Canada Growth Fund Announces Strategic Investment in Entropy Inc. and Carbon Credit Offtake Commitment
- Strategic investment in a technologically-advanced carbon capture and sequestration company
- Large-scale and long-term fixed-price carbon credit purchase agreement is a global first in compliance markets
- Investment de-risks and accelerates private CCS investment in Canada
- Alignment with CGF's mandate to invest in projects and technologies with significant potential to reduce emissions and scale promising Canadian clean technology champions
- Partnership with Entropy to accelerate growth and reduce emissions in Canada and globally
- Potential dilution for shareholders if CGF owns approximately 20% of Entropy once fully drawn
- Risks associated with the long-term fixed-price carbon credit purchase agreement
Insights
Investments in carbon capture and sequestration (CCS) technologies are critical for companies in carbon-intensive industries to meet regulatory requirements and transition to a low-carbon economy. The strategic investment agreement between Canada Growth Fund Inc. (CGF) and Entropy Inc., facilitated by Brookfield Asset Management Ltd., highlights a significant commitment to these technologies. The $200 million investment and the fixed-price carbon credit purchase agreement for up to one million tonnes per annum provide a clear signal of confidence in the CCS market and Entropy's technology.
The financial implications of this transaction are substantial, with a potential 20% ownership stake for CGF and an additional $460 million capital influx for Entropy, which could leverage further investments and incentives to execute over $1 billion in CCS projects. The fixed-price carbon credit purchase agreement introduces a financeable structure that de-risks investments by providing price certainty, which is a novel approach in the compliance carbon market. This agreement could set a precedent for future carbon credit transactions and enhance the attractiveness of investing in CCS projects.
In the short term, stakeholders can expect increased activity in CCS project development, particularly in Canada. In the long term, this investment could position Canada as a leader in CCS technology and contribute to the country's emissions reduction goals. However, the success of this initiative will depend on the scalability of Entropy's technology, regulatory support and the broader adoption of CCS as a viable solution for emission reductions.
The CCS industry is poised to play a pivotal role in addressing emissions from hard-to-abate sectors. Entropy's modular CCS technology, which is now backed by significant investment, is relevant across multiple industries, such as oil and gas, cement and steel manufacturing. The strategic partnership with CGF, along with the prior Brookfield investment, strengthens Entropy's position to lead the CCS market in Canada and potentially globally.
The introduction of a large-scale, long-term, fixed-price carbon credit off-take commitment is a groundbreaking development for the carbon market. It provides a financeable structure that could encourage more private investment in CCS by establishing carbon price certainty. This is particularly important as industries seek to understand the financial implications of investing in emissions reduction technologies.
While the deal is poised to accelerate Entropy's growth, potential challenges include the execution of large-scale projects and the integration of CCS technology into existing industrial processes. The success of Entropy's CCS projects will be closely watched as a barometer for the viability and financial performance of CCS investments.
The agreement between CGF and Entropy represents an intersection of environmental sustainability and economic development. By investing in CCS, CGF is addressing a key component of Canada's climate strategy, which aims to reduce emissions from hard-to-abate industries. The fixed-price carbon credit purchase agreement provides a mechanism to support the financial viability of CCS projects, which are often capital-intensive and carry significant operational risks.
The long-term nature of the agreement, spanning 15 years, offers a stable framework for Entropy to plan and execute its projects, which is essential for achieving economies of scale and driving down the cost of CCS technology. The potential to abate more than 1 million metric tonnes per annum of emissions can contribute significantly to Canada's climate goals. However, the economic impact will depend on the continued development of the CCS market, regulatory incentives and the ability to scale the technology effectively.
The deal also reflects a broader trend of public-private partnerships in addressing climate change, with government-backed entities like CGF playing a crucial role in catalyzing investment in clean technologies. The success of such partnerships could influence future policy and investment strategies in the realm of climate finance.
