components of long-term liability: 

1. Statutory Obligations: The continued regulatory obligations of the operator. This would include any remaining site reclamation or remediation, and any ongoing monitoring required post project closure.
2. Tort Liability: Any liabilities to third parties for physical or economic harm as a result of the CO2 storage facility. For example, this could include impacts on groundwater caused by CO2 migrating out of the storage container. 
3. Credit Liability: In the event that any stored CO2 migrates to the surface companies are liable for repaying the value of carbon credits generated by the project.   

Alberta’s legislation allows the government to assume ownership of stored CO2 and some of the long-term liabilities for storage hubs – this is a rare approach globally.  Read more about long-term liability in Alberta here.  

Public support 

It’s important for companies to engage local communities early on. In the absence of public support and investment, there’s a high risk to a project’s success or even its start- up.  

Though CCUS projects have been demonstrated to operate safely and effectively for decades, public concerns remain from storage and transportation safety to the validity of capture technology, and skepticism of CO2 impacts on the global climate.  

Communicating the economic and local benefits helps build public support and understanding. By being transparent and collaborative, sharing knowledge and ideas, and being inclusive from the start, projects (and the communities in which they operate) can succeed and proceed as planned.