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Webinar Series: Public engagement, education and outreach for CCS. Part 4: Is there a cost-effective way of making Industrial CCS a reality?

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Teesside Collective has been developing a financial support mechanism to kickstart an Industrial Carbon Capture and Storage (CCS) network in the UK. This project would transform the Teesside economy, which could act as a pilot area in the UK as part of the Government’s Industrial Strategy.

The final report– produced by Pöyry Management Consulting in partnership with Teesside Collective – outlines how near-term investment in CCS can be a cost-effective, attractive proposition for both Government and energy-intensive industry.

The report was published on Teesside Collective’s website on 7 February. You will be able to view copies of the report in advance of the webinar.

We were delighted to welcome Sarah Tennison from Tees Valley Combined Authority back onto the webinar programme. Sarah was joined by Phil Hare and Stuart Murray from Pöyry Management Consulting, to take us through the detail of the model and business case for Industrial CCS.

This webinar offered a rare opportunity to speak directly with these project developers and understand more about their proposed financial support mechanism.

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Webinar Series: Public engagement, education and outreach for CCS. Part 4: Is there a cost-effective way of making Industrial CCS a reality?

  1. 1. Webinar Series: Public engagement, education and outreach for carbon capture and storage Part 4: Is there a cost-effective way of making Industrial CCS a reality? Tuesday 14th February 2017
  2. 2. Sarah Tennison  Responsible for the transition to a Low Carbon Economy in one of the most industrialised and energy intensive locations in the UK.  Manages Teesside Collective, a consortium of leading industries with a shared vision: to establish Teesside as the go-to location for future clean industrial development by creating the UK’s first Carbon Capture and Storage equipped industrial zone Technology and Innovation Manager, Tees Valley Combined Authority
  3. 3.  10 years at Pöyry consulting on CCS, advising on a range of CCS development projects in Europe, North America and Central Asia.  Specialist in the economics of CCS  Managed Pöyry’s work with the UK CCS Cost Reduction Task Force in 2012/13, and more recently with The Crown Estate examining the barriers to CCS deployment, as well as modelling of CCS development pathways for the Energy Technologies Institute and Committee on Climate Change.  Background in energy market economics, and power market modelling for asset valuations – advising a range of clients including major international utilities, Multilateral Development Banks, government departments and the Prime Minister’s Office in the UK. Principal, London office, Pöyry Management Consulting Stuart Murray
  4. 4. Questions  We will collect questions during the presentation.  Your Webinar Host will pose these question to the presenters after the presentation.  Please submit your questions directly into the GoToWebinar control panel. The webinar will start shortly.
  5. 5. www.teessidecollective.co.uk @TeesCollective
  6. 6. What is Teesside Collective? Teesside Collective is a cluster of leading energy intensive companies working together to build one of Europe’s first CCS equipped industrial zones, helping to retain the UK’s industrial base, attract new investment and jobs, and meet the UK’s climate change targets. The group is made up of five large industrial companies: – BOC – UK’s largest hydrogen plant – CF Fertilisers – UK’s largest ammonia plant – 35% of UK fertilisers – Lotte Chemical UK – PET for 15bn plastic bottles – SABIC – UK’s largest cracker – upgrading to run on US shale gas – Sembcorp – industrial utilities – in planning