BROOKFIELD, NEWS, Dec. 21, 2023 (GLOBE NEWSWIRE) -- Brookfield Asset Management Ltd. (NYSE: BAM, TSX: BAM) and Canada Growth Fund Inc. ("CGF") and Advantage Energy Ltd. (TSX: AAV) ("Advantage") today announce that CGF has entered into a strategic investment agreement with Entropy Inc. ("Entropy" or the "Company"), a Calgary-based developer of technologically-advanced carbon capture and sequestration ("CCS") projects with the potential to significantly reduce emissions in Canada and worldwide.
CGF has agreed to a
"With its abundance of natural resources, access to high-quality geological storage, and sophisticated engineering know-how, Canada is the best place in the world to build a CCS industry," said Patrick Charbonneau, President and CEO of Canada Growth Fund Investment Management Inc. ("CGF Investment Management"). "The CGF Investment Management team is pleased to deliver this inaugural transaction in Alberta's carbon market, and we look forward to putting additional capital to work across Canada in the months ahead."
One pillar of CGF's mandate is to invest in projects and technologies, including CCS, that hold significant potential to reduce emissions across the Canadian economy. A second pillar is to scale promising Canadian clean technology champions that can help create value for Canadians.
"I am very proud of the investment, technical, and execution expertise that the Canada Growth Fund Investment Management team is bringing to the CGF mandate," said Deborah K. Orida, President and CEO of Public Sector Pension Investment Board ("PSP Investments"). "CGF is able to deliver complex transactions such as this thanks to PSP Investments' rigorous and established processes and arm's length governance model."
Entropy aligns well with both aspects of CGF's mandate: it is a Canadian-based CCS company with an innovative technology solution and a skilled team of Canadian experts focused on expanding the use of CCS technology in Canada and globally. Entropy's modular CCS technology is relevant across Canada's hard-to-abate industries, which represent an important challenge and opportunity for Canada to tackle as it works towards its emissions objectives.
"Entropy is excited to partner with CGF in re-establishing Canada as a world-leading CCS market," said Mike Belenkie, President and CEO of Entropy. "By creating a large-scale CCO to guarantee long-term carbon pricing and adding
In March 2022, Entropy announced a strategic
"Carbon capture and sequestration is a vital technology for reducing emissions in carbon intensive sectors" said Jehangir Vevaina, Managing Partner and Chief Investment Officer for Renewable Power & Transition at Brookfield. "Our investment agreement with Entropy was designed to accelerate the deployment of this important technology in Canada and worldwide. We welcome the additional capital and revenue certainty that the Canada Growth Fund is providing to enable Entropy's success."
Transaction Highlights
Definitive agreements between Entropy and CGF to accelerate the decarbonization of hard-to-abate industries in Canada;
CGF to invest
Brookfield will continue to invest the balance of its existing
CGF to provide the first ever large-scale, long-term, fixed-price CCO in a compliance carbon market, committing to purchase up to one million tpa of carbon credits for 15 years;
The initial allocation of CCO commitment will allow Entropy to proceed with its Glacier Phase 2 project, targeting the sale of up to 185,000 tpa of Alberta TIER carbon credits at an initial price of
The balance of the remaining CCO will be available for Entropy to underwrite additional third-party projects on similar terms in Canada;
Post-investment, Entropy will have approximately
Deal Structure Overview
CGF's investment in Entropy is via a hybrid security similar to the prior investment from Brookfield (please see Entropy news release dated March 28, 2022), though at a valuation that reflects the numerous advancements of the business in the last two years. The flexible structure ensures access to capital for Entropy and retains flexible liquidity options for all major investors including Brookfield, CGF and Advantage (the Company's controlling shareholder). Funding draws from Brookfield and CGF for Canadian projects and corporate purposes will proceed in tandem.
