Joe Coletti 00:04
Welcome to Powering Sustainable Ideas, a podcast series from RBC Capital Markets, where we interview the leaders and companies powering the sustainable future. In this episode, you'll hear a conversation that took place at RBCs global energy transition conference in London this past June.
Joe Coletti 00:22
Innovators are racing to demonstrate and commercialize technologies that promise urgently needed decarbonization for aviation, shipping and other high-emitting industries, but the process of financing and scaling up these novel asset classes is inevitably a challenging one.
Joe Coletti 00:38
Victoria McCullough, director of our European energy research team, spoke to four of those innovators about the current pace of progress in their specialist fields, including Remy Cuer, investment Director at Kyotherm, Francisco Leon, president and chief executive officer at California Resources Corporation, Ian Brown, head of banking and investments at National Wealth Fund, and Florian Gregor, Senior Vice President for Investor Relations and sustainability at OMV.
Victoria McCulloch 01:11
So maybe Francisco, we know you produce hydrocarbons, but you also have a high carbon management business for the capture, transportation and storage of CO₂ for your customers. Can you explain how this business model helps customers to accelerate decarbonization decisions for their specific industry?
Francisco Leon 01:31
We're an oil and gas company primarily. So what are we doing here in an energy transition conference? We think this is the energy transition story to follow, at least in the US. So primarily oil and gas today. We do have power assets, 850 megawatts of power generation today, but we're also working to disrupt the oil and gas sector. The growth of the business where we're going to transition to and transform is to a carbon management business, primarily through carbon capture and sequestration. It's a first mover. We received the first permit, the class six permit in California. We're converting depleted natural gas reservoirs into storage force for CO2. This is not EOR. This is permanent sequestration. We're in the right market. California, largest economy in the US, fourth largest in the world. It's bigger than the UK, so it's very sustained in California. As a net zero goal for 2045 we also have a net zero goal at TRC. Really, it's a massive opportunity. We think we can be about 30, 40% of the market, big addressable market, over 400 million tons of emissions in California. To get to net zero, we want to be carbon capture to be one of the solutions, and we want to participate in that market. We made a lot of great progress so far, but there's three big things we're trying to ultimately prove out and demonstrate to the market. The first one is that natural gas when combined with CCS is a new asset class that ultimately will help bring AI to California. Kind of an interesting dynamic, California, birthplace of Silicon Valley. You think they stay in California. They're not really investing in California right now. Part of it is the over-reliance on solar, so a lot more intermittent, and we think a great complement to the investments that were made is to convert natural gas fire generation with CCS. The second thing we're focused on is on the value of the carbonized products. Everybody in California has to decarbonize by law. We have to get there. There's a very punitive carbon tax for not doing so. So what we're doing is we're partnering with cement factories, we're partnering with power generation, partnering with refineries, but what we're trying to unlock for this to be a truly sustainable investment is the participation of the market into higher and more valuable premium products. So decarbonized cement should command a premium over regular cement, and that's part of the value of what we need to unlock, and ultimately makes this a business that has more of a staying power. And ultimately leads to the third point, which is, carbon capture will not only work. It will make good returns. It's a profitable business strategy. We're not going there for any other reason, that because we think it's going to be a very valuable business, and we're about to prove that. So it's a little bit of what California Resources is doing in the space.
Victoria McCulloch 04:20
Thanks Francisco. Florian, SAF is considered the only viable option for decarbonizing lowering emissions for air travel. How do you see the outlook for growth in SAF, given recent challenges and developments in the market.
Florian Greger 04:33
Yes, thanks for the question. Why is aviation interesting for us? First, it's aN interesting growth market. You said it's one of these hard-to-abate areas, and therefore sustainable aviation fuels is the key in the foreseeable future to decarbonize that industry. We feel we are very well positioned to participate in that growth opportunity, because we are a key supplier to major international airports like Vienna, Munich or Bucharest, where our sites are directly supplying via pipeline. The refuel EU aviation regulation requires companies, as of this year, minimum of 2% sustainable aviation fuels that will grow quickly to 6% by 2030 and then 20% by 2035, so there is a clear, defined growth. We are investing in a 250,000 ton southern HBO plant that is expected to come on stream in 28, 29 so in our view, right at the sweet spot before we hit the 6% and then the faster growth thereafter.
Victoria McCulloch 05:55
And Ian, is your interest in the decarbonisation of airline and air travel takes a look at maybe a more nascent technology. Can you tell us a bit about that.
Ian Brown 06:05
Yeah, we made a 40 odd million dollar investment into a company called Zero Avia, which produced uses a hydrogen fuel cell to then power an engine. Aviation emissions are rising every year. In fact, we just heard yesterday climate change committee, they're up another 9% this year. I think SAF undoubtedly has a major role to play, but certainly in this country, it's going to require quite a lot of subsidy until it scales. So we wanted to have a look at alternative approaches and just see if we could get help get some of those to work. Zero Avia, it's flying 20 seater aircraft today. It's going to be a while before we start seeing it on every Airbus, if we ever do. But there is a huge addressable market in relatively small aircraft, not so much for passenger, but certainly for freight. And our interest is just seeing if we can get that to a scale where it becomes viable. Will we see that on every aircraft in the next 30 years? Honestly, don't know, but we thought it was really important to give it the chance to prove itself.