for 850MW CCGT Teesside Collective is coordinated by Tees Valley Combined Authority and backed by the North East Process Industry Cluster “CCS on industrial plants is going to be a critical part of the global effort to prevent serious climate change. Teesside is in the right place, at the right time, to get ahead of the curve.” Sir David King, UK’s Special Representative for Climate Change “The sustainability of the PET we buy is of paramount importance to us. Suppliers who account for their emissions in a credible way will present a fundamentally more attractive proposition in relation to their rivals.” Alison Rothnie, Britvic Plc
  7. 7. Background ICCS is the only technology to remove CO2 from some industrial processes Strategic infrastructure that can lead to competitive advantage Key blocker is commercial – this report presents a solution No direct follow on from Lord Oxburgh report but agree on need for separate state backed transport and storage Uses cost figures published in 2015 – Teesside Collective Blueprint – recent work shows these could be reduced even further Focus on developing hubs of power and industry and that industry could move first
  8. 8. Industrial CCS is very cost competitive Industrial CCS would cost government £58/t including an £18/t fee for transport and storage Potential for government to receive up to £41/t income from carbon saving Pilot CCS network in Teesside would cost £110million to build and £29million year to operate including a Transport and Storage fee Pilot would capture 11million tonnes over 15 years, the network would then expand to over 7million tonnes CO2 per year Pilot could be operational in 6 years Start small and start cheap in an area that can expand to link power and industry into a network “CCS in industry represents some of the cheapest available carbon abatement in the UK economy.” “CCS hubs: a national infrastructure priority” Lord Oxburgh report 0.5 3 8 11 11 17 40 18 47 58 41 0 10 20 30 40 50 60 Pre-FEED FEED to FID CAPEX grant Subtotal: capital payments CAPEX repayment OPEX passthrough Subtotal: cost excl T&S T&S passthrough Subtotal: operating payments Total lifetime payments Carbon abated ETS value Costtogovernment(£/tCO2,real2015) Costs per tonne to capture, transport, and store 2.4million tonnes CO2 per year from 6 plants on Teesside
  9. 9. INDUSTRIAL CCS BUSINESS MODELS BUSINESS MODEL CONCEPT DISCUSSION GCCSI Webinar 14 February 2017
  10. 10. COPYRIGHT©PÖYRY 11 CONTENTS 1. Overview 2. Industrial Contract Structure 3. Timing and allocation mechanism 4. Cost and expense estimates TVCA | FEBRUARY 2017 INDUSTRIAL CCS BUSINESS MODELS
  11. 11. COPYRIGHT©PÖYRY REPORT HEADLINES  Carbon Capture and Storage (CCS) is a technically proven technology for application to industrial emissions currently operating at sites worldwide, and the only option for deep emissions cuts for many UK industries.  Total lifetime cost for capture, transport and storage for an industrial CCS hub is ~£60/tCO2 – appears good value in comparison to cost of carbon used for UK policy development which stands at £78/tCO2 by 2030, and other contracts aimed at decarbonising the energy system.  Building on Lord Oxburgh report recommendations, a commercially feasible industrial CCS business model has been identified and tested through broad stakeholder input that potentially meets needs of both industry and Government. TVCA | FEBRUARY 2017 INDUSTRIAL CCS BUSINESS MODELS 12 Three headline points  Still appears to be the number one question from many parties in the UK – need to keep pushing! Notes for GCCSI Members  Engineering study basis is 2015 Teesside Collective blueprint study from RHI  Assumes that industry pays a fee for the proportional use of large shared T&S  Reiterate need to separate business model of capture from T&S  Business model tested through meetings with EIIs, BEIS, treasury
