The business case for CCS in the power industry: a case study of the Don Valley power project Webinar – 22 July 2013, 1830 AEST
Webinar: The business case for CCS in the power industry: a case study of the Don Valley power project
Nov 12, 2014
Developing the CCS power industry sustainably requires projects to deliver a suitable return on investment, in order to accommodate the risks inherent in the technology. But, the cost of CCS facilities is not yet covered by electricity sales revenue at current wholesale power prices anywhere in the world, nor is it covered by the ability to earn income from avoiding or reducing CO2 emissions. Building a business case for CCS power is therefore a major challenge.
The Global CCS Institute webinar that was held on Monday 22nd July was presented by 2Co Energy, sharing the real-life CCS business case for its CCS project in the UK, the Don Valley Power Project (DVPP). By sharing this information, 2Co Energy, which is known for its belief in the contribution CO2 Enhanced Oil Recovery (EOR) can make to enhancing the economics of CCS, will present practical information that can be of use to other CCS practitioners as they develop their own business cases for CCS around the world.
The webinar covered the following topics:
A brief overview of 2Co and its CCS project in the UK, DVPP
A brief summary of existing business case studies made by other Members of the Institute, highlighting what was considered most important by them
The market and regulatory context for CCS faced by DVPP and other projects in the UK
The financing challenge that 2Co faces and the resulting financing strategy
The resulting business plan, including revenue and cost profiles, sensitivities and prospects for future cost reduction
Key risks to the project and mitigation plans.
The webinar will be of interest to CCS business developers, commercial professionals, policy makers, and regulators with an interest in enabling a CCS power industry.
The Global CCS Institute webinar that was held on Monday 22nd July was presented by 2Co Energy, sharing the real-life CCS business case for its CCS project in the UK, the Don Valley Power Project (DVPP). By sharing this information, 2Co Energy, which is known for its belief in the contribution CO2 Enhanced Oil Recovery (EOR) can make to enhancing the economics of CCS, will present practical information that can be of use to other CCS practitioners as they develop their own business cases for CCS around the world.
The webinar covered the following topics:
A brief overview of 2Co and its CCS project in the UK, DVPP
A brief summary of existing business case studies made by other Members of the Institute, highlighting what was considered most important by them
The market and regulatory context for CCS faced by DVPP and other projects in the UK
The financing challenge that 2Co faces and the resulting financing strategy
The resulting business plan, including revenue and cost profiles, sensitivities and prospects for future cost reduction
Key risks to the project and mitigation plans.
The webinar will be of interest to CCS business developers, commercial professionals, policy makers, and regulators with an interest in enabling a CCS power industry.
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
The business case for CCS in the power industry: a case study of the Don Valley power project
Webinar – 22 July 2013, 1830 AEST
David Mirkin
David Mirkin is 2Co Energy’s Business Development director, joining the company in 2010. He is responsible for developing 2Co’s business opportunities, around the North Sea and internationally. As part of the Don Valley Power Project team, David’s responsibilities cover building the business case, financing, negotiations with partners and governments, and economic analysis.
From 2007 to 2010 David worked as a CCS business developer for BP Hydrogen Power and for BP's Hydrogen Energy joint venture with Rio Tinto. During that time he supported a number of business opportunities in Europe, North America, the Middle East and Australia, and supported the development of major projects in Abu Dhabi and California, while building expertise in the commercial and financial aspects of the CCS business.
Originally from New Zealand, David moved to the UK after completing a degree in politics and economics at Victoria University in Wellington in 2002.’
Business Development Director, 2Co Energy
QUESTIONS
We will collect questions during the presentation.
Your MC will pose these questions to the presenter after the presentation.
Please submit your questions directly into the GoToWebinar control panel.
The webinar will start shortly.
Making the business case for CCS
David Mirkin, Global CCS Institute Webinar, 22 July 2013
2Co Background and Expertise
• 1000 miles of pipelines, moving 20mtpa of CO2 for enhanced oil recovery
• A BP-Rio Tinto joint venture, developed three advanced CCS projects – Peterhead, Abu Dhabi and California
• One of the world’s largest private equity firms with almost $50bn invested
the reverse effect
Gareth Roberts, 2Co Chairman, was Denbury founder and former CEO
Lewis Gillies, 2Co CEO, was Hydrogen Energy founder and former CEO
5
the reverse effect
2Co’s DVPP project
6
the reverse effect
Who has published CCS business cases before?
Tenaska - TrailblazerAEP - Mountaineer
Transalta – Pioneer
ROAD
Rotterdam Climate Initiative
Global CCS Institute project survey
All at globalccsinstitute.com/publications
7
the reverse effect
What was considered important to the business case?
