Capital Power Corporation just held their Q1 2024 earnings call, and while analysts focused on the usual suspects – cost overruns at Genesee, the evolving Alberta regulatory landscape, and the company's growing U.S. footprint – something else in the transcript sent a shiver down my spine. It's a subtle detail, a whisper in the background noise, but one that could signal a hidden billion-dollar play.

Remember the Genesee Carbon Capture and Sequestration (CCS) project? Capital Power officially pulled the plug, citing unfavorable economics. But what if that's not the whole story? What if they're quietly preparing to resurrect this behemoth under a new, more lucrative guise?

Here's the clue: Avik Dey, Capital Power's CEO, made a seemingly innocuous statement about CCS. He said, "A lot of the learnings here are applicable to CCS anywhere, so we will continue to evaluate potential CCS projects." Innocuous, right? Wrong.

Consider this: they've already sunk significant capital into Genesee CCS, developing a deep understanding of the technology and building relationships with key players. This knowledge doesn't simply vanish. It's an asset, one they can leverage elsewhere.

Now, pair this with their recent acquisition spree in the U.S., specifically in California. The state is aggressively pursuing decarbonization, offering substantial incentives for CCS projects. Could Capital Power be eyeing one of their newly acquired California plants for a CCS retrofit?

California's Lucrative CCS Incentives

California's Low Carbon Fuel Standard (LCFS) program and federal tax credits under the Inflation Reduction Act could make a CCS project economically viable.

Let's look at the numbers. The abandoned Genesee CCS project had a price tag of $2.4 billion. Assuming they can apply their existing knowledge and relationships to shave 25% off the cost, that brings us down to $1.8 billion. California's Low Carbon Fuel Standard (LCFS) program, which incentivizes carbon reduction, could provide hundreds of millions in credits annually. Couple that with federal tax credits under the Inflation Reduction Act, and suddenly, a billion-dollar project starts looking very palatable.

Furthermore, Capital Power's existing U.S. footprint provides a launchpad for expansion. They've already established a strong presence in the WECC region, demonstrating their ability to navigate complex regulatory environments and secure financing for large-scale projects.

Here's the kicker: a CCS retrofit in California would be a game-changer, not just for Capital Power but for the entire industry. It would demonstrate the viability of decarbonizing existing gas-fired generation, paving the way for widespread adoption.

This is more than just a hunch. It's a hypothesis supported by emerging market trends and Capital Power's own strategic positioning. The company is clearly bullish on natural gas's long-term role in a decarbonized grid. CCS is the key to unlocking that future, and California is the ideal proving ground.

Of course, Capital Power is playing their cards close to the chest. They're not about to reveal their hand before they're ready. But keep your eyes peeled. The next billion-dollar play in the energy transition might be brewing right under our noses.

"Fun Fact: The Inflation Reduction Act includes a tax credit of up to $85 per ton of carbon captured and stored, making CCS projects significantly more attractive for companies like Capital Power."