  12. 12. COPYRIGHT©PÖYRY ALIGNING PERSPECTIVES TVCA | FEBRUARY 2017 INDUSTRIAL CCS BUSINESS MODELS 13 Report and model targeting a solution to meet intersection of three view points
  13. 13. COPYRIGHT©PÖYRY 14 CONTENTS 1. Overview 2. Industrial Contract Structure 3. Timing and allocation mechanism 4. Cost and expense estimates TVCA | FEBRUARY 2017 INDUSTRIAL CCS BUSINESS MODELS
  14. 14. COPYRIGHT©PÖYRY Separate T&S development PROPOSED INDUSTRIAL CCS BUSINESS MODEL: OVERVIEW TVCA | FEBRUARY 2017 INDUSTRIAL CCS BUSINESS MODELS 15 EIIs transfer part of CO2 benefit from fitting CCS to Government. Government provide upfront capital (in two tranches) and also cover on-going opex for [15 yrs]. EII Government Invest part capex upfront, receive a fixed return on investment and some EU ETS downside protection and, after the support period, gain a CCS system long-term Provide capex and opex support to drive domestic carbon reduction, receive value of saved CO2 permits, and jobs/industry retention from upgrading industrial infrastructure Rationale for [15yr] Contract for CO2 capture Storage CCSDC/Gov’t T&SCo [100%] Opex Incl. any fees for T&S T&S Fees In return for transporting and storing CO2 Transport [50%] Capex EIIEII EIIs Capture Plant Capture Plant Capture Plants[50%] Capex Returns part of CO2 savings to Gov’t Return on investment Shaped repayment of invested capital
  15. 15. COPYRIGHT©PÖYRY CAPITAL SUPPORT ARRANGEMENTS TVCA | FEBRUARY 2017 INDUSTRIAL CCS BUSINESS MODELS 16 Combination of grant + EII upfront investment repaid over time (as long as capture plant operates over life of contract). EII incentivised to minimise capex overrun. Key discussion points Recommended solutions 1 % funding split – EII & Gov’t appetite? 50:50 partnership good starting point for all? Potentially advantageous to define boundaries on split but flexibility helpful to reflect difference in EIIs 2 Repayment term – EII requires <5yrs, Government contracts usually longer>? Shaped payments may help resolve potential issue: Font-loaded capex so EII recovers capex quickly [e.g. 3yrs] but longer term [e.g. 12yrs] contract tail 3 What return to offer on EII funded portion? Return depends on specific industry; so negotiate or set in pre-FEED – negotiation could be led centrally or by regions
  16. 16. COPYRIGHT©PÖYRY “OPEX” PAYMENTS (PASS THROUGH EII) TVCA | FEBRUARY 2017 INDUSTRIAL CCS BUSINESS MODELS 17 All capture related opex expenditure (and any T&SCo fees) passed through to Gov – propose that FEED study defines categories with open book recovery process Key discussion points Recommended solutions 1 Does EII pay for use of T&S system? Could have EIIs pay, but with the cost passed through as part of opex costs to Government (money-go-round) 2 Residual risk (e.g. calculation basis) Simple starting point is to pay reasonable actual costs (open book process). Alternative elements (e.g. split of actual vs. forecast costs) may improve incentives.
  17. 17. COPYRIGHT©PÖYRY LINK TO EU ETS – WHAT IS AN EQUITABLE CO2 RISK SHARE? TVCA | FEBRUARY 2017 INDUSTRIAL CCS BUSINESS MODELS 18 Carbon value shared – CO2 value to Government at least partially offsets ongoing support costs and value to EII helps to create compelling business case for boards CO2 emissions captured CO2 emitted With CCS Free allowances Permit value returned to government CO2 exposure reduction CO2 emitted Free allowances Permits bought to match CO2 production Without CCS CO2 balance for EII – as free allowance % falls  Clear CO2 emissions reduction from installing CCS – ‘status quo’ would be for this benefit to accrue to the EII who fitted capture – As per current ETS rules, industry assumed to receive free allowances even after CCS installed  We therefore proposed that for early adopters: – 100% of the value of ‘spare’ free allowances resulting from CCS installation are passed to Government (value nets off on-going operational support requirements to government); and – all subsequent carbon value remains with the EIIs, sheltering them from carbon cost risks as long as capture plant running, so providing incentive to keep the capture unit operational  Propose that support levels drop for later projects developing after hubs have been committed to
