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- 1. GCCSI Financial ModelCase StudySeptember 03, 2012Presented by© 2012 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 1
- 2. ContentsModel Features • Expected Users • Commercial Relation Model • Model Logic & FeaturesProject Case Study : IGCC + CCS Project • Case Study (Assumption of a fictional project) • Base Case Results (Model Outputs) • Sensitivity Analysis (Model Outputs) • Value & Request 2
- 3. Model Features/Expected UsersThe Model was developed to evaluate CCS Projects at a screening stageThe Expected Users are: • Plant Owners (Utility company etc.) • Project Developers • Investors • Lenders • Policy Makers (Subsidies) • Consultant/Think Tank • EPC Contractor • OEMs This presentation is prepared by MHI as Project Developer/EPC Contractor/OEM of Gasifier, Gas Turbine, Steam Turbine, CO2 Compressor. 3
- 4. Model Features/Commercial Relation Various type of “Government Subsidies” can be simulated Payment to CO2 Transport & Storage Provider is added to Cost of Generation & Capture Plant 4
- 5. Model Features/Model Logic & FeaturesThe model is set up to evaluate an integrated CCS Project including: • Upto three (3) Power Generation and CO2 Capture Projects • A Single CO2 Transport Project • A Single CO2 Storage ProjectThe Model’s worksheets have been structured around four (4) categories as follows: • Inputs : General Assumptions, Price Assumptions, Scenario Manager • Calculations: WACC (Weighted Average Cost of Capital), Timing, Operating Cash Flow, Capex, Depreciation, Transport & Storage Charges, LCOE (Levelised Cost of Electricity), Government Subsidies • Outputs • Financial Statements: P/L Statement, Cashflow Statement, Balance Sheet, Discounted Cashflow Valuation • Summary: LCOE, Commercial Gaps, NPVs, Government Subsidies • Charts: EBITDA, Source & Use of Funds, LCOE constrains, NPV Constituents Commercial Gaps • Others: Cover Sheet, Table of Contents, Information, Project Scheme, Macros etc. 5
- 6. Model Features/Model Logic & Features The Model can run a different scenario of User’s choice using “Scenario Manager” The Model contains Sensitivity inputs for the following categories • Capex • Capex Subsidies • O&M Costs • Fuel Costs • CO2 Cost • CO2 Transportation Costs • CO2 Storage Costs • PPA Revenue • Other Revenue (such as EOR Revenue • Operating Subsidies • WACC (Weighted Average Cost of Capital) The Model can run the following Goal Seeking Macros: • Goal Seeking Transport & Storage Charges (optimization to NPV = Zero) • Goal Seeking Government Capex Subsidies (optimizing to NPV=Zero) • Updating Sensitivities 6
- 7. Case Study : Project Assumption (Base Case)General Assumption CCS Assumption Project Scope: IGCC + CCS CO2 Transport CAPEX, OPEX Commercial Operation starts in 2020 CO2 Storage CAPEX, OPEX Business Model : SPC Scheme Etc. to calculate CO2 Transport & Storage Fee w/ Equity 40%: Debt 60% (Sample of Input Sheet) Revenue: Electricity Tariff @$ 50/MWh No CO2 Revenue GCCSI CCS Model OK Input - General AssumptionsPower Generation & Capture Assumption SHEET CHECK OK 1General Assumptions Unit Gross Generation Capacity: 1017MW Timing Plant Auxiliary Power: 218MW 1.1 Model start date Year 2012 Model periods Years Fuel Consumption : 10.2 GJ/MWh Model end date Year 70 2,082 Fuel Cost: @$2.61/GJ 30-Jun- Valuation date date 11 CO2 Capture: 0.8 CO2- ton/Net MWh Mid-period cashflows assumed CO2 Cost: $30/CO2-ton Emission per Yr Escalation CAPEX: $ 3.0 Billion 1.2 Inflation Rate (CPI) % 2.5% OPEX(Fixed): $ 3.9 Million /Yr Base Year of real revenue inputs Year 2012 OPEX (Variable): $ 6.1/MWh per Year Base Year of real cost inputs Year 2012 Price Escalation - 100.0% Percentage of CPI % Cost Escalation - 100.0% Percentage of CPI % 7
