1. Attracting Finance for CCs Projects
Overcoming the Apathy of Financial Institutions
13 May 2013
Allan Baker
Managing Director - Global Head of Power Advisory & PF
Tel.: 44 (0) 20 7762 4821
Mob: 44 (0) 7870258164
allan.baker@sgcib.com

2. 25/30/13
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3. 35/30/13
Ccs Should be an attractive TARGET for banks.....
 CCS should be an essential part of the strategy to decarbonise power:
● It allows for the continued use of coal, one of the most abundant fuel sources
● It does not suffer from the “intermittency” issues associated with wind /solar
● It is applicable to existing and new fossil fuel generating plant
 Attractive in terms of scale for lenders:
● Global application - investment requirement of US$2.5-3.0 trillion (2010-2050 - IEA)
● US$1.3 trillion of additional investment for capture
● US$0.5-1.0 trillion of additional investment for transport
● US$88-650 billion of additional investment for storage
● Globally 500+ CCS projects by 2030 and in Europe 100+ projects
● Significant part of the future energy landscape
CCS - make a major and cost effective contribution to CO2 reduction

4. 45/30/13
The view of financial institutions.....?
Two significant “engagement” exercises in 2011-12:
CCS - Mobilising Private Sector Finance (Climate Group & Ecofin):
● “Debt... not yet” – conclusion was that finance community wanted:
● Performance Guarantees across the whole chain
● Major sponsor involvement – deep pockets and significant equity commitment
● Confidence in future economics of the technology
SG-CSLF CCS Financing Taskforce Round Table:
● Meeting of leading financiers, industry and institutions:
● “Why are you wasting time on CCS, financing is years away?”
● “It was useful to find out more about it (CCS) but I’m still not convinced”
The finance community is not interested in CCS ?

5. 55/30/13
Key messages from the sg-cslf round table........
 Confusion about the opportunity:
● Focus on proving technology and not the long term roll out – scale of ambition: experiment or industry
● Patchwork of technology, policy, timing, incentives and commitment
 Concern about technology:
● “Demonstration Projects” imply prototype & unproven - experience of parts of the process but not at scale
● What if it doesn’t work – WHITE ELEPHANT?
 Concern on risk:
● Project-on-project risk – complex risk matrix and allocation process
● CO2 is a liability with limited revenue unless you have EOR
 Uncertain economics:
● Cost uncertainty (capex and opex) from early projects
● Heavy subsidy - policy / regulatory risk
 Credibility gap:
● Many projects, substantial announcements of financial support but few projects getting to FID yet alone operation
● Perceived as an experiment that may or may not lead to more projects
Bottom line? It falls into the “too difficult” box

6. 65/30/13
update - Bank perspective 2013
SG have just completed a comprehensive market sounding
● Approached 15+ International banks
● ECAs
● Multilaterals
Feedback based on real engagement
● Financial institutions provided with details of risk allocation, technology etc
● Significant interaction with SG and Sponsors on project detail
● Strong letters of support for the project
● Strong desire to be involved in DD and structuring of the debt
Exercise was scrutinised by the government - key to project selection
What’s changed – we are talking about a real project

7. 75/30/13
update - Bank perspective 2012-3
Key positives from this process:
● Grant funding: Capital grant improves the capital structure of the deal and underpins bank
economics (downsides)
● Full-Chain Project: Strong transport and storage story
● Support Mechanism: In this case a Contract for Difference structure covers costs and largely
insulates the project from commodity risk, leaving the banks with availability risk
● Risk mitigation: The structure proposed aims to divide CCS and “Business as Usual” risks –
appropriate allocation of risk
● Strong Sponsors: Key bank relationships important in gathering support

8. 85/30/13
Real projects - three commercial perspectives ?
UK Commercialisation Competition
 Two projects shortlisted for FEED funding potentially leading to all or part of a £1bn capital grant
 Projects now entering FEED negotiation after high degree of scrutiny
 Likely that at least one and probably both projects will proceed to FID
Texas Clean Energy Project, USA
 400MW fully consented IGCC project
 Long term contracted revenue streams
 Lump sum fixed price turnkey EPC contract with LT availability and performance under 15 years
 US DOE grant funding for $450m out of $1.73bn – no operating subsidy
Abu Dhabi CCS
 Multi-emitter, full chain CCS project with EOR
 Revenue stream expected to come from payments from CO2 off-taker for CO2 delivered but subsidy still required
 Commercial structuring in process
 Phased approach – industrial emitter first with limited pipe network and proving of injection
All are potentially attractive for raising financing

