Jeffrey Brown – Summit Power Group – Texas Clean Energy Project: coal feedstock poly-generation plant with CCUS


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Jeffrey Brown, Vice-President, Project Finance, Summit Power Group, presented on the Texas Clean Energy Project’s coal feedstock poly-generation plant with CCUS at the Global CCS Institute's Japanese Members' Meeting held in Tokyo on 8 June 2012

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Jeffrey Brown – Summit Power Group – Texas Clean Energy Project: coal feedstock poly-generation plant with CCUS

  1. 1. Texas Clean Energy Project:Coal Feedstock Poly-generation Plantwith CCUSPresentation To:Japan Meeting, Global CCS InstituteJune 8, 2012
  2. 2. DisclaimerThis presentation contains confidential information, the use and disclosure of which is governed by anondisclosure agreement between Summit Power Group, LLC (“Summit”) and the recipient. No other useor distribution is permitted.This presentation is not intended to form the basis of any investment decision and does not contain anyrecommendation by Summit, or any of its shareholders, subsidiaries, directors, employees, agents, oradvisors (“Summit Parties”). This presentation does not constitute an offer to sell or a solicitation of anoffer to buy any securities in the United States or any other jurisdiction.Although the information contained in this presentation is believed to be accurate as of the datepresented, Summit and the Summit Parties make no representations or warranties (express or implied)regarding its contents.Some information contained in this presentation is based on forecasts and projections that may changeor prove to be incomplete or inaccurate. Summit and the Summit Parties do not undertake any obligationto provide the recipient with additional information, to update this presentation, or to correct anyinaccuracies that may become apparent.Nothing in this presentation should be considered to be legal, tax, or investment advice. Recipientsconsidering any involvement with TCEP should consult their own professional advisors prior to makingany business decisions relating to the project. 2
  3. 3. Introductions:Summit Power Group, LLCFounded twenty-one years ago by former U.S. Secretary of Energy Donald Paul Hodel &Chief Operating Officer of Department of Energy Earl GjeldeSummit’s Traditional Business is Power Project Development• Developed over 7,000 MW of large, clean energy projects• Over 1,000 MW in development or under constructionSummit’s Principal Business Lines/Live Projects Previous SPG Power Projects• Wind power—Cedar Creek 120MW, Fire Island 20MW• Solar power—NorthStar Solar 90MW PV• Natural Gas-fired Power Plants--Encino• Carbon Capture including from Coal Gasification—TCEP 400MWWe don’t have a particular technology favorite or bias. But we sure don’t pick permitting fights!These remarks are my personal views and are not Summit Power’s positions. 3
  4. 4. Main Points •Conventional pulverized coal plants are dead or dying in U.S. Cheap, but an environmental nightmare •Conventional IGCC does not feature carbon capture, though it is clean as to conventional pollutants •Gasification of the type typically used in chemical plants (with a shift reactor and Rectisol or Selexol system) can create a high-hydrogen feedstock for either power or chemicals, plus a pure CO2 stream •If the pure CO2 stream can be used for Enhanced Oil Recovery: • The space created by removing oil is perfect for permanent storage of CO2 • The highly profitable extraction of oil makes the CO2 valuable, creating a non-mandated commercial CO2 market • Proven, technically and commercially, with 40+ years of experience in West Texas •Our project is getting a variety of government incentives, tax and cash, upfront and ongoing. Some of these work better than others 4