Victoria McCulloch 07:04
Florian, geothermal energy has been seen as another tool for decarbonizing industrial processes. Where are we at currently with that? And do you see, you know, potential growth in this space for industry.
Florian Greger 17:16
So geothermal is one of the other focus areas. We have currently a bigger project in Vienna in Austria that we are executing, because here we have a combination of fantastic conditions. One is Vienna sits on a hot aquifer. We have been producing oil and gas just in the Vienna basin for some 70 years plus, know the geology in and out. So lucky situation there having a hot aquifer. The other thing is, Vienna has one of the largest district heating networks in Europe, supplying some 450,000 households plus industrial customers. In addition to that, we have also invested an equity share in Eavor that's a Canadian-based innovative company focusing on a so-called closed loop system, because not every city is as lucky as Vienna to sit on a hot aquifer. But every, almost everywhere, you find hot rocks, and this Eavor technology could be also applied in other areas where you have hot rocks, and therefore would be critical for a scalability, also on a more global scale.
Victoria McCulloch 08:35
Maybe staying on the topic of heat, Remy, can you provide some color from your perspective as to why heat-related emissions in the industry are the big elephant in the room when it comes to decarbonization?
Remi Cuer 08:46
Yeah, sure. Around 50% of emissions in the industry, but also in the buildings, are related to heat consumption. So I have a space buildings, production of hot water, production of steam, and I would say solutions to address that challenge are much less standardized that, for example, PV plant or wind farms, you need either to reduce consumption with energy efficiency, needs to produce hot water with renewable solutions, which can be geothermal, as mentioned, biomass, solar thermal heat pump waste recovery. You can also electrify the heat with electric boilers, with heat pumps with thermal storage, but you have more diversity of project, more technical risks, but that's where the really the big challenge is, and that's, of course, one of the topics we address at care firm by proposing to industrial companies to finance a project with a cheaper cost of capital than they do.
Victoria McCulloch 09:39
Francisco, permitting is, you know, a really large topic and risk in California at the moment. Can you maybe talk about how you see this changing.
Francisco Leon 09:47
Yeah. I mean, I think we struggle with permitting in the US. Carbon capture, now it's passed the test of kind of both Republicans and Democrats, it feels like a mainstay in terms of investment opportunities. What we've seen actually was fascinating. In California, we received our CCS permit before the federal government, but we actually got the support from Kern County, where we operate faster and we're going to get to start getting to this proof of concept project off the ground later this year. I think these projects at whatever scale that help decarbonize need to be built, and we need to start getting CO₂ injected into the ground. I don't think people can get their head around what it is and they overestimate the risk. I mean, as an oil and gas company, we're very comfortable with managing CO₂. We've done it for over 60 years as an industry, always very safely, and we know what we're doing, so it's a matter of just proving out the concept and that also, that thing that comes to permitting will start getting more streamlined.
Victoria McCulloch 10:48
Closer to home, Ian, what do you think the biggest risks are to decarbonizing industry in the UK at the moment?
Ian Brown 10:54
I’d say the biggest risk is not taking enough risk. There are tens of billions of pounds needed to get this country to net zero. And, you know, national wealth fund has been capitalized with just under £28 billion. So that sounds like a lot, but, you know, that'll last us about a year and a half, if I was to spend all of that just on our own. So it's incredibly important that we are crowding in other lenders, other investors alongside us, so that we can try and multiply what it is we're investing. And what I just don't see enough of is risk appetite from banks or from equity investors to really move towards the level of technology risk, maybe market risk that's needed to get Net Zero moving. There are plenty of people out there who've got $10 billion so called transition funds, and a lot of them are investing in already constructed assets. Are invested in things like wind and solar, which are not risk assets. They are mainstream now, and we need to see a lot more money going into earlier technologies, riskier technologies. We're trying to get pension funds and insurance companies to come nearer to us, and I'm not expecting people to take ridiculous risk, and I'm certainly expecting them to get a return commensurate with the risk, but we do need to see some conversations, I think, with trustees, with LPs. Uh, with people who are actually holding the money and saying, Are we prepared to take a little bit more risk in return for an appropriate return so that we can try and move things forward? So for me, the biggest risk is we all sit here and we say, someone else is going to fix it, and actually no one is stepping forward to help do it.
Victoria McCulloch 12:19
And in your view, what's needed to push people over that line?
Ian Brown 12:22
There's plenty of mature industry funding available, but there is that gap for scale up. And we often have companies come to us saying, look, I've got someone's going to give me a big contract when I've got the first factory built, but they won't help get the factory built. And a really good example of that would be perhaps the Pulp X transaction we announced a little while ago. So that's bottles made from fiber which can hold liquid. So they're the first people to really be able to crack that problem. We think we are helping them to scale up. We're building a factory in Scotland. They are refinancing it, they're building it, and that should allow them to expand enormously. And if that works, that will help do away with tens of millions of plastic bottles that we see going into waste every year.