9. 95/30/13
First CCS Project Finance ?
9
Coal
2mm tpy
Coal Gasification and
Gas Cleanup
Steam
Wyoming Coal via
Railroad
High Hydrogen Power
Turbine
2/3 of
Syngas
1/3 of
Syngas
Co a land Ste am Input,
Main O utputs are
Syng a s (Hydro g e n
and Carbo n
Mo no xide ) and Pure
CO 2
1/6 of
CO2
5/6 of
CO2
Ammonia/Urea
Complex
CO2 Delivered to Oil
Fields via Pipeline
195 MW low
carbon power
delivered to City
of San Antonio
(30% of
revenues)*
710,000 tons/yr
delivered to
Fertilizer
Company (45%
of revenues)*
2.5mm tons per
year delivered
to Oil
Companies
(20% of
revenues)*
Non-drinkable Water
* Remaining 5% of revenue from byproduct sales
Source: Summit Power
Texas Clean Energy Project (TCEP):
A 400 MW “polygen” IGCC plant

10. 105/30/13
Cost reduction – the key to CCS deployment ......
UK Government initiative:
● Established in March 2012 by DECC as “an industry-led joint task force
established by Government to assist with the challenge of making CCS
commercially available for operation by the early 2020s.”
● Broadly representative of the stakeholders in CCS and international - 23
members drawn from industry, trade associations, developers, finance and
academia
● SG led the commercial and financial work stream
“The objective of the Task Force is to publish a report to advise
Government and industry on reducing the cost of CCS so that
projects are financeable and competitive with other low carbon
technologies in the early 2020s.”

11. 115/30/13
Key conclusions from the report ......
Need for a supportive regulatory landscape:
Commercialisation program provides an opportunity to resolve many of these issues and create a template
for future
industry development
Within this environment tangible cost savings can come from:
● Planning & infrastructure developments
● Generation & capture technology development
● Evolution of commercial and financing arrangements
Deliverability is not the responsibility of government alone
Development of CCS requires constructive full engagement of all stakeholders

12. 125/30/13
Planning and infrastructure development ......
 Achieving optimal scale in CO2 storage
● Storage reservoir development represents a significant part of CO2 storage cost
● Expensive process so benefit on focussing on “high volume” opportunities
● Substantial risk (cost) reduction from storage clusters
Essentially a volume business – higher volume = lower per unit cost
Optimisation of transport infrastructure
● Cost of increasing a pipe size grows at a slower rate than the volume transported – lower per unit transport cost
● Trunk lines and local feeder pipes from a hub provide volume benefits over early point to point
● Distance matters – shorter less complex routes have obvious cost benefits
Planning and investing for future projects in the first projects could lead to significant reductions in per unit of
CO2 stored in follow on-projects

13. 135/30/13
Achieving affordable financing ......
 Appropriate risk allocation across the full chain – never easy in a new industry !
● Complex mix of disciplines and “cross border” risks and liabilities
● Appropriate allocation on FOAK is unlikely to be the allocation for the Nth-of-a-kind : improvement with experience
 Role of Government, developers, insurance industry and finance being defined
● Real time risk allocation discussion under way – Commercialisation Competition
● We don’t know what we don’t know – pragmatic approach from all stakeholders
 Continued engagement with finance and insurance industry crucial
● Genuine interest now – momentum needs to be retained
High cost of capital in early projects offers scope for material cost reductions if a replicable template emerges from the
Commercialisation competition

14. 145/30/13
Potential deliverable cost reductions ......

15. 155/30/13
Potential deliverable cost reductions ......

16. 165/30/13
conclusions
 Two quotes illustrate the challenge CCS is facing:
“Cost 'sank' Longannet carbon capture deal”
(BBC News 30 October 2011)
“Wind’s $168 Billion North Sea Boom Lures Oil Industry”
(Bloomberg Energy 30 April 2012)
 CCS needs to demonstrate real and tangible progress to:
● Gain credibility
● Stimulate the interest of the financing community
● Attract debt financing
Debt capital is mobile across sectors, products and geography

17. 175/30/13
SOCIETE GENERALE and CCS .......
Leading Financial institution in the CCS sector:
Financial Advisor to one of the short-listed UK commercialisation projects (ongoing)
Financial Advisor for Hydrogen Energy California (ongoing)
Financial Advisor to Abu Dhabi “full chain” CCS (Masdar) project (2010-11)
Financial Advisor to Powerfuel IGCC, UK (2010-2011)
EEPR guarantee facility for the 2Co Don Valley CCS project (2012)
Member of the UK Government CCS Forum (ongoing)
CCS Cost Reduction Task Force Member (Ongoing)