  5. 5. By Any Measure TCEP will Save a Lot of CO2 Emissions TCEP CO2 Emissions vs. (i) Gas-based Power and Urea Plants Making Same Output or (ii) Conventional Coal Power Plant Using Same Inputs Case Examined Annual short tons of CO2 emitted TCEP annual CO2 emissions (no coal is 300,000 tons burned; it is turned into clean gases and almost all the CO2 is captured) Power and Fertilizer, same product quantities 1,200,000 tons—4x TECP as TCEP, made with natural gas Conventional coal plant, burning same 3,600,000 tons—12x TCEP amount of coal feedstock as TCEP 5
  6. 6. Emissions for Alternative Plants Making Same ProductTCEP’s annual CO2 emissions are about 300,000 tons. So having TCEP running saves about900,000 tons of CO2 emissions per year. Actual capture and sequestration is 2.5 mm tpy. Product Process TCEP Annual Industry Industry Output to the Alternative CO2 Alternative Grid Emissions per Annual unit output Emissions tons CO2 Power Combined Cycle 1.5 x 106 MWh 1,100 lbs / 0.55 825,000 tons Gas Turbine ton* Granular H2->NH3, CO2 400,000 tpy 1 ton CO2 per 400,000 tons Urea added to get Urea NH3-> 700,000 ton** NH3 used tpy Urea in urea 1,225,000 tons *NREL—includes direct emissions at plant and fugitive wellhead and pipeline methane (converted to GWP) **Natural Resources Canada—average for seven Canadian ammonia/urea plants 6
  7. 7. Pulverized Coal Plants and IGCC without CCS are Dead in U.S. 7
  8. 8. The Physical Volume of CO2 Created by Pulverized Coal(“PC”) Plants is Staggering100 Watt Light 876 kWh 950 pounds 1 ton CO2 Bulb coal (bituminous coal or about ½ (i.e. about 1 like PRB) million liters—Running for 1 MWh) around 225 year scuba tanks worth 8
  9. 9. Old PC Plants are Really Big Sources of CO2 andConventional Air PollutantsOne1970s era PC plant (~1,000 MW) running one year@ 90% base load: • Burns 10 million tons coal a year • Emits annually: • 120,000 tons sulfur dioxide • 22 million tons CO2 • 4,000 pounds mercury= ½ million toxic doses 9
  10. 10. Why “Cleaning” Conventional Coal so Hard Massive flow of exhaust gases (~10,000 tph in 1,000MW plant)130 foot highwall of flame with some metal tubes around it. Diagram: Tennessee Valley Authority 10
  11. 11. Another Picture of a Conventional Coal Boiler There have been many proposals for doing “post- combustion capture” at new-build (Trailblazer, USA) or retro-fit (Longannet, UK) pulverized coal plants. No one yet has overcome (at scale*) the fundamental challenge of sweeping a small amount of CO2 out of a giant hot gas flow. That is, fast- moving flue gas is mostly comprised of N2 (i.e., 3 tons a second of hot gas that is only 1/8th comprised of CO2). ~130 feet*For example, the Aker CleanCarbon amine capture system thatwas supposed to be used at Longannet retro-fit is just now beingtested at a capture rate of 80k tpy. It would have needed to workat rate of ~3mm tpy (about 40 x bigger) to be full-scale. 11
  12. 12. Old Style IGCC is Probably Also Dead • “Old Style” IGCC made no attempt to capture CO2. • Basically most of the carbon molecules contained in the original coal input end up as carbon monoxide in the raw syngas that ultimately feeds the power turbine. As example, raw syngas from one common technology is 34% H2, 45% CO, 16% CO2)* • Hence, old style IGCC’s CO2 emissions profile is not much different than the best pulverized coal plants. Some existing old style IGCC plants are now attempting to retrofit (see box below). “Pilot with CO2 capture -- Nuon has started a pilot at the Willem Alexander power plant in Buggenum to capture CO2. Because the Willem-Alexander Power Plant uses gasification technology, it is the ideal location to test pre-combustion CO2 capture. Coal gasification enables CO2 to be captured before the combustion process. This enables a better environmental performance, meaning coal can be used in a cleaner and more efficient way.”*Source: SAIC, NETL paper on IGCC citing example of Conoco Phillips gasifier. Remaining components 2% methane, 3% nitrogen. 12
