Inside the deal: Why Brookfield is betting big on carbon capture and storage with Entropy

“Decarbonization has been very important for us,” Brookfield's Jehangir Vevaina said. “We see the natural extension of clean energy solutions being broader decarbonization, and aspects like carbon capture and storage are extremely important.”

Brookfield Asset Management recently invested C$300 million ($234 million) in Entropy, a subsidiary of Advantage Energy, to expand deployment of Entropy’s carbon capture and storage (CCS) technology globally. PE Hub caught up with Brookfield managing partner Jehangir Vevaina to learn more about the deal and the technology.

The deal marks the fourth investment out of the Toronto firm’s debut Brookfield Global Transition Fund (BGTF), which targets opportunities to reduce greenhouse gas emissions, increase low-carbon energy capacity and support sustainable solutions. In February, CEO Bruce Flatt said the fund was “in the final stages” of wrapping up at $15 billion in a letter to shareholders about Q4 earnings in February. BGTF is the largest fund in the world focused on energy transition, according to Brookfield.

The Entropy deal is Brookfield’s first investment in CCS, a strategy for capturing carbon dioxide produced by power generation or industrial activity before it enters the atmosphere, transporting it, storing it and potentially reusing it.

For Brookfield, the deal serves a dual purpose, first as a long-term growth opportunity for the firm and then as a vital step in reducing emissions, Vevaina explained.

“Decarbonization has been very important for us,” he said. “We see the natural extension of clean energy solutions being broader decarbonization, and aspects like carbon capture and storage are extremely important.”

While there has been a lot of research and development around CCS, there has been minimal private equity investment. Brookfield said there are vast opportunities for Entropy, which is based in Calgary, to scale its operations across North America and the rest of the world.

Jehangir Vevaina, Brookfield Asset Management

“As it relates to the opportunity, it’s early, but we think there is a very strong growth profile sitting ahead of us.” He said PE firms such as Brookfield have a role to play in increasing the deployment of CCS. “The amount of investment that is going to be required is very substantial, so I think private investment is going to play a key role in scaling this industry.”

Vevaina described carbon capture as an important area that will help the world achieve the decarbonization target set under the Paris Agreement, an international treaty on climate change that was agreed upon in 2015.

The Entropy deal is structured as a convertible debenture; once Brookfield invests the full amount, it will have the majority ownership of the company. The firm is also looking forward to a long-term investment. “Our fund life is 12 years, so we really look at ourselves as long-term providers of capital, and we would try to stay for near the fund life,” he said. Brookfield is looking forward to growing returns by double digits.

Vevaina said Brookfield was attracted to invest in Entropy largely because of its strong growth profile. He also said the company has close to 10 other projects in the pipeline that could sequester as much as two million tons of carbon emissions over the next four or five years.

“What we really like about Entropy is the market that it’s operating in. We like that they are first mover in Canada. We like their existing assets, and our capital allows them to scale and to maintain this first mover advantage and to capture market share quickly,” he said.

According to Entropy, the company uses a proprietary Modular Carbon Capture and Storage technology which allows for the process to be flexible and applicable to most point-source industrial emissions, including sectors that are difficult to decarbonize such as power generation, oil and gas processing and production of cement and steel.

“That is a unique attribute,” Vevaina said, adding that it will allow the technology to be used for smaller or large-sized facilities. In Canada, the technology allows Entropy to generate carbon credits, which are monetary incentives awarded to projects that pull greenhouse gases out of the atmosphere or keep emissions from being released.

Through BGTF, Brookfield expects to invest in several areas of renewable energy, among them hydrogen, solar and wind. So far, the fund has backed three other projects. These include the Urban Grid, a Maryland-based solar energy developer which has a pipeline of projects comprising about 13,000 megawatts in solar energy and 7,000 megawatts of energy storage capacity. The deal was announced in January, and it is worth $650 million. In February, Brookfield closed on Cambridge Power, a UK based developer of energy storage projects; and the third one involves Sunovis, a German-based developer of solar energy.