Making the businesscase for CCSDavid Mirkin, GCC CCS Strategy Workshop,13 May 2013
2Co Background and Expertise• 1000 miles of pipelines,moving 20mtpa of CO2 forenhanced oil recovery• A BP-Rio Tinto jointventure, developed threeadvanced CCS projects –Peterhead, Abu Dhabi andCalifornia• One of the world’s largestprivate equity firms withalmost $50bn investedthe reverse effectGareth Roberts, 2CoChairman, was Denburyfounder and former CEOLewis Gillies, 2Co CEO,was Hydrogen Energyfounder and former CEO2
the reverse effectWho has published CCS business cases before?Tenaska - TrailblazerAEP - MountaineerTransalta – PioneerROADRotterdam Climate InitiativeGlobal CCS Institute project surveyAll at globalccsinstitute.com/publications4
the reverse effectWhat was considered important to the business case?0 1 2 3 4 5 6Regulated returnsViable storage solutionsLarge, credible suppliersLong term supply, offtake agreementsTax incentivesProject clusteringPremium power priceGovernment-backed lendingCO2 emission priceEOR revenueCapital grant5
the reverse effectDVPP market context:UK attractive for CCSUK attractive location for CCS deployment• UK government policy to decarbonise• Government plan to introduce powerpremium for CCS• Capital grants• Many storage opportunities, including EORBut• Several projects competing for governmentsupport• Storage potentially challenged bycost, regulation• Exact nature of government support unclearDVPP not successful in DECC competition forcapital grant6
the reverse effectDVPP market context:CfD will theoretically provide sufficient power premium£/MWhtimeFiT CfDWholesale price Generator receivesmoney from CfDcounterpart whenwholesale price is < CfDstrike priceSource: EMR Consultation DocumentGenerator pays moneyback to CfD counterpartwhen wholesale price is> CfD strike price7
the reverse effectDVPP market context:EOR in North Sea could also contribute CO2 EOR considered in North Sea since 1979, numerous studiesconducted since, all indicating the technology is technically attractive; Numerous sandstone reservoirs have been successfully developed forCO2 EOR in North America; Miscible gas EOR has been successfully deployed at scale in the NorthSea (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’tproceed.Successful development of CO2 EOR offshore is a question of cost and CO2availability, not of technology.8
the reverse effectDVPP funding requirement:Significant funding challengeApproximately £5bn capex required across the DVPP value chain9Estimated total project costs(excluding financing fees)Estimated power plant costbreakdownComponent 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 effectDVPP funding requirement:The potential of different sources10Equity Debt Grants• Risk capital• Several potentialsources depending onthe project phase• High required return• Potentially low cost• Potentially large scale• Unwilling to take risk• Fees• Reduce equity anddebt requirementdirectly• Several wereavailable• EEPR• NER300• UK government• DVPP only receivedEEPR
the reverse effectDVPP funding requirement:Proposed funding allocation11Potential sources of fundingfor DVPPPotential sources of debtfundingShare (%) Share (%)Grants 26% MFI 24%Equity 14% ECA 58%Debt 60% Commercial 18%Total 100% Total 100%
the reverse effectDVPP business plan:EOR would enable zero cost storage12Power PlantCapture StorageTransport2Co’s storage costs do not pass back to the plant, asthey will be covered by EORCosts from transport
the reverse effectDVPP business plan:Production profile13In mature operations, 650MW net of power, 4.9mtpa CO2, 90%+ carbon capture
the reverse effectDVPP business plan:Operating cost split (steady-state)14CO2 tax = EU ETS allowance purchases
the reverse effectDVPP business plan:Revenue profile15
the reverse effectDVPP business plan:Forecast Cashflow16
the reverse effectDVPP business plan:Impact of key sensitivities on required power premium17
the reverse effectDVPP business plan:Driving down cost of future CCS projects18• 2Co estimated that a successful project could reduce the cost of the next projectby £30-£60/MWh.• A reduction in the cost of technology would be only a small fraction of the benefit.
the reverse effectDVPP business plan:Management of risks crucial19
the reverse effectConclusionthe reverse effect20• Capital grant considered important byall other business casepublications, DVPP challengedwithout UK capital grant• Need to re-address size of capex, itssources, and the revenue profile• Cash from EOR and power premiumavailable mean prospects for successremain in longer term• Work to complete technical definitionand certain commercial terms willreduce risks until circumstances areright for project tp proceed.
www.2coenergy.comThe Don Valley CCS Project is co-financed by the European Union’sEuropean Energy Programme for Recovery. The sole responsibility for thispublication lies with the authors. The European Union is not responsible forany use that may be made of the information contained therein.