- 8. Base Case Result (Outputs)•LCOE= Levelised Cost of Electricity = NPV of Project Costs/NPV of Total Generation= @$103.6/MWh→ Project is not feasible with Market PPA Tariff (@$50/MWh)• Commercial Gap = “LCOE” - “Levelised Electricity Price” = @$53.6/MWh• Sample of “Built-in” chart for Model Outputs is shown below CAPEX is the largest constituent $53.61/MWh $103.6/MWh Fuel Cost $28.51/MWh is $50.0/MWh relatively low due to low Coal Cost Not Considered $53.6/MWh The Model calculates Transportation Cost ($1.55/MWh)” & Storage Cost ($7.24/MWh) 8
- 9. Sensitivity Analysis (Outputs) 2Sensitivity Summary Unit IGCC LCOE changes 2.4 Base Case $ / MWh 109.63 109.63 Capex (+/- 10%) $ / MWh 5.62 (5.62) O&M costs (+/- 10%) $ / MWh 0.65 (0.65) Fuel costs (+/- 10%) $ / MWh 2.85 (2.85) CO2 costs (+/- 10%) $ / MWh 0.29 (0.29) WACC (high / low) $ / MWh 18.67 (15.91) NPV changes 2.5 Base Case $ 000s (373,203.79) (373,203.79) Capex (+/- 10%) $ 000s (230,049) 230,049 Capex Subsidies (+/- 10%) $ 000s (211,652) 211,652 O&M costs (+/- 10%) $ 000s (36,308) 36,308 Fuel costs (+/- 10%) $ 000s (158,453) 158,453 CO2 costs (+/- 10%) $ 000s (15,984) 15,984 Transport costs (+/-10%) $ 000s (8,624) 8,624 Storage costs (+/-10%) $ 000s (40,088) 40,088 Other revenue (+/-10%) $ 000s ‐ ‐ Operating subsidy (+/-10%) $ 000s ‐ ‐ EOR revenue (+/-10%) $ 000s ‐ ‐ Gov PPA revenue (+/-10%) $ 000s ‐ ‐ Market PPA revenue (+/-10%) $ 000s (277,856) 277,856 9
- 10. WACC Assumption /Calculation • The Model provides “Pre-Financing” Cashfow only. • However, it provides “WACC” ( Weighted Average of Capital Cost) simulation. • The following are the Assumption and Calculation of the Case Study Project. WACC calculation IGCCWACC Inputs Transport Storage Hub IGCC 2.1 Cost of commercial equity Risk free rate 5.00% 10.1 Funding structure Beta - ungeared 0.75 Commercial equity 35.0% 20.0% 25.0% Debt / Equity 150.00% Concessional equity 0.0% 40.0% 15.0% Regearing factor 2.05 Commercial debt 65.0% 20.0% 25.0% Beta - geared 1.54 Concessional debt 0.0% 10.0% 20.0% Market risk premium 6.00% Government debt 0.0% 10.0% 15.0% Alpha 2.00% Check OK OK OK Cost of commercial equity 16.23% 10.2 General valuation parameters 2.2 Commercial debt Risk-free rate 5.00% 5.00% Risk free rate 5.00% Market risk premium 6.00% 6.00% Margin above risk-free rate 3.50% Liability Reserve -Interest Rate 5.0% Swap Margin 0.50% Cost of commercial debt 9.00% 10.3 Commercial equity valuation parameters Beta - ungeared 0.45 1.05 0.75 2.3 WACC Alpha 0.0% 2.0% 2.0% WACC Nominal Post Tax - Calculated 8.80% Sensitivity applied to base case 0.00% 10.4 Concessional equity valuation parameters WACC Nominal Post Tax 8.80% Concessional equity rate (all in rate) 8.0% 10.0% 12.0% Inflation Rate (CPI) 2.50% 10.5 Commercial debt valuation parameters WACC Real Post Tax 6.14% Debt margin above swap 2.0% 3.0% 3.5% Swap Margin 0.5% 0.5% 0.5% WACC Real Pre Tax - Applied 8.78% 10.6 Concessional debt valuation parameters Concessional debt interest rate (all in rate) 6.0% 6.0% 6.0% IRR of the Project is 8.80%p.a. 10.7 Government debt valuation parameters (after Government Capital Cost Subsidy Macoro runs) Government debt interest rate (all in rate) 5.0% 5.0% 5.0% © 2012 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 10
