Carbon Capture and Storage

How to "Capture" Profits in the Energy Business

Written by Brian Hicks
Posted March 12, 2008

In light of the debut of my new service, Alternative Energy Speculator, I thought I'd take a few moments to discuss an issue not normally touched on in the Green Chip Review: carbon capture.

Once thought of as a way for the coal industry to mask its polluting nature, carbon capture is rapidly emerging as a viable technology. And as such, it's beginning to attract serious investment and could have implications that affect much of the energy sector.

In fact, an upcoming International Energy Agency (IEA) report estimating the costs that energy companies will have to pay to cut greenhouse gas emissions 50% by 2050 will cite carbon capture and storage (CCS) as the most important technology for emission cuts.

That preview of the report's finding was issued by IEA Executive Director Nobuo Tanaka to Reuters on Monday.

Of course, I'm still gung-ho on the advancement of renewable energy, but it's easy to see why CCS will have to play a large role in cleaning up the energy sector in the near- to mid-term. After all, the world still uses coal to provide about 40% of its electricity.

And that level is even higher in developing countries like China.

Carbon Capture and Storage

Until recently, CCS was dubbed unproved and too expensive. And I'll admit that I was one of the analysts who prematurely lumped it into those categories.

But costs are falling, and are now down to around $50 per metric ton of carbon captured and stored. At that level, the economic viability of CCS is held hostage by the going rate for a tonne of carbon, which is determined by carbon markets, like the EU ETS, that stemmed from the Kyoto Protocol.

Obviously, the future price of carbon is contingent upon the successful negotiation of successor to Kyoto that includes U.S. and Chinese participation. Keeping the cost of emissions high is vital to both the renewable energy and CCS industries.

But before I persuade you to jump on the growing CCS bandwagon, I must point out that not all estimates are as rosy as the IEA's. Royal Dutch Shell, for example, puts a $100 per tonne pricetag on CCS.

Nonetheless, if we're to meet the growing international demand for energy, coal is going to be a part of the mix. And if coal is to be used in a cleaner way, CCS will have to be used.

And getting in now on this nascent technology could provide nice returns to investors willing to take the risk.

That's exactly the aim of my new service, Alternative Energy Speculator. The goal is to take green investing one step further--and with a little more risk--by investing in emerging clean energy technologies and stop-gap technologies--like CCS--that are being used to clean up the fossil side of things. Many of the stocks recommended in this new service will either carry more risk or participate in sectors not covered by Green Chip Stocks.

Investing in Carbon Capture and Storage

Mitsubishi Heavy Industries (MHI) (Tokyo: 7011) is probably the technology leader in this space. They have developed a commercially available, post-combustion flue gas recovery system called the KM-CDR Process.

It was developed to run on natural gas-fired applications, but is in the demonstration phase of applying the technology to coal-fired plants.

In the past five years, MHI has constructed four major CO2 capture plants and they have another four in the pipeline. The original four plants were in Malaysia, Japan and India. The other four are being planned in China, India and the United Arab Emirates.

Of course, MHI isn't a pure CCS play and is already a well-established company the heavy-duty manufacturing industry. And while it could provide nice returns, I'd be on the lookout for a play that calls only the energy industry home.

If you're interested, NRG Energy, Inc. (NYSE: NRG) has partnered with technology company Powerspan to develop a commercial scale CCS facility for a coal power station in Sugar Land, TX, home to one of the largest coal plants in the country

To date, CCS has only been tested on coal plants no bigger than 5 MW. NRG's system would be applied to a plant emitting 125 MW's worth of emissions.

If successful, the NRG/Powerspan technology could evolve into an industry leader.

I also have small, pure-play CCS play well inside my radar. It could turn out to be a profitable play in the Alternative Energy Speculator.

In fact, a number of speculative energy plays are beginning to do fairly well. One concentrating solar power company in the Alternative Energy Speculator even popped as much as 13% in the past two days.

It is for that reason we've decided to take this new service public. To read more about it, follow this link to the Alternative Energy Speculator.

Until next time,

nick hodge

Nick