Coupled with the CGF investment, Entropy and CGF have entered into a CCO agreement whereby CGF has committed to purchase up to 9 million tonnes (up to 600,000 tpa over a 15-year term) of TIER or equivalent carbon credits from Entropy projects. The initial project to benefit from the CCO is intended to be Advantage Glacier Phase 2, drawing up to 185,000 tpa at an initial price of
Beyond Glacier Phase 2, CGF and Entropy intend to enter into separate CCO agreements for other Canadian projects, on terms that are expected to provide similar investment returns. Upon successful deployment of the initial 600,000 tpa of CCO, CGF may make available a further 400,000 tpa of CCOs for additional Entropy Canadian CCS projects.
CGF will nominate one member to the Entropy Board of Directors and is pleased to participate in the growth and evolution of this Canadian clean technology leader. Advantage and Brookfield will retain their existing Entropy board representation.
About Entropy Inc
Entropy was founded by Advantage and Allardyce Bower Consulting Inc. in 2020 with the goal of developing world-leading technology for post-combustion carbon capture. After partnering with University of Regina to acquire breakthrough technology and developing further advancements, Entropy designed and constructed the world's first commercial natural-gas-fired CCS project (Glacier Phase 1), which began capturing and storing carbon about 18 months ago. Entropy's team has industry-leading capabilities in all aspects of the CCS chain, including capture, compression, transportation, subsurface storage, carbon finance, regulatory, carbon markets and commercial structuring. This full-cycle approach allows Entropy to help third parties that would otherwise not have the capacity to take on these complex emissions-reduction investments. For further information, please visit www.entropyinc.com.
About Canada Growth Fund
CGF is a
CGF will make strategic investments to help Canada to meet the following national economic and climate policy goals:
a) reduce emissions and achieve Canada's climate targets;
b) accelerate the deployment of key technologies, such as low-carbon hydrogen and carbon capture, utilization, and storage (CCUS);
c) scale-up companies that will create jobs, drive productivity and clean growth across new and traditional sectors of Canada's industrial base;
d) encourage the retention of intellectual property in Canada; and
e) capitalize on Canada's abundance of natural resources and strengthen critical supply chains to secure Canada's future economic and environmental well-being.
Further information on CGF's mandate, strategic objectives, investment selection criteria, scope of investment activities, and range of investment instruments can be found in the technical backgrounder published by Finance Canada. You may also visit www.cgf-fcc.ca.
About CGF Investment Management
In Budget 2023, the Government of Canada announced that PSP Investments, through a wholly owned subsidiary, would act as investment manager for CGF. CGF Investment Management has been incorporated to act as the independent and exclusive investment manager of CGF.
Note: PSP Investments has a passive limited partner interest in the Brookfield Global Transition Fund I, and ownership of Advantage's publicly traded common stock through index replication and externally managed funds. The foregoing is being disclosed in accordance with PSP Investments' Conflicts of Interest Policy. For more information, see the disclosure made under PSP Investments' Conflict of Interest Policy below.
About Brookfield Asset Management
Brookfield Asset Management Ltd. (NYSE: BAM, TSX: BAM) is a leading global alternative asset manager with over
About Brookfield Renewable
Brookfield operates Brookfield Renewable Partners (NYSE: BEP, BEPC; TSX: BEP.UN, BEPC), one of the world's largest publicly traded, pure-play renewable power platforms, with approximately 31,800 megawatts of installed renewable energy capacity and a development pipeline of approximately 143,400 megawatts of renewable power assets, 14 MMTPA of carbon capture and storage, 2 million tons of recycled material and 4 million metric million British thermal units of renewable natural gas production annually.
For more information, please visit our website at https://bam.brookfield.com or contact:
| Communications & Media: Kerrie McHugh Hayes Tel: (212) 618-3469 Email: kerrie.mchugh@brookfield.com | Investor Relations: Jason Fooks Tel: (212) 417-2442 Email: jason.fooks@brookfield.com |
FAQ
What is the strategic investment announced by Brookfield Asset Management Ltd. and Canada Growth Fund Inc. in Entropy Inc.?
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