Victoria McCulloch 13:00
Yeah, Remy, maybe from Kyotherm's point of view, how can energy as a service type project financing also help bridge that sort of financial and industrial world gap?
Remy Cuer 13:11
Yes, cost of capital is one of the main issue. You need to really have a good pricing of the risks. And of course, as an investor, we do expect a higher IRR than, let’s say plain vanilla wind farm financing. But if you ask for, let's say, more than 15% projected IRR on this project, the project will never go through. So one, I'd say our real focus is being as cost competitive as possible and lowering the costs as much as possible.
Victoria McCulloch 13:40
Francisco, how quickly do you really think we're going to see CRC able to see material real contracts related to decarbonized AI.
Francisco Leon 13:48
Yeah, think it’s gonna happen very soon. We were not aspiring to be a power company and trying to kind of jump on the train, the fast moving train of a thematic and see if we can grab it. We're actually been gearing to decarbonize all sorts of industry, and we're ready. We're ready to go. We will start with our own power generation. We have a plant that's a CCGT, 550 megawatts, has about 1.3 million tons of emissions per year. It's a great project that we're going to start building in the next, hopefully in the next couple years. And the nice thing about the project is is sitting on top of the rest of world where we have the injection permit for CO₂, so we're basically cutting out the midstream component, just capture and storage, and it's going to create this new form of energy in California. Unfortunately, California moved away from nuclear, so we're down to one plant and an overreliance on solar that doesn't quite work for the customer based in AI. So bringing this base low, reliable 24/7, source of power that also is clean, it checks completely that box in, but because it have the power today as the AI companies are battling for world dominance and see who can get there first, and speed to market matters the most. We can deliver those electrons today and make those electrons clean, and then the data clean down the road.
Victoria McCulloch 15:06
Florian, looking at OMV’s overweight positioning its chemicals business. You know, that's you know, a real tangible business today. You know, you're not waiting for 12 months. But what role do you think circular chemicals have to play in the decarbonisation of industry?
Florian Greger 15:19
So, decarbonizing the chemical industry, a lot of focus has been, obviously on scope one, two, emission reduction, improving energy efficiency and reducing waste in the in the processes. We believe circular economy will be a key thing also to reduce scope three, emissions here. At OMV, we have developed process, a proprietary technology that we call Reoil that we had tested for many years, have more than 30,000 operating hours in a pilot plant that was already fully integrated in our refining and chemical complex just outside of Vienna. We have then taken the decision in the first scale up step a 16,000 ton plant that we started up successfully earlier this year, and then ultimately we plan to invest in the 200,000 ton plant later this decade. So the Reoil technology takes plastic waste and then converts it into a synthetic oil, and then you can again produce virgin quality polymers.
Victoria McCulloch 16:33
Yeah, I have one final question. I'd be interested to get all of your views on. In each of your opinions, is decarbonizing heavy industry profitable, maybe Florian starting with you.
Florian Greger 16:42
We don't go into offshore wind parks, things like that, because we didn't see how we could earn double digit returns. This is why we have a very focused approach and go into industries where there's maybe supported by some regulation, where we believe we have a key competitive advantage.
Victoria McCulloch 17:01
Ian.
Ian Brown 17:02
I think undoubtedly it can be. I mean, I talked earlier on about the tens of billions required every year to get us there. Most of that is, or should be, investment money coming in. So there's no end of opportunities. And clearly there will be hits and there will be misses, but if people are investing and at least have insight to the appropriate risk adjusted return, there's no reason at why it shouldn't be profitable.
Remi Cuer 17:22
Yeah, well, if you ask that question to some industrial companies, they'll ask for a three, four years payback, and they'll tell you, when I answer you, that these decarbonization projects are not profitable enough. But if, if you have, say, cheaper access capital, a lot of projects are, say, with low technical risks, and have paybacks around eight, nine years, and are, in our sense, very profitable. So yeah.
Victoria McCulloch 17:46
Francisco.
Francisco Leon 17:47
Absolutely yes, the low hanging fruit will be high concentration CO₂, ethanol and ammonia and other projects will work. In California, we're going to unlock kind of the next stage, which is not only the high concentration CO₂, but the conditions are there, the incentives the market need, the government support, the capital, the know-how to really tackle the whole spectrum of decarbonization, so low CO₂ from natural gas, that will be into play. And this is going to, we think it's a massive business opportunity, and we think it's going to happen sooner. I mean, in California is going to happen first and I think we're pretty much there.
Speaker 1 18:28
Super. Thank you very much all for your sharing your insights today.
OUTRO:
Joe Coletti 18:30
Thanks again for listening to Powering Sustainable Ideas, brought to you by RBC Capital Markets. Please remember to subscribe to get more great content and be alerted about future episodes. This episode was recorded on June 26, 2025. If you'd like to learn more or continue the conversation, please visit rbccm.com/energytransition.
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