Regulated returns
Viable storage solutions
Large, credible suppliers
Long term supply, offtake agreements
Tax incentives
Project clustering
Premium power price
Government-backed lending
CO2 emission price
EOR revenue
Capital grant
0 1 2 3 4 5 6
8
Source: The five business cases published for the Institute by the projects, and the Institute’s global survey. Full details in the 2Co report.
the reverse effect
DVPP market context:UK attractive for CCS
UK attractive location for CCS deployment• UK government policy to decarbonise• Government plan to introduce power
premium for CCS• Capital grants• Many storage opportunities, including EOR
But• Several projects competing for government
support• Storage potentially challenged by cost,
regulation• Exact nature of government support unclear
DVPP not successful in DECC competition for capital grant
9
the reverse effect
DVPP market context:Feed in Tariff (FiT) Contract for Difference (CfD) will theoretically provide sufficient power premium
£/M
Wh
time
FiT CfD
Wholesale price Generator receives money f rom CfD counterpart when wholesale price is < CfD strike price
Source: EMR Consultation Document
Generator pays money back to CfD counterpart when wholesale price is > CfD strike price
10
the reverse effect
DVPP market context:EOR in North Sea could also contribute
CO2 EOR considered in North Sea since 1979, numerous studies conducted since, all indicating the technology is technically attractive;
Numerous sandstone reservoirs have been successfully developed for CO2 EOR in North America;
Miscible gas EOR has been successfully deployed at scale in the North Sea (Magnus);
CO2 storage has been successfully deployed at scale in the North Sea (Sleipner);
BP, Shell, ConocoPhillips developed Miller field to point of FID in 2006, lack of availability of CO2 being the only reason the project didn’t proceed.
Successful development of CO2 EOR offshore is a question of cost and CO2 availability, not of technology.
11
the reverse effect
DVPP funding requirement:Significant funding challenge
Approximately £5bn capex required across the DVPP value chain
12
Estimated total project costs Estimated power plant cost breakdown
Component Share (%) Component Share (%)
Power plant 68% CCS 59%
Transport (2Co share) 0% Non-CCS 26%
Storage 26% Other 7%
Sub-total 94% Sub-total 91%
Financing costs* 6% Financing costs* 9%
Total 100% Total 100%
* Financing costs comprise fees and interest accrued during construction
the reverse effect
DVPP funding requirement:The potential of different sources
13
Equity Debt Grants
• Risk capital
• Several potential sources depending on the project phase
• High required return
• Potentially low cost
• Potentially large scale
• Unwilling to take risk
• Fees
• Reduce equity and debt requirement directly
• Several were available
• EEPR• NER300• UK government
• DVPP only received EEPR
the reverse effect
DVPP funding requirement:Proposed funding allocation
14
Potential sources of funding for DVPP Potential sources of debt
funding
Share (%) Share (%)
Grants 26% Multilateral Financial
Institutions24%
Equity 14% Export Credit Agencies 58%
Debt 60% Commercial 18%
Total 100% Total 100%
the reverse effect
DVPP business plan:EOR would enable zero cost storage
15
Power Plant
Capture StorageTransport
2Co’s storage costs do not pass back to the plant, as they will be covered by EOR revenues
Costs from transport
the reverse effect
DVPP business plan:Production profile
16
In mature operations, 650MW net of power capacity available, 4.9 million tonnes per year (Mtpa) of CO2 generated, 90%+ carbon capture
the reverse effect
DVPP business plan:Operating cost split (steady-state)
17
Coal Purchases25%
Gas11%
Other Variable Costs
1%ASU19%
EU ETS al-lowances
7%
CCS variable costs18%
O&M18%
the reverse effect
DVPP business plan:Revenue profile
18
Wholesale power price component
CfD Component
the reverse effect
DVPP business plan:Forecast Cashflow
19
the reverse effect
DVPP business plan:Impact of sensitivities on required power premium (£/MWh)
20
Efficiency -5%
Fixed Opex +10%
Gas +/-10%
Coal +/-10%
CO2 Transport cost +20%
Debt Margins +/-1%
Startup delay +12 mths
Availability +10%/-5%
Capex +/-10%
Capex +/-30%
the reverse effect
DVPP business plan:Driving down cost of future CCS projects
21
• 2Co estimated that a successful project could reduce the cost of the next project by £30-£60/MWh.
• A reduction in the cost of technology would be only a small fraction of the benefit.
the reverse effect
DVPP business plan:Management of risks crucial
22
% Impact on IRR
Diffi
culty
of M
itiga
tion
Colour Size
Capture Low likelihoodTransport
Storage High likelihoodWhole Chain
Gas Prices
Interest & Inflation
Forex
Regulation
Transport Terms
Opex Coal Prices
Competitive Funding
Decommissioning Risks
Contractor Experience
EOR Tax regime
Plant Performance Plant
Commissioning CapexOil Prices
CO2 Leakage
the reverse effect
Does DVPP contain the elements of project success?
23
Element of success DVPP?
Capital Grant X No UK capital grant
EOR revenue ✔
CO2 emission price ✔ EU ETS, UK Carbon Price Floor
Government-backed lending ✔ MFI lending
Premium power price ✔ FiT CfD
Project clustering ✔ White Rose, Yorkshire Cluter
Tax incentives ?
Long term supply, offtake agreements ✔
Large, credible suppliers ✔ Major partners in project
Viable storage solutions ✔ Well understood EOR
Regulated returns ✔ FiT CfD
the reverse effect
Conclusion
the reverse effect24
• Capital grant considered important by all other business case publications, DVPP challenged without UK capital grant
• Need to re-address size of capex, its sources, and the revenue profile
• Cash from EOR and power premium available mean prospects for success remain in longer term
• Work to complete technical definition and certain commercial terms will reduce risks until circumstances are right for project to proceed.
www.2coenergy.com
The Don Valley CCS Project is co-financed by the European Union’s European Energy Programme for Recovery. The sole responsibility for this publication lies with the authors. The European Union is not responsible for any use that may be made of the information contained therein.
QUESTIONS / DISCUSSION
Please submit your questions in English directly into the GoToWebinar control panel.
The webinar will start shortly.
Related Documents
