By Bastian Stroemsheim | October 23, 2024
Climate Week NYC offtake news
Climate Week NYC, coupled with the recent Fed decision to cut rates by 50 basis points is adding fuel to a change in investor sentiment. JPMorgan reports a returning interest among portfolio managers to consider unprofitable IPOs, while project finance investors welcome the cut to help reduce the forecasting margin of error. Some industries, for example offshore wind, stand to gain relatively more than other industries. However, it is not a cure-all to address cost issues from inflation and tariffs, or the interconnection bottleneck.
Keeping up with the flurry of events and announcements during Climate Week can be challenging.
A few noteworthy include:
Nuclear
Nuclear has been in the wind recently. On September 23, 14 banks including Bank of America, Barclays, BNP Paribas, Citi, Morgan Stanely and Goldman Sachs pledged their support to triple the world’s nuclear capacity by 2050. Details about the level of support has yet to emerge, but could take form through direct lending, arranging bonds and tax credit-related transactions.
The previous nuclear facility tax credit (45J) awarded 1.8 cents per kWh over a tenor of 8 years. The new tax credit (45U) equals 1.5 cents per kWh (with PWA adder) and is indexed to inflation. The overall tax credit amount can be reduced based on prevailing power prices and is available to existing nuclear plants from 2024-2032. Under the technology-neutral ITC (48E), nuclear will qualify and as such score high for underlying drivers of both tax credits.
This is relevant for Three Mile Island, which is planning to reopen its 835 MW reactor that shut in 2019. The plant is expected to start producing electricity in 2028 after going through a series of safety and environmental license reviews. Microsoft inked the deal as the offtaker in a 20-year PPA covering 100% of generation to power its data centers.
Carbon removal
While reading through this section, we recommend also tuning in to Shayle Kann’s conversation with the Climeworks CFO to discuss “DAC’s bumpy road to commercial scale”. Tracking prices, permanence and additionality is important, and using a portfolio approach to balance risk while scaling gigaton solutions before they can be supported with project finance.
- Google & Holocene: Direct Air Capture (DAC) deal to remove 100,000 tons, at a credit price of $100 per ton. Under the IRA, DAC projects qualify for the 45Q credit, with up to $180 per ton of carbon removed.
- Amazon & partners at LEAF coalition: Carbon credits from reducing deforestation in the Amazon. A total of 5 million credits at $15 per credit will be purchased by the coalition.
- Frontier & CarbonRun: By adding limestone to rivers, this ocean-based carbon removal technology will remove close to 55,000 tons of carbon dioxide over a 5-year period. In total, Frontier pays $25 million, which is close to $450 per ton removed.
The deals reflect the markets edging closer to reach the DOE’s Carbon Negative Shot, aiming to reduce the cost to remove carbon dioxide to below $100 per net metric ton of carbon dioxide-equivalent by 2032.
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