  13. 13. Tightening U.S. Federal Regulation and State LawsPressure Old and New Coal Plants• New Years 2011 USEPA added CO2 as regulated pollutant for future air permits, with recent April 12, 2012 proposed limit of 1,000 lbs CO2/MWh.• July 2011 Cross-State Air Pollution Rule—applies to states east of Dakotas/New Mexico; basically creates limits and allowance trading markets for: • NOX • SOX • Small Particulates (PM10)• December 2011 Mercury and Air Toxics Standards (MATS)/National Emission Standards for Hazardous Air Pollutants—existing and future plants• States (for instance California and Oregon) passed laws limiting new thermal plant to 1,100 pounds/ MWh—far better than pulverized coal or conventional IGCC capabilities. 13
  14. 14. Coal Gasification w/ CCUS will Thrive 14
  15. 15. Coal Gasification with CCUS Will Succeed •Gasify. Clean small, pressurized gas volume. Then burn. •Five standardized “modules”. Rare in U.S., but basis of much of China’s chemical industry. •TCEP’s big difference is the last step—selling the CO2 to users who will permanently sequester •Use every single chemical constituent of coal to make money •As consequence, emit negligible air pollution •As a consequence, can get permitted without fatal opposition 15
  16. 16. What is Coal Gasification with CCUS?PC: Grind-> Break -> Burn -> CleanGasification: Grind-> Break -> Clean ->BurnPulverized Coal Gasification w/ CCUSGrind coal Grind Coal Break carbon bonds by adding heat—Break carbon bonds by adding heat, but only a bit of oxygen, so can’t burn& completely. (Gasifier and CO Shift)Burn simultaneously, adding Clean the dirty gas (which isatmospheric air in four story high pressurized in a small pipe)—easy tofireball in a box. grab CO2 and H2SClean: Then try to grab sulfur, ash, Then burn the clean gas (mostly H2 &SOx and NOx out of the massive little CO in ~20:1 ratio) in avolume flowing through stacks. combustion turbine 16
  17. 17. Air Pollutants: Gasification vs. “Incinerate and Clean Up Later” 2007 Permitted 2010 Permitted Pulverized Coal TCEP TCEP / (1,720 MW) (400 MW) Pulverized CoalSO2 (lb/MWh) 2.01 0.14 7%NOx (lb/MWh) 0.84 0.13 16%PM10 (lb/MWh) 0.42 0.22 52%Hg (millionths of 96 7 7%lb/MWh)CO2 (lb/MWh) 2,203 228 10% 17
  18. 18. Currently Operating Installation of Five SFG-500Gasifiers at Shenhua Plant, Ningxia, China 18
  19. 19. Newer Gasification Plants Have Five Typical MajorSubcomponents, and We Add One New Revenue1. Air Separation Unit (need pure oxygen for controlled gasification)—typical providers Linde, AirLiquide, Airproducts, etc.2. Gasifiers to gasify coal or pet coke—typical providers Siemens, ConocoPhillips, Mitsubishi Heavy, GE, Chevron. Output is mixed gases, heavily weighted towards CO.3. CO Shift Reaction*—add steam and eliminate most CO, while raising CO2 and H2. (CO+H20CO2+H2)4. Acid Gas Removal including Carbon Capture (take H2S and CO2 out of gas stream to concentrate high BTU syngas)—typical providers Linde or AirLiquide (Rectisol), UOP (Selexol)5. Syngas Users “Inside the Fence”6. Commercial Sale of Captured Carbon*Gas components (ex nitrogen and water) out of gasifier are 65% CO, 30% H2, 5% CO2. After shift reaction 3% CO, 57% H2, 40% CO2. 19
  20. 20. TCEP Gasification CCS Schematic: Same 5 CCGT “Modules” plus a New Revenue Source 2/3 #2 Gasifiers Coal #3 CO Shift #5 1.8mm tpy & #4 Acid Syngas Gas Removal Users 1/3[Brackish Water Purified via Reverse Osmosis] H2O NH3/Urea 1/6 #6 5/6 Raw #1 ASU CO2 EOR Syngas O2 H2SO4 * Remaining 5% of revenue from other byproduct sales 20
  21. 21. Key: Using, not Venting, Industrial Quality CO2Korean Gasification Plant (same Acid Gas Treatment as TCEP from Linde), label numbers correspond to steps in prior slide #1 #2 #6 Yellow box says “Vented CO2”—to OSBL. OSBL means #3 #4 #5 “Outside Battery Limits”, which is nice way to say “into atmosphere”. 21
