Highlights of the Strategic Investment Agreement
The investment provides Entropy with a combination of strategic advantages:
- Capital commitment of $300 million to fund Entropy’s near-term projects, including its Glacier Phase 1 and 2 CCS projects
- Potential for significant follow-on capital on mutually agreeable terms
- Access to a large-scale international portfolio; increasing Entropy’s already considerable pipeline of potential CCS projects
- Enhanced capacity for global commercial, marketing and policy relationships
- Underscores mutual confidence in Entropy’s sophisticated CCS technology and global development strategy
“We are excited to be receiving substantial backing from Brookfield Renewable, who share our strategic approach to carbon abatement,” said Michael Belenkie, President and CEO of Advantage. “In order to have a meaningful impact on a global scale, we must invest in the highest efficiency projects with advanced technology, at scale. Entropy has a strong pipeline of these projects under development and owns the full suite of next-generation CCS technology. Combining Brookfield’s financial power and international presence is a key step to achieving global scale. With the growing need to balance carbon abatement with world-wide energy security, CCS needs to play a leading role and Entropy intends to be an important part of accelerating its deployment.”
Deal Structure Overview
Brookfield Renewable will invest in a hybrid security that implies a pre-money valuation of approximately $300 million, recognizing the significant value created to date for existing shareholders. The committed capital will be drawn down by Entropy to fund CCS projects that reach final investment decision as certain predetermined return thresholds are met. Technical, commercial, and financial due diligence was carried out by Brookfield Renewable during the process leading to its first-of-its-kind financing for a pure-play CCS developer.
The flexible investment structure provides both Advantage and Brookfield Renewable with liquidity options as the business develops including the ability for Brookfield Renewable to convert its investment into common shares at any time. Advantage retains the ability to initiate an initial public offering of Entropy or to distribute Entropy common shares to Advantage shareholders.
Brookfield Strategic CCS Investment
Brookfield is pursuing this investment through the Brookfield Global Transition Fund I (“BGTF”), which is the largest fund in the world focused on the energy transition. BGTF targets investment opportunities that will help companies decarbonize their operations. This investment is expected to leverage Brookfield Renewable’s global reach and strong commercial and industrial relationships to accelerate the deployment of Entropy’s unique low-cost CCS solution across a wide range of industrial applications.
“Countries and companies are in the midst of an unprecedented transition as decarbonization is now firmly established as a critical priority worldwide,” said Jehangir Vevaina, Chief Investment Officer of Brookfield Renewable. “As a global leader in decarbonization, Brookfield Renewable has delivered clean energy and transition solutions for more than 30 years. We are excited to invest into a leading CCS business as we continue to expand the decarbonization solutions that we provide to our partners”.
Impact on Advantage
Brookfield Renewable’s investment, together with the anticipated CCS Investment Tax Credit (previously announced by the Government of Canada to be enacted during 2022), will provide all anticipated near-term capital funding needs with no additional capital required from Advantage to achieve Entropy’s growth plan. Advantage will continue to control Entropy until substantially all of Brookfield Renewable’s committed capital has been invested, at which time Brookfield Renewable’s ownership would represent approximately 50% of Entropy, on an as converted basis. Although Entropy’s management team will expand to provide increased capacity, Advantage will continue to provide shared resources and executive oversight.
Advantage shareholders will recognize the benefit of the collaboration via consolidated cash flow and income, a value indicator established by a leading transition investor, and the potential for future liquidity which could include a public listing. Advantage’s consolidated business will strengthen, increasing shareholder value and providing further certainty on our path to net-zero in 2025.
Business Development Update
Entropy has evolved rapidly since our introduction to the markets in March 2021, and we are pleased to provide an update on several notable elements of the business.
With international carbon markets evolving rapidly, commercial CCS projects are now feasible in many jurisdictions around the world. However, in most cases, it is necessary to apply the most sophisticated CCS technology to carefully selected point-source emissions to achieve commercial returns that are adequate to offset carbon pricing risk. Entropy has acquired and developed numerous innovations that have driven CCS costs down to the point where post-combustion projects (including capture, transport and storage) are economically viable at carbon pricing of USD$40/tonne.
Entropy continues to expand its project pipeline with signed memorandums of understanding (“MOUs”) now representing over 3 million tonnes per annum and approximately $1.5 billion of potential investment. These totals do not include any new projects relating to the Brookfield collaboration, which Entropy believes may be significant.
Entropy continues to advance work under its existing MOUs and recently signed a Letter of Intent with Athabasca Oil Corporation for the Leismer project. The Letter of Intent establishes a commercial framework for the project and is the first Entropy third-party project to achieve this milestone.
Entropy continues to receive significant inbound interest for its modular carbon capture and storage (“MCCS”) technology from around the world.
Glacier Project Update
Entropy’s Glacier Phase 1 MCCS continues to progress with plant tie-ins occurring during the final week of March; on-stream date remains planned for Q2/22 but has been delayed several weeks due to supply chain issues with raw materials and select specialized control systems. Total capital costs remain within approximately 10% of original target ($27 million).
Entropy is pleased to collaborate with Brookfield Renewable as its CCS technology expands in both scale and global reach. In the coming months, Entropy expects to advance towards final investment decisions for several additional projects and will continue to build new partnerships focused on global scale CCS projects.
Entropy is excited about the future of our business in 2022 and beyond with the tremendous engagement of third-party emitters, the investment from Brookfield Renewable, and the growing global support for commercial carbon capture and storage.
TD Securities Inc., Scotia Capital Inc. and Desjardins Securities Inc. acted as agents for Entropy on this placement.
For additional details regarding Entropy, an updated corporate presentation is available at www.entropyinc.com/investors/.