cslf adb ccs financing roundtable

8/7/2019 CSLF ADB CCS Financing Roundtable

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CCS Financing Roundtable

Role of Public Sector Financing -The Financing Gap

Singapore, 7 April 2011


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Clinton Climate Initiative

Solutions that Work

Projects not Targets

Reduce Emissions

High Impact

Large Scale

Global

Support Structure

Technical Assistance

Project Assistance

Purchasing Assistance

Network Access

Measurement Tools

Financing

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3

Financial

TechnicalRegulatory,Legislative &

Political

Community

Commercial

BARRIERS FACING LARGE-SCALE CCS

Costs too high

Risks too highand uncertain

Technologiesunproven at scale orstill immature

Regulatoryframeworks stillimmature

Communitiesmostlyuninformed

These barriers likely to be higher in developing countries


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COST OF CCS

Retrofit has high energy demand (30-40%), new build has high capital cost

Current costs range from US$60 110 /tCO2 avoided (new build and retrofit) andcan add ~80% to cost of production

Image: McKinsey


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The financing gap

Whilst there are no insurmountable technological, legal,institutional, regulatory or other barriers that prevent CCS

from playing a role in reducing GHG emissions, early

CCS projects face economic challenges related to climate

policy uncertainty, first-of-a-kind technology risks and thecurrent high cost of CCS relative to other technologies.

CCS technologies will not be widely deployed in the next

two decades absent financial incentives that supplement

projected carbon prices.

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The Report of the Interagency Task Force on Carbon Capture and Storage


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Key barriers to financing CCS

Uncertainty on architecture of international climate changeagreements and carbon prices

High initial capital cost and operating cost penalty for first-mover projects

Expectation of forward carbon prices too low to driveinvestment

Generally poor reputation of CCS relative to other lowemission technologies

Lack of:

Funding sources, either international or domestic, for CCS projects indeveloping countries

Funding mechanisms for CCS deployment

Mechanisms to management investment risks

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Generic financing solution elements

Direct application of public funding to support the earlystage development technologies, either directly for CCS

or more broadly for low-emission technologies

Policy predictability/certainty regarding the value of GHG

emissions reductions

Underwriting of carbon risk against a future carbon price

or other direct, output-based, support

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A risk perspective

Current policy uncertainty and the risks associated with the first largescale capture plants provide a justification for risk management bythe public sector

The interdependence of CCS elements exposes individual linkswithin the chain of capture, transport, and storage to additional risks

Perceived and real risks translate to unfavourable financing terms forCCS projects, which may inhibit many projects

The CCS network concept assists in reducing the CO2 volume riskassociated with a single capture source

Direct contracting with operators of CCS network elements by the

government has potential to substantially reduce risk Risks across the chain for large scale integrated CCS give rise to an

early stage role for government in establishing a robust commercialframework that is most likely to deliver the optimum financialstructures and funding for the network

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Role of Public Sector Financing -The Financing Gap



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What would it take for private investment to flow?



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What is required?

Direct application of public funding to support the earlystage development technologies, either directly for CCSor more broadly for low-emission technologies

Policy predictability/certainty regarding the value of GHG

emissions reductions Underwriting of carbon risk against a future carbon price

or other direct, output-based, support

Together, these elements address the challenges ofopportunity and risk

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Specific financing solution elements

Capital grant funds, either CCS-specific or for low-emissiontechnologies

Contracted price support or carbon floor price

Feed-in Tariffs or Low-emission obligations

Government support CCS authority with subsequent sell-down

or withdrawal

Direct funding and development of storage characterisation,

likely contracted to private sector companies

Establishment of common user principles and financial

structures for transport and storage, in which government

ownership is an option

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Possible risk management structure

StorageCoTransportCoCaptureCo

$ for availablecapacity

$ / tonne deliveredto network

$ / tonne stored(guaranteed minimum)

Contracted by

CarbonNet to supply

pre-capture CO2 on

known price basis)

Contracted by

CaptureCo for

electricity supply

CTX charged cost

+margin by

CarbonNet

Contracted by

CarbonNet to provide

desired capacity (no

volume or price risk)

Physically handles

CO2 but CarbonNet

retains title & risk

Initially funded &

operated by

CarbonNet for basin

procurement and

validation

Externally funded

once basin validated

Known price contract

per tonne stored with

guaranteed volume

minimum (no price or

volume risk)

CarbonNet accepts

containment risk

Contracted by

CarbonNet to supply

captured &

compressed CO2 on

known price per tonne

that exceeds cost of

capture Backed by OEM

performance

guarantees where

possible

$ / tonnecaptured

Generator/CTX

CarbonNet

CO2 CO2 CO2

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What would it take for private investment to flow?



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CCS Deployment Status

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Objectives

G8 aspirations :

CO2 emissions cuts of 50-80% in 2050 vs

2000

Commit to 20 large scale CCS demonstration

projects by 2010

CCS (geological) necessary to achieve goals

In addition to use of clean fuels technologies In addition to alternate CO2 conversion

options

Current Global Status

Regulatory/political environment:

Future carbon pricing uncertain

Government funding committed, howeverproject selection processes convoluted and

disconnected from each other

CCS in developing countries more difficult

CCI experience to date:

Challenging environment for projects

Geological storage a significant issue

Funding & Finance increasingly central

Business Solutions to Accelerate CO2

Reduction

Needs remain

Climate change targets necessitate use of

CCS, with geological sequestration, to be

deployed within 10 years

Global interest in CCS is increasing

Increased recognition for need of CCS tobattle CO2 emissions

Many CCS forums/committees started

Public sector funding for large scale CCS

projects has been announced by the EU,

Australia, US, UK and Canada

CCI project experience highlights importance of

Early stage characterisation of storage sites Development of viable and replicable

business models

Potential for complementary beneficial CO2

usage technologies


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GLOBAL CCS INSTITUTE PARTNERSHIP

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Shared objective to accelerate the deployment of commercial-scale, integrated CCS

Acceleration of early mover projects complemented by development of new projects

Primary application of relevant expertise:

Key Element Global CCS Institute CCI

Capacity building X

Project development X

Technical evaluation X

Funding & finance X

Community

Communication

X

Knowledge sharing X


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Lowering Barriers - Summary

Barrier Lowering MechanismsCommercial Policy drivers:

Broad cap and trade, tax

Focused portfolio standards, feed in

tariffs

Financial Publicly funded capital grant schemes

Integrated business models that

allocate risk efficiently

Technical R&D funding

Publicly funded storage

characterisation

Regulatory Knowledge sharing internal

Community Knowledge sharing external

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cslf adb ccs financing roundtable

Documents