  18. 18. COPYRIGHT©PÖYRY 19 CONTENTS 1. Overview 2. Industrial Contract Structure 3. Timing and allocation mechanism 4. Cost and expense estimates TVCA | FEBRUARY 2017 INDUSTRIAL CCS BUSINESS MODELS
  19. 19. COPYRIGHT©PÖYRY EII CONTRACT ALLOCATION TVCA | FEBRUARY 2017 INDUSTRIAL CCS BUSINESS MODELS 20 Commit to store locations early (but not commit full funding) to minimise pre-feed requirements, then run parallel processes to deliver industrial + power CCS hub
  20. 20. COPYRIGHT©PÖYRY 21 CONTENTS 1. Industrial Contract Structure 2. Timing and allocation mechanism 3. Cost and expense estimates TVCA | FEBRUARY 2017 INDUSTRIAL CCS BUSINESS MODELS
  21. 21. COPYRIGHT©PÖYRY CCS CAPTURE HUB AT TEESSIDE – FUNDING COST OVERVIEW TVCA | FEBRUARY 2017 INDUSTRIAL CCS BUSINESS MODELS 22 *Average over 15 year support life commissioning in 2025, assumes DECC 2015 elec and CO2 forecasts rising to £47/tCO2 by 2030 **Assumes a T&S network in place and charged at £18/tCO2 [based on latest ETI estimates of levelised T&S cost allowing for ramp up] CO2 reduction (kt CO2 /yr) 3 Teesside blueprint EIIs 730 £2.2M £15M £110M £16mpa OPEX £13mpa T&S Fee** -£31mpa CO2 saving* 3 follow on EIIs 1700 £8M £40M £340M £26mpa OPEX £31mpa T&S Fee** -£71mpa CO2 saving* Industrial inward investment 1400 850MW Teesside CCGT 2000 H2 for domestic heating 1440 Total 7270 Pre-FEED FEED Construction Operation
  22. 22. COPYRIGHT©PÖYRY COSTS BREAKDOWN: 3 TEESSIDE BLUEPRINT EIIS ONLY  Costs in £/tCO2 stored over a 15 year scheme lifetime – Discount rate of 3.5%  Total cost compares favourably to social cost of carbon from treasury green book (£78/tCO2 by 2030) – Carbon permit value clearly sensitive to carbon market value used TVCA | FEBRUARY 2017 INDUSTRIAL CCS BUSINESS MODELS 23 Chart shows breakdown of costs by type – ‘net’ cost heavily dependent on CO2 price *Assumes DECC 2015 reference scenario electricity and carbon price forecasts rising to £47/tCO2 by 2030, and commissioning in 2025 7 9 22 18 41 58 17 0 5 10 15 20 25 30 35 40 45 50 55 60 Abatementcost(£/tCO2) ‘Net’ cost Carbon permit value* TotalT&S Fee OPEXCAPEX Support GrantFEED 2 Pre- FEED 0.4 Numbers for 3 original EIIs only and don’t include any cost reduction opportunities (e.g. opex reduction from aggregation)
  23. 23. WHAT'S NEEDED 1. Focus on regions and clusters – Teesside pursued as a pilot with agreement to fund FEED (£15million) 2. Agreement to put in place an ICCS funding mechanism and timeline for implementation 3. Agreement to establish a transportation and storage company with timeline for implementation 4. Focus on the two stores in the North Sea which have received large amounts of public funding
  24. 24. Please submit questions in English directly through the GoToWebinar control panel… • Desperate to read the report now? • The full report and an executive summary are both available from the Teesside Collective website: • http://www.teessidecollective.co.uk/teessi de-collective-report-a-business-case-for-a- uk-industrial-ccs-support-mechanism/ • Be sure to check out Teesside Collective’s proposition document as well:
  25. 25. Further reading… Reports/ Publications Links Blueprint for Industrial CCS in the UK (Teesside Collective, 2015) This is a collection of reports that the new study has built on and refined. The reports include: • Investment mechanism report (Societe Generale) • Business case (Pale Blue Dot) • Engineering estimates (Amec Foster Wheeler/ RHI) • Economic impact report (Cambridge Econometrics). www.teessidecollective.co.uk/teesside -collective-blueprint-for-industrial-ccs- in-the-uk/ A Need Unsatisfied. A blueprint for enabling investment in CO2 (The Crown Estate and Deloitte, 2016) A collaborative study investigating the risks of offshore CO2 storage development and identified potential commercial models for public and private investment in CO2 transport and offshore storage infrastructure. www.thecrownestate.co.uk/media/50 2093/ei-a-need-unsatisfied-blueprint- for-enabling-investment-in-co2- deloitte.pdf
