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As DAC Scales, Margins Will Depend on High Utilization


By Nick Jones  |  June 18, 2024

Last month, Climeworks announced that Mammoth, their newest Direct Air Capture (DAC) facility, began removing CO2 from the atmosphere. With its full nameplate capacity of 36,000 mt/y expected online by the end of this year, Mammoth will be 9X the size of the previously largest operational plant, Climeworks’ Orca. Still, today’s largest DAC facilities pale in comparison to the megaton (1 million tonnes) scale that DAC developers hope to achieve this decade or the gigaton (1 billion tonnes) per year global capacity the IEA models as necessary for reaching net zero by 2050. Reaching these goals will not only depend on the development of voluntary carbon direct removal (CDR) credit markets, but also the performance of DAC technology at larger scales. However, the rapid scaling of these new technologies exposes early DAC projects and their developers to significant technology risk.

Most DAC technologies have so far been tested only at small pilot plants. For instance, Occidental Petroleum’s half-megaton facility under construction in West Texas will be more than 1,300X the size of the pilot plant that is currently the largest demonstration of their proprietary technology. Occidental and project partner BlackRock are staking $1.3B on this technology scaling successfully and paving the way for future projects. Presumably dependent on the results of this initial project, Occidental anticipates a second project will merit investment at a competitive IRR.

The technology risk facing projects like these can be illustrated by recent data from Orca, Climeworks’ first commercial DAC plant mentioned above. A variety of technical issues have kept the plant from operating at full capacity, including faster-than-expected equipment wear, variability in the quality of process chemicals, and impurities in the CO2 stream. As a result of these and other factors, utilization averaged just 21% of nameplate capacity during the plant’s first two years of operation. Due to the accounting of lifecycle emissions, the actual production of marketable CDR credits was even lower, just 18% of nameplate capacity.


Despite these results, performance has improved over time. Climeworks claims that future plants will incorporate lessons learned at Orca, which will further improve performance; nonetheless, the production of CDR credits at this plant is now not expected to exceed 63% of nameplate capacity. If other early projects run at similar utilization rates, developers could face significant losses and potentially struggle to gain investor support for subsequent projects.


Owing to their capital intensity, DAC plants will have to maintain moderate-to-high utilization rates to be profitable. BTU Analytics created a proprietary financial model for generic reference plants in the first generation of DAC deployment, using a combination of assumptions and published technoeconomic data from a leading DAC technology supplier. The chart above shows the modeled levelized cost of net capture for two potential projects, a half-megaton facility at a modeled capital cost of $1.3B and a megaton facility modeled to cost $2.1B. Potential revenue per tonne is overlaid in yellow, with the lower case reflecting a $400 CDR price plus 45Q U.S. federal tax rebates and the higher case reflecting a $630 CDR price plus 45Q rebates. For a half-megaton capacity plant, BTU Analytics models that a breakeven utilization rate would fall between 5075%, depending on CDR prices. A larger megaton capacity plant could reduce costs through returns to scale and, therefore, break even in a 4060% utilization range. In both cases, unit costs are dramatically higher at lower utilizations, which could contribute to significant losses if a facility fails to meet breakeven thresholds. For instance, if utilization of the modeled half-megaton plant were to mimic the start-up of Climeworks’ Orca plant, the project would see a negative cashflow of $157MM and a net loss of $287MM over the first two years of operations.

Of course, it should be considered that first-of-a-kind projects are frequently not profitable in themselves, though developers would hope for a positive precedent that demonstrates the viability of future projects. Even if scale or technology improvements can reduce unit costs, DAC developers will still have to demonstrate that second generation projects can feasibly operate at a high utilization rate in order to deliver strong returns.


As shown above, a future megaton-scale plant could pass a 15% pre-tax IRR hurdle, even in a low-price environment, at 75% utilization. However, given DAC’s exposure to both technology and market risks, early investment may be evaluated with a higher target IRR, likely above 20%. Generating an IRR above 20% would require operating at greater-than-90% utilization in a low-price environment and 65% utilization in a more favorable environment.

Future DAC plants will hopefully improve upon the performance of these first-of-a-kind plants. However, the first several generations will continue to face a range of technical challenges as they approach larger scales and new geographies while continuing to experiment with core technology. Even with technological maturity, utilization at DAC facilities could be risked by other elements, such as adverse weather and fluctuating energy costs. While the results from a single early project may not be predictive for future projects, Orca’s performance to-date does suggest that technoeconomic models premised on 90% utilization could understate the challenges ahead.

BTU Analytics’ global Carbon Capture Database is currently tracking more than 50 Direct Air Capture and Direct Ocean Capture projects. For more information on this and other Energy Transition data offerings, be sure to check out our suite of Energy Transition coverage available in the Premium Energy Workstation.


This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.


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Nick Jones

Energy Analyst

Mr. Nick Jones is an Energy Analyst for BTU Analytics, a FactSet Company. In this role, he researches developments and forecasts production in the Rocky Mountain region. Mr. Jones earned his bachelor’s in economics from the University of Michigan.


The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.