Financing model for power plants with CCS

Financing model for power plants with CCSCarbon Capture and Storage: Perspectives for the Southern Africa Region

Johannesburg May 31-June 1, 2011Nataliya Kulichenko, World Bank Energy AnchorMotivation and background31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionPart of regional study Carbon Capture and Storage: Regional Perspectives in developing countriesAdding CCS to a power plant will make electricity more expensiveObjective is to investigate: How much more expensive power from coal plants with CCS is compared to without CCSDifferent ways that power plants with CCS in developing countries can be financedHow concessional finance can impact electricity priceMethod31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionCalculate how different financing structures can effect levelized cost of electricity (LCOE)Calculate impact of concessional financing on LCOEFind level of concessional financing necessary to lower LCOE from plant with CCS, to plant without CCS (capped at 50% project finance)Explore for various scenarios to investigate under which conditions CCS is least expensive (LCOE)Scenarios31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionCoal priceLow 1$/mmbtuMedium 3$/mmbtuHigh 5$/mmbtuRevenues from CO2 permits0 $/ton15 $/ton50 $/tonRevenues from enhanced hydrocarbon recoveryOil (EOR)Coal bed methane (ECBM)Assumptions31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionTechnologies examined, 0%, 25% 90% capturePulverized coal, wet and dry cooledIGCC, wet and dry cooledOxy-fuel wet cooledCost developed based on NETL feasibility study on IGCC plant in India and estimates of costs of a coal plant in South AfricaCosts of CCS components developed through literature review and expert consultation

Expert consultation means we used cost estimates from coal plants without CCS, and then scaled them appropriately to reflect with CCS, using the report: Strategic Analysis of the Global Status of Carbon Capture and Storage, Report 2: Economic Assessment of Carbon Capture and Storage Technologies developed by GCCSI, Worley Parsons, Schlumberger, Baker and McKenzie and EPRI.We also asked our contacts at NETL for their feedback on these cost inputs to check if they are reasonableEOR and ECBM inputs were developed through literature research and checked with our colleagues at VITO, as well as people who worked on Tenaska Trailblazer. Include CO2 transport and storage costs (250km)

5EOR assumptions31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionMax recovery rate 3.5 bbl/ton CO2 injected1Mt/year storedLasts for 10 yearsCO2 recycled (80% of injected CO2 is recycled by year 10)Upfront development costs approx $180mEOR assumptions include costs of developing wells, and assume storage of approximately 1 Mt/year-Assume $70/bbl oil and max recovery rate of 2.5bbl/ton CO2 injected (this is conservative, some estimates are 3 or a bit higher)Assume EOR for 10 years, by the end of the project 20% of CO2 injected is from the plant, the rest is recycled

ECBM: assume gas price of 3.5$/mcf, max recovery of 0.317 tons gas/ton CO2 injected

6ECBM assumptions31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionMax recovery rate 0.317 tons gas/ton CO2 injected1Mt/year storedLasts for 10 yearsUpfront development costs approx $66mNB have not assumed recycling less data available on ECBM then EOR to make assumptionsEOR assumptions include costs of developing wells, and assume storage of approximately 1 Mt/year-Assume $70/bbl oil and max recovery rate of 2.5bbl/ton CO2 injected (this is conservative, some estimates are 3 or a bit higher)Assume EOR for 10 years, by the end of the project 20% of CO2 injected is from the plant, the rest is recycled

ECBM: assume gas price of 3.5$/mcf, max recovery of 0.317 tons gas/ton CO2 injected

7The model31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionBased on Levelized cost of electricity model, adapted version of MIT LCOE modelThe model allows for different forms of blended financing structuresLCOE methodology finds the price of electricity that covers all generation cost in present value terms (i.e. NPV of the project is equal to zero).Model uses weighted Average Cost of Capital (WACC) as discount rate

8The model31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionWACC = E*S + D*(1-S)Where: E= Expected Return on Private Equity (%)D= Weighted Average Cost of Debt from various financing sources (%)S= Percentage of financing that is equity model calculates the Internal Rate of Return (IRR) of each financing source, and then calculates the weighted average of all sources (i.e.D above).

9Financing structures31/5/2011LoansTermsCase 1Case 2Case 3MDB loan 1Maturity: 30 yearsGrace period: 5 years IRR: 4.85%50%29%25%MDB loan 2Maturity: 15 yearsGrace period: 3 years IRR: 4.19%25%Commercial loanMaturity: 15 yearsGrace period: 4 years IRR: 7.93%50%25%Commercial loan with guaranteeMaturity: 15 yearsGrace period: 4 years IRR: 6.03%71%25%Similar to IBRD

Similar to EBRD

spread of 400 bps over LIBOR50% cheaper than 1st commercial loan

Combined Debt rate for 3 cases determines the WACCThese cases were chosen as Case 1 is a typical World Bank project loan it assumes that several MDBs pull together to make up the 50% loan (MDB1 is similar to IBRD, AfDB and IADB) Case 2 was based on how Moropule in Botswana was financed. Guarantees result in a higher level of financing from commercial sources at lower costs Case 3 is to examine a more blended financial structure with more instrumentsNOTES:Commercial loan: This reflects the current spread over LIBOR of JP Morgans Emerging Market Bond Index Global (EMBIG), plus a small upward adjustment to account for project specific risk.Guarantee: The net impact of a guarantee is assumed to be a reduction of 50% in the spread over LIBOR mentioned above (i.e. reduces the cost of private lending). CAVEAT: The actual impact would depend on the specific details of the project being guaranteed.