  22. 22. A Few Recent Asian Coal Gasification PlantsTotal Capacity Last Decade is ~20x TCEP Feed Syngas Plant Name Year Country Technology Name Class Product Output Inner Mongolia Chemical Plant 2011 China Shell Gasification Process Coal Methanol 3373 Ningxia Coal to Polypropylene 2010 China Siemens SFG Gasification Coal Polypropelene 1912 Project (NCPP) Process Perdaman 2013 Australia Shell Gasification Process Coal Chemicals 1283 Tianjin Chemical Plant 2010 China Shell Gasification Process Coal Ammonia 1124 Jincheng Project 2012 China Siemens SFG Gasification Coal Ammonia 874 Process Coal to UREA Project 2013 Australia Siemens SFG Gasification Coal Ammonia 765 Process Guizhou Chemical Plant 2010 China Shell Gasification Process Coal Ammonia 562 Hebi 2012 China Shell Gasification Process Coal Chemicals 546 Datong 2013 China Shell Gasification Process Coal Chemicals 546 Sinopec, Anqing 2006 China Shell Gasification Process Coal Ammonia 509 Dong Ting Ammonia Plant 2006 China Shell Gasification Process Coal Ammonia 466.2 Hubei Ammonia Plant 2006 China Shell Gasification Process Coal Ammonia 466.2 Yuntianhua Chemicals, Anning 2007 China Shell Gasification Process Coal Ammonia 465 Yunzhanhua Chemicals, Huashan 2007 China Shell Gasification Process Coal Ammonia 465 Puyang Plant 2008 China Shell Gasification Process Coal Methanol 463 22
  23. 23. Revenue and Output Contracts 23
  24. 24. Emitting Less Pollution, Emitting More RevenueProcess Product UseAir Separation Unit Argon Gas, Nitrogen Gas Trucked to industrial gas users (We only need O2 and some N2)Gasifiers Inert, vitrified, non-leachable Environmentally friendly component slag for CementGas Cleanup Hydrogen Sulfide Gas Make Sulfuric Acid to SellGas Cleanup CO2 EOR and Urea, bothGas Cleanup Syngas Power and UreaPlant Wide Water Zero Discharge 24
  25. 25. Revenue components • 710k tons / year Components of External Sales Revenues (after eliminating all intra- • US 2010 demand 12mm tons / year plant transfer pricing) – 2020Urea1 • US 2010 imports 7mm tons / year 8% • 97% capacity utilization • Contracted under a 15-year offtake agreement 18% with a price floor • 400 MW gross output • On-site power use includes ASU, ammonia 53% production and CO2 compressionPower • ~195 MW net to CPS Energy • ERCOT 2011 peak demand 68,379 MWs 21% • Fully contracted under a 25-year Tolling Agreement with a ‘AA’ rated counterparty Urea Electricity CO2 Other • 2.5mm tons / year captured and sold • 90%+ capture rate • Market in Permian Basin is massive inCO2 comparison – and short of supplies • 37mm tons / year market for new CO2 • Will qualify for carbon credits (VERs) on American Carbon Registry and other registries (1) Source: Fertecon 25 25
  26. 26. Key Profit Drivers (Spot/Indicative Prices)Item Volumes/Units Price Revenue mm$/yr (spot)Coal Consumed 1.8mm tpa $50/ton ($90) deliveredNatural Gas 4 mm MCF/yr ~$3 ($12)ConsumedUrea Produced 710,000 tpa $400 $284Power Produced for ~1.5 mm MWh/yr $80 $120External SaleCO2 Produced 2.5mm tpa $30 $75 $377 26
  27. 27. CO2 for Enhanced Oil Recovery: Inject, Extract, Re-cycle, Cap Closed loop for valuable CO2 When done, cap well, and CO2stays in the spacewhere the oil used One ton CO2 to be. pushes up about 2-3 barrels of oil! Not “fracking.” More analogous to CO2 dry cleaning. 27
  28. 28. In Oilfields CO2 is a Scarce Product, Not a Disposal Problem• Texas’ Permian Basin is 40-year old CO2 market for Enhanced Oil Recovery• 3,000 miles of CO2 pipelines (Cortez pipeline in red/top left = 500 miles)• TCEP within 100 miles or less of 72% of all existing EOR-using fields• We are ~7% of 37mm TPY market• CO2 demand 3x supply --all existing sources of supply (geologic and man- made) 28
  29. 29. U.S. Government Support in Absence of Carbon Price/Tax 29
  30. 30. U.S. Government Support:TCEP Received $450 Million Grant From U.S. Department of EnergyLargest single award under President Obama & U.S. Energy Secretary Steven ChuOnly IGCC project & “new start” in this round of the DOE’s Clean Coal Power Initiative • On December 4, 2009, Secretary Stephen Chu of the U.S. Department of Energy announced that TCEP would receive a $350 million award • The award is basically “equity” that does not require a dividend or receive tax benefits • This award is the largest yet made under the Department of Energy’s Clean Coal Power Initiative, enacted and funded by Congress. • The U.S. DOE made an additional $100 million award to TCEP in August 2010 • The funding does not require any further Congressional action—it is already appropriated and committed, subject to project fulfilling its contractual commitments under the executed Cooperative Agreement. At a 2009 hearing of a key Congressional committee, witnesses unanimously agreed that the United States and the world cannot meet current climate goals without the implementation of carbon capture and sequestration (CCS) technology. In July 2010, the then U.S. DOE Assistant Secretary for Fossil Energy James Markowsky said of TCEP: “It is one of the key carbon capture and storage projects essential to gaining the integration and operating experience necessary for commercial CCS deployment.” 30
