Hafslund Oslo Celsio (Celsio) has today announced that it is moving the carbon capture project at Klemetsrud into a cost-reducing phase. An updated cost estimate shows a significant increase in the cost of equipment supplies due to inflation, geopolitical instability and unfavourable exchange rate developments, which will lead to the project exceeding its investment budget. “Our clear ambition is still to establish carbon capture at the waste incineration plant at Klemetsrud, but we must adjust the way to the goal,” says the company’s CEO Knut Inderhaug.
“We take this very seriously. New calculations show that we cannot implement the carbon capture project according to the original plan within the existing budget. It is therefore necessary to take the CCS project into a cost-reducing phase,” says Inderhaug.
On April 5, Celsio reported to Gassnova that updated cost forecasts made it probable that the project’s costs would exceed the investment limit. To date, the project has used less than ten per cent of the investment budget. Project resources will now conduct a full review of budget and cost reductions, rather than proceeding with the planned equipment orders. A time frame of twelve months has been set aside for this work, and the start-up of carbon capture at the waste incineration plant at Klemetsrud will be correspondingly delayed.
The goal is that after this period, Celsio will have established a project plan with quality-assured cost estimates that make it prudent to initiate equipment orders and further progress the project. Adjusted plans will be discussed on an ongoing basis with the Ministry of Petroleum and Energy (MPE), Gassnova, and Oslo Congress. Celsio’s goal is that the project can be continued without increased investment support.
Celsio will only present updated cost estimates when the project has submitted new quality-assured plans. This is partly due to negotiations with suppliers. Celsio will not take on new commitments and contracts until a new project and investment plan has been approved by the MPE, Gassnova and the City of Oslo.
“We have a clear ambition to establish carbon capture at the Klemetsrud waste incineration plant. Carbon capture as part of responsible waste management is strategically important for the climate, for Norway, for Oslo and for Celsio, Inderhaug adds.
“We maintain a constructive dialogue with the MPE, Gassnova, the City of Oslo and our owners about how we can now realise a feasible and sustainable carbon capture project in the best possible way,” he concludes.
Inflation, increased material costs, energy prices and foreign exchange
Over half of the project’s estimated future cost increases are attributable to announced costs increases from vendors, as well as updated plans. These cost increases are largely due to increased energy and material costs caused by inflation, geopolitical instability and unfavourable exchange rate developments.
In addition, the new calculations show increased future costs in connection with a revised port solution, property costs, access to electric power, as well as reinforcement of the current project organization.
The way forward towards realizing carbon capture
In the weeks ahead, activity in the project will be reduced considerably. The project organisation must first and foremost complete the ongoing groundworks and secure the construction site, as well as continue the work on a new project plan and ongoing application processes.
Celsio will conduct discussions with stakeholders to review positions and processes, and initiate efforts to modify the project to significantly reduce costs. This work is being carried out with a common goal of a feasible and sustainable carbon capture project in Oslo.
Facts of the case:
- Celsio’s carbon capture project started in June 2022. So far, less than 10 per cent of the allocated funds have been spent.
- The estimated cost increases mean that Celsio does not have the funding to complete the project in its current form. Under the support agreement with the state, the parties must negotiate further funding, but neither party is obliged to contribute capital beyond the state’s P85 cost estimate. However, both parties are obliged to stand by the agreement if the other party guarantees further funding.
- The project is now entering a cost-reducing phase with the aim of getting CCS in place to achieve Oslo’s climate goals.