- We havent included a bond separately, as this would have the same terms as a commercial loan, and therefore is in some way already an option in the model

Spread over USD LIBOR:MDB loan 1: 0.48%MDB loan 1: 1.5%Commercial loan: 4% Commercial loan with guarantee: 2%1031/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionAssumptions reflect conditions of developing countries that have access to MDB loans and concessional financingReturn on equity (E): 20%Debt fraction: 65%Tax rate: 31%Inflation rate: 3%

Further financial assumptions-Equity rate: reflects median of private investors expectations for these type of projects (which fluctuates between 15% and 25%)

11Results31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionMedium coal priceCase 1: 50/50 MDB1 and commercial loansThis results shows that the LCOE increases when CCS is applied12Results31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionMedium coal priceCase 1: 50/50 MDB1 and commercial loansThis graph shows that LCOE increases from no CCS to with CCS the least for IGCC and the most for PC1331/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionResultsMedium coal priceCase 1: 50/50 MDB1 and commercial loansAverage decrease in LCOE with 15$/ton: 6%Average decrease in LCOE with 15$/ton: 21%

31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionResultsMedium coal priceCase 1: 50/50 MDB1 and commercial loansAverage decrease in LCOE with EOR : 1.4%Average decrease in LCOE with ECBM : 1.2%

Only show EOR here because ECBM results are very similar. Only reduces LCOE by around 3%.

EOR assumptions include costs of developing wells, and assume storage of approximately 1 Mt/year-Assume $70/bbl oil and max recovery rate of 2.5bbl/ton CO2 injected (this is conservative, some estimates are 3 or a bit higher)Assume EOR for 10 years, by the end of the project 20% of CO2 injected is from the plant, the rest is recycled

ECBM: assume gas price of 3.5$/mcf, max recovery of 0.317 tons gas/ton CO2 injected1531/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionResultsMedium coal pricePulverized coalNo extra revenuesNow we take a look at how different financing structures. Case 2 is less than Case 3, but by 0.01c/kWh.Cases 2 and 3 reduce the LCOE more than case 1, but not by very much1631/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionResultsMedium coal pricePulverized coalNo extra revenuesFor all cases, applied 30% and 50% concessional financing, to see how LCOE changesConcessional financing terms similar to Clean Technology Fund termsMaturity: 20 yearsGrace period: 10 yearsIRR: 0.75%1731/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionResultsMedium coal pricePulverized coalNo extra revenuesThe more concessional financing, the lower the LCOEThe level of concessional financing has more impact on the LCOE than the type of financing structure1831/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionResultsMedium coal pricePulverized coalNo extra revenues31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionResultsMedium coal priceNo extra revenuesThis graph compares how the different types of financing reduce the LCOE for IGCC and PC.

Proportionally the LCOE reduces similarly for both technologies. The absolute percentage difference is less for IGCC, as we saw in earlier charts for IGCC the change in LCOE is not as large as for PC.2031/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionMedium coal priceNo extra revenuesResultsOxyfuel is in the middle, as the increase in LCOE was in the middle anyway before any concessional financing2131/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionMedium coal priceNo extra revenuesIGCCResultspriceCO2 priceCO2 priceCO2 priceWith IGCC, with 20$/ton CO2 captured and stored permits, and 50% concessional financing, can get down to about 18% increase in LCOE.2231/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionResultsSome cases found when concessional finance added, LCOE of plant with CCS was LOWER than LCOE of plant without CCS% of concessional finance required to reach breakeven point where LCOEs with and without CCS equal was found for these cases (i.e. it will be less than 50%)

2331/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionResultsAmount of concessional finance required (US$ millions)All the cases show extra revenue streams for the projects, to make LCOE lower, so less CF neededOxyfuel require least concessional finance Technologies with big increase in capital costs going from no CCS to with CCS, like PC (80%) will be impacted by CF more, since CF reduces cost of borrowing for initial investment. IGCC is only 35%. So expect to see CF impact PC a lotBUT also, IGCC LCOE with CCS was already much closer to LCOE without CCS, so little finance needed to set them equal.These are 2 conflicting attributes. Since Oxy is in the middle for each, it comes at as requiring the least CF.24Conclusions31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionPC - the highest percentage increase in LCOE with CCS, followed by Oxyfuel, and then IGCCCO2 price of 15 and 50$/ton - more impact on lowering LCOE than EOR or ECBM revenuesCase 1 (50/50 share MDB & commercial loan) - slightly higher LCOE than cases 2 and 3. Little impact on LCOEConcessional financing does lower LCOE with CCSIn some cases, less than 50% concessional finance is needed to make LCOE with CCS equal to LCOE without CCS

