Q&A - Igneo Infrastructure Partners: Who pays for carbon capture?

Igneo Infrastructure Partners sees itself playing a unique role in the energy transition space. Rather than simply focusing on generating clean electricity through renewables, like it does through its subsidiary Finerge, it also focuses on investing in typically high polluting sectors and works to decarbonise them. 

One of these sectors is energy-from-waste, where Igneo is looking to take its efforts further through carbon capture. In May 2024, its UK portfolio company, enfinium, unveiled its net zero transition plan, which includes a £1.7 billion (€2.03bn $2.2bn) investment in carbon capture technology to decarbonise unrecyclable waste and generate over 90MW of baseload, carbon-negative power.  

While investor confidence in carbon capture has increased, as evidenced by the financial close of The Northern Endurance Partnership and Net Zero Teesside Power projects, questions about the sector's economics still remain.  

inspiratia sits down with Nick Grant, Partner and Head of Asset Management, Europe, at Igneo to discuss the "polluter pays principle" of carbon capture, and why energy from waste plants should not be considered the polluters in this instance. 

How do you approach investing in energy transition? What role do you see yourself playing in this space?

The environment for investing in anything related to energy has changed completely since the invasion of Ukraine. Before Ukraine, it was all about sustainability. However, post Ukraine, governments realised that affordability, as well as security of supply, is far more important than previously thought, thus forming the "energy trilemma". 

This has actually created far more opportunities than before. My observation is that there typically are two approaches in the market for investors like us. 

One is that you choose to invest in assets that are potentially polluting, with a view to improve the situation. The second approach is that you just refuse to invest. 

One example of this could be investing in district heating networks, where the heat is generated by coal. Some investors would simply refuse to invest because you are effectively using a very dirty source of energy to generate electricity. 

Another approach is that if you invest in that asset in that portfolio company, you can transition away from coal to something else, like biomass. That is our approach. 

We typically see investing in the energy transition as a way to improve, and we think that is essential. In 2020, about 70% of the energy in Europe is based on hydrocarbons, and in 2030, this is expected to be about 62%. 

There is no magic wand, and hydrocarbons are essential, whether we like it or not. Therefore, our view is that it is better to invest in potentially polluting assets, provided that you can invest to decarbonise them. Our philosophy is to actively engage with the aim to decarbonise, rather than exclude a certain kind of investment and effectively pass the problem onto others. 

But one point is that we would not invest in assets like a coal-powered generation plant, because there is nothing you can do with that. There is no decarbonisation part. 

How does Igneo go about decarbonising its portfolio companies?

We have invested in a company called Nordion Energi, which is a gas transmission network in Sweden. When we bought it, it was all natural gas, and today, about 33-45% of the gas going through the pipes is biogas. The ambition of Nordion Energi is to become the first green gas transmitter. 

We have invested in district heating networks in France and Estonia. District heating is effectively using massive boilers that produce heat for hundreds of thousands of inhabitants. In both cases, when we bought the company, about 33-40% of the heat was generated by renewable sources. Four to five years later, that figure is between two-thirds to three-quarters, so there is a significant move away from coal and gas to biomass or geothermal. 

So, we have made multiple investments, buying portfolio companies that have hydrocarbon elements and decarbonising them. 

Trying to decarbonise these companies tends to be CapEx intensive, what kind of returns do you see from such investments?

In most cases, these are really good investments to make. These are typically investments that are value accretive. 

Take, for example, our investment in Scandlines, a ferry business between Denmark and Germany. We have invested circa €130 million so far, which has been used to decarbonise through a variety of projects.  

These include changing the propellers to a new technology that saves more fuel, flattening the rotors and using enormous tubes that act like sails on windy days. All of these reduce fuel consumption by 10-15%. 

Importantly, you also pay less tax because in the EU, the CO2 tax is now applied to ferries and shipping. 

In most cases it is costly, but I think it is wrong to think that investment in decarbonisation is a cost to the business. More often than not, I have seen it as a benefit and therefore have had no issues in investing. 

What was the rationale behind investing in enfinium?

enfinium was actually the product of two separate transactions from two separate owners, which we combined into one company. 

There are a few reasons why we really liked this energy-from-waste sector. The first one is the very contracted nature of waste. These are very long-term contracts, and it is a really good business model because you get paid for residual waste. 

This is waste coming out of your bins or from industrial and commercial parties that you cannot recycle. You take that waste, and you are paid per ton that you effectively incinerate. You then get paid for the output as well, which consists of the electricity generated and the ashes [by-product] that then go into cement and construction. On both sides of the equation, on the input and the output, you get paid, and these are typically very long-term contracts with very good counterparties that are either with large companies or municipalities. 

You have these 10-20-year inflation indexed contracts. This is really interesting because when the majority of these contracts were signed, inflation in the UK was at about 1-2%. A couple of years ago, that was north of 10%. This is where you can really test whether the inflation pass-through, which is something that infrastructure businesses effectively try to achieve, works or not. In our case, it worked extremely well, where all but one of the 300 contracts were indexed. 

The second point surrounds energy transition. People often compare waste to electricity, arguing that it is more polluting than a combined cycle gas turbine, which is very true. 

But the issue is, when it comes to waste, there are very few alternatives on how to deal with it. You could put it in the ground or in landfills, but that generates methane, which is significantly worse for the environment. You can export it, which used to be the case in the UK, typically to poorer countries.

The third option is to burn it. People often forget that the electricity generated by energy from waste is a by-product of the main purpose, which is to get rid of the waste, because there is no other alternative. So actually, it is the greenest way to deal with the waste. There is no better way, even though it is not great, because it does emit CO2. 

The final point is the ability to expand the business. When we bought enfinium, there were four sites, and we are now constructing two further facilities at a cost of about £800 million combined. This will add, as of next year [2026], about £100 million of EBITDA to the business. This was our first investment in EDIF III and one of the highest performing so far. 

enfinium is also looking at hydrogen and carbon capture, how is it looking to accelerate those goals?

Hydrogen is still a bit further away; the first thing we are focusing on is carbon capture. When we have all six facilities operational, they will generate three million tonnes of CO2 a year, half of which is biogenic, the other half is non-biogenic. Non-biogenic CO2 includes those from plastics, and that is what adds CO2 to the atmosphere. 

We recognise that the only way to deal with that is carbon capture. We have a project that has been going on since last July [2024], where we are removing about a ton of carbon a day from our Ferrybridge 1 facility, using technology from Hitachi. 

The technology for carbon capture has been around for quite some time. The technology works, but the issue is making it work at scale, and working out who actually pays for it.  

In Europe, the general principle is that the polluter pays. When you deal with the waste, you are not the polluter. enfinium does not pollute, it deals with the waste. We, the consumers, are the polluters. There is a big debate around this. But if you apply the principle of the polluter pays, eventually the consumers, based on what they purchase, are the ones polluting. 

At the end of the chain is the company dealing with the waste, but they are not the ones polluting. Carbon capture works, but when looking at the project on a large scale, there is a question of who pays for it. 

What viable solution do you see for this dilemma?

This is a very politically sensitive issue, but my sense is that in the end it will be paid through things like the council tax because you are the polluter. If you pollute more, it costs more to deal with your waste, and therefore your council tax could increase by, say, £50 for example.