- 11. “Value” and “Request” • The Model is easy to operate and to simulate not only variation of essential “Project Values” (CAPEX, OPEX, Revenue, Schedule, Plant Performance etc.) but also various form of “Government Subsidies” (Feed-in-Tariff, Capital Cost Subsidies, Operating Cost Subsidies and Tax Credit). This is a unique value of GCCSI Financial Model. • The Model is also useful to understand and evaluate the relation between “Power Generation” and “CCS” in one cashflow model. Request for Further Improvement 1.“Built-in Scenario of EOR (Enhanced Oil Recovery)” The current model has EOR Revenue Selection Input but requires manual adjustment for CCS related cost inputs. It would be ideal if the Model has a built-in function of “CCS: EOR Ratio” (i.e.100%= No CCS but all the captured CO2 goes to EOR) 2. “Funding Cashflows” The current Model is set for “Pre-Financing Cashflow” only. The built-in Option for cashflow with various inputs of Debt terms (interest rate, repayment period), Debt amortization and Equity distribution. Then, adding “ROE=Return of Equity” in Outputs and Sensitivity sheets will be very much appreciated, especially, by Investors. 11
- 12. © 2012 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved.© 2012 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 12
- 13. Hand-out Material for Panel Discussion© 2012 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 13
- 14. Feed-in-Tariff for Clean Coal Power Generation (1 of 2)• In many countries, the Feed-in-Tariff (FIT) has been adopted as an incentive for constructing Renewable Energy Plant• If the main purpose of FIT is to reduce CO2 Emission, Why not “FIT for Clean Coal Power Generation” ?• In the Country X where the majority of Power is generated from Coal, “FIT for Renewable” is established as follows: Technology Power Tariff CO2 Emission Capacity (A) Annual (B) Annual (C) Incentive Rate Utilization Reduction of Total per CO2 (CO2ton/MWh) Factor CO2 by 1000MW Incentive Reduction Capacity Plant ($/Year) per Year (CO2 ton/Year) ($/Ton) Conventional @$55.30/MWh 0.99 90% Base Base Base Coal Power (Market Tariff) (Base) Generation Renewable @$84.60/MWh zero 24% (2,081,376) 61.6 M$ $29.6/ton (Wind) (FIT) Renewable @$192.80/MWh zero 18% (1,561,032) 216.8 M$ $138.9/ton (Solar-PV) (FIT) Renewable @$258.20/MWh zero 23% (1,994,652) 408.8 M$ $204.9/ton (Solar-CSP) (FIT) (A) = CO2 Emission Rate x 1000MW x 24h x 365day x Capacity Utilization Factor (B) = (FIT – Market Tariff) x 1000MW x 24h x 365day x Capacity Utilization Factor (C) = (B) / (A) © 2012 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 14
- 15. Feed-in-Tariff for Clean Coal Power Generation (2 of 2)The same calculation for IGCC+CCS (90%) shows as follows: Technology Power Tariff CO2 Emission Capacity (A) Annual (B) Annual (C) Incentive per Rate Utilization Reduction of Total Annual CO2 (CO2ton/MWh) Factor CO2 by Incentive for Reduction for 1000MW Plant 1000MW 1000MW Plant (CO2 ton/Year) Plant ($/Year) ($/Ton) Conventional @$55.30/MWh 0.99 90% Base Base Base Coal Power (Market Tariff) (Base) Generation IGCC + CCS X 0.089 90% (7,103,484) Y Z Power PlantWith LCOE of “IGCC+90%CCS” = @$116.0/MWh by GCCSI Financial Model, X～Z can be evaluated as follows: Technology X: Power Tariff Y: Annual Total Incentive for Z: Incentive per Annual CO2 1000MW Plant ($/Year) Reduction for 1000MW Plant ($/Ton) Conventional Coal Power @$55.30/MWh Base Base Generation (Market Tariff) IGCC + CCS @$116.0/MWh 478.6 M$/Yr $67.4/Ton/Yr Power Plant If “Wind” FIT is applied @$84.60/MWh 61.6 M$ $29.6/ton If “Solar-PV” FIT is applied @$192.80/MWh 216.8 M$ $138.9/ton If “Solar-CSP” FIT is applied @$258.20/MWh 408.8 M$ $204.9/ton Conclusion: In Country X, 1. FIT for “IGCC+CCS” is a valid option for “CO2 Reduction” Incentive. 2. FIT for IGCC + CCS should be higher than “Wind” but lower than “Solar” © 2012 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 15

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