25Thank you31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionNatalia Kulichenkonkulichenko@worldbank.org

Extra slides

31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa Region31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionPulverized coal wet-cooledPulverized coal dry-cooledInputUnitsNo CCSFull capture CCSPartial capture CCSNo CCSFull capture CCSPartial capture CCSCapacityMW500495499500495499Capacity Factor85%85%85%85%85%85%Heat rateBtu/kWh 8,653 12,460 9,710 9,108 13,116 10,221 Overnight Cost$/kW 2,163 4,048 2,944 2,253 4,211 3,061 Fixed O&M Costs$/kW/year3046.234.53046.234.5Variable O&M Costsmills/kWh6.4511.947.986.4511.947.98Carbon intensitykg-CO2/mmBtu 300 300 300 300 300 300 Capture rate%0%90%25%0%90%25%Carbon dioxide emittedkg CO2/kWh1.0250.1030.7691.0250.1030.769Carbon dioxide capturedkg CO2/kWh00.92250.2562500.92250.25625Carbon dioxide capturedtonnes CO2/year - 3,402,452 952,020 - 3,402,452 952,020 Technology inputs

80% increase31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionIGCC wet-cooledIGCC dry-cooledInputUnitsNo CCSFull capture CCSPartial capture CCSNo CCSFull capture CCSPartial capture CCSCapacityMW500417477500417477Capacity Factor85%85%85%85%85%85%Heat rateBtu/kWh 8,989 12,405 9,938 9,016 12,172 9,893 Overnight Cost$/kW 2,083 2,866 2,492 2,147 2,950 2,565 Fixed O&M Costs$/kW/year6074.4646074.464Variable O&M Costsmills/kWh6.007.806.506.007.806.50Carbon intensitykg-CO2/mmBtu 300 300 300 300 300 300 Capture rate%0%90%25%0%90%25%Carbon dioxide emittedkg CO2/kWh1.0250.1030.7691.0250.1030.769Carbon dioxide capturedkg CO2/kWh00.92250.2562500.92250.25625Carbon dioxide capturedtonnes CO2/year - 2,864,017 910,474 - 2,864,017 910,474 Technology inputs

38% increase31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionTechnology inputs

OxyfuelInputUnitsNo CCSFull capture CCSPartial capture CCSCapacityMW500495499Capacity Factor85%85%85%Heat rateBtu/kWh 8,653 11,594 9,470 Overnight Cost$/kW 2,163 3,810 2,944 Fixed O&M Costs$/kW/year3042.633.5Variable O&M Costsmills/kWh6.458.266.96Carbon intensitykg-CO2/mmBtu 300 300 300 Capture rate%0%90%25%Carbon dioxide emittedkg CO2/kWh1.0250.1030.769Carbon dioxide capturedkg CO2/kWh00.92250.25625Carbon dioxide capturedtonnes CO2/year - 3,402,452 952,020 76% increase31/5/2011Carbon Capture and Storage: Perspectives for the Southern Africa RegionParameterValues and explanationCoal price1 $/mmbtu (Low)3 $/mmbtu (Medium)5 $/mmbtu (High)The values 1 and 5 were selected as extremes, with 3 as the average included. The low price is based on cheap domestic coal prices in South Africa (check source Eskom PAD?), the high price is the price of internationally traded coal(check source commodity review), and the medium is the averageCO2 price0$/ton15$/ton50$/tonThese values were selected to represent no price, a low price, similar to prices seen in the EU ETS, and a high price on carbon, and are consistent with the prices used for the analysis in chapter x.Enhanced oil recovery1 million tons per year are injected and storedEOR takes place for 10 yearsAfter 10 years, CO2 is assumed to be stored in alternative site.Capital costs are increased by $184,200,000Assumed oil price 70$/bblMaximum recovery factor: 2.5 bbl/ton injectedDue to recycling, by year 10 only 50% of total CO2 injected is from capture in the plantThe CO2 recovery schedule is given in the appendix in figure x.Enhanced coal bed methane recovery1 million tons per year are injected and storedAfter 10 years, CO2 is assumed to be stored in alternative site.EOR takes place for 10 yearsCapital costs are increased by $66,000,000Assumed gas price: 3.5 $/mcfMaximum recovery factor: 0.317 tons gas/ton CO2 injectedThe CO2 recovery schedule is given in the appendix in figure y.