  26. 26. Further reading… Reports/ Publications Links Future of carbon capture and storage in the UK inquiry - publications (House of Commons Energy and Climate Change Committee, 2016) The UK Government’s Energy and Climate Change Committee held an inquiry into the near- and long-term future of carbon capture and storage in the UK following the cancellation of the UK CCS Commercialisation Competition. After hearing all the evidence the ECCC left a strong set of recommendations for the UK Government. All Evidence: www.parliament.uk/business/committee s/committees-a-z/commons- select/energy-and-climate-change- committee/inquiries/parliament- 2015/ccs-15-16/publications/nquiry - publications Final Report: www.publications.parliament.uk/pa/cm2 01516/cmselect/cmenergy/542/542.pdf A strategic approach to carbon capture and storage (The UK Committee on Climate Change, 2016) The CCC’s formal response and recommendations to the (then) UK Secretary for State for Energy and Climate on the critical importance of CCS in the UK. www.theccc.org.uk/wp- content/uploads/2016/07/Letter-to-Rt- Hon-Amber-Rudd-CCS.pdf
  27. 27. Further reading… Reports/ Publications Links Strategic UK CCS Storage Appraisal (Energy Technologies Institute, 2016) This project confirmed there are no major technical hurdles to storing industrial scale CO2 offshore in the UK with sites able to service mainland Europe as well as the UK. The 12 month project was delivered by the ETI and funded with up to £2.5m from the UK Department of Energy and Climate Change (DECC). It progressed the appraisal of five selected storage sites towards readiness for Final Investment Decisions, de-risking these stores for potential future storage developers. The detailed reports from the project and the sub-surface geological models are all publically available – links can be found on the ETI page linked to here… www.eti.co.uk/programmes/carbon -capture-storage/strategic-uk-ccs- storage-appraisal The project built on data from CO2Stored - the UK’s CO2 storage atlas - a database which was created from the ETI’s UK Storage Appraisal Project. This is now publically available and being further developed by The Crown Estate and the British Geological Survey. Information on CO2Stored is available at www.co2stored.com
  28. 28. Further reading… Reports/ Publications Links Lessons Learned – Lessons and evidence derived from UK CCS programmes, 2008-2015 (CCSA, 2016) Patrick Dixon, former Expert Chair of the Office for CCS partnered with the CCSA and interviewed the most recent UK CCS project developers and a number of other companies with an interest in CCS deployment, in order to capture important insights into the delivery challenges of large–scale CCS projects. These are presented in ‘36-lessons learned’. Report: www.ccsassociation.org/press-centre/reports- and-publications/lessons-learned/ Webinar: www.globalccsinstitute.com/events/webinar/20 16-09-06-080000/thirty-six-key-lessons-2008- %E2%80%93-2015-uk-carbon-capture-and- storage-programmes ‘The Lord Oxburgh Report’ - Lowest Cost Decarbonisation for the UK: The Critical Role of CCS. (Report of the Parliamentary Advisory Group on CCS, 2016) This was the Parliamentary Advisory Group report commissioned by the UK Government to examine the role of CCS. It found that CCS is an essential component in delivering lowest cost decarbonisation across the whole UK economy. www.sccs.org.uk/images/expertise/reports/oxfo rd/oxburgh_report_the_critical_role_of_CCS.pdf
  29. 29. Please submit any feedback to: webinar@globalccsinstitute.com

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