  31. 31. Tax Benefits are a Significant Factor in Returns• TCEP benefits from three separate Federal tax incentives, the combined benefit of which is worth approximately $1.35 billion. The ITC had to be applied for and competitively selected. The other two benefits are available to any similarly situated taxpayer. • $313 mm Advanced Coal Program investment tax credit (“ITC”) at or before COD (awarded) • $195 mm Carbon Sequestration tax credits possible over first 10 years • $757 mm MACRS accelerated depreciation tax benefits over first 5 years ~$1.265 bn undiscounted total• If DOE Award is taxed (likely to change), taxes on that are about $157mm. So net undiscounted tax benefit is about $1.1bn• $1.1bn is about NPV of $700 million1 at COD• Sadly, only a big taxpaying corporation that invests as a partner in TCEP can benefit from these tax programs. That restriction leaves out all pension funds, non-profits, foreign companies, sovereign wealth funds, most U.S. energy companies, U.S. corporations with existing tax losses, etc. Wonderful support, but financially complex to use. 1 at 15% discount rate from date of project completion 31
  32. 32. TCEP CapitalizationOperating/Project Company funding (as of 10/14/2011 in USD)• DOE Award $ 0.45 billion• Senior Secured Debt $ 1.30• Investment from Holding Company $ 1.10• Total estimated project costs: $ 2.85 billion Grants 16% Value of tax Sr. Secured benefits @ Debt ~$700mm = 46% about 2/3 of Holdco needed equity. Investment 38% 32
  33. 33. TCEP Gets Large incentives (in Absolute $$) — Highly Efficient in$$/ton CO2 not Emitted Wind Project Wind Project w/ TCEP vs. Gas TCEP vs. Coal Solar Project Grant PTC CCGT Plant Size MW (Nameplate) 100 100 100 400 400 Cost $mm $ 300.00 $ 200.00 $ 200.00 $ 2,900.00 $ 2,900.00 Annual Operating Ratio 20% 30% 30% 90% 90% Annual Energy 175,200 262,800 262,800 3,153,600 3,153,600 20 year Energy 3,504,000 5,256,000 5,256,000 63,072,000 63,072,000 Carbon Out lb per MWh 0 0 0 200 200 Gas Plant or Coal (Last Column) 800 800 800 800 2200 Tons CO2 Saved 1,401,600 2,102,400 2,102,400 18,921,600 63,072,000 Cash Grant $ 90.00 $ 60.00 $ 450.00 $ 450.00 Tax On Grant $ - $ (157.50) $ (157.50) Production /Sequestration Tax Credit $ 52.56 $ 100.00 $ 100.00 Investment Tax Credit $ 313.00 $ 313.00 Basis Reduction for ITC /Grant (%) 50% 50% 0 100% 100% Basis Reduction for ITC /Grant ($) $ (16) $ (11) $ - $ (110) $ (110) Total incentives $ 74.25 $ 49.50 $ 52.56 $ 595.95 $ 595.95 incentive per Ton CO2 Not Emitted 52.98 23.54 25.00 31.50 9.45 33
  34. 34. Key Success Factors and Challenges• Success Factors • Low emissions profile meant no environmental opposition and community support. Also no local fresh water use was important in this arid region of the USA. • Flexibility of uses for high hydrogen syngas—multiple possible power and chemical applications • Basically zero investment in CO2 pipeline infrastructure, combined with large and profitable CO2 sales market • Low technology risk because we use well-tested components and because “integration” has been proven in multiple Asian plants (i.e., Shenhua’s) • Strong US government support, especially the cash grant • Settled legal framework relating to underground CO2 injection for EOR in Texas.• Challenges • Impossible to get fixed price long term contracts for urea and CO2 • Difficulty of efficiently using tax incentives provided by U.S. government • No government mandate: neither national Renewable Portfolio Standards (for power generation) nor carbon tax on emissions of CO2. 34