Making the CCS Case
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1) The document discusses a proposed CCS project called the Don Valley Power Project (DVPP) in the UK. It analyzes the business case for DVPP and identifies key factors for making CCS projects commercially viable such as government support mechanisms, carbon pricing, and using CO2 for enhanced oil recovery. 2) DVPP's plan was to use CO2 from a proposed coal power plant for EOR in the North Sea, with the revenue from EOR covering storage costs. However, DVPP was unsuccessful in obtaining a UK capital grant and the high capital costs remain a challenge. 3) For CCS to succeed, the document emphasizes that future projects must reduce costs, secure diverse sources
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Making the CCS Case
- 1. Making the business case for CCS David Mirkin, GCC CCS Strategy Workshop, 13 May 2013
- 2. 2Co Background and Expertise • 1000 miles of pipelines, moving 20mtpa of CO2 for enhanced oil recovery • A BP-Rio Tinto joint venture, developed three advanced CCS projects – Peterhead, Abu Dhabi and California • One of the world’s largest private equity firms with almost $50bn invested the reverse effect Gareth Roberts, 2Co Chairman, was Denbury founder and former CEO Lewis Gillies, 2Co CEO, was Hydrogen Energy founder and former CEO 2
- 3. the reverse effect 2Co’s DVPP project 3
- 4. the reverse effect Who has published CCS business cases before? Tenaska - Trailblazer AEP - Mountaineer Transalta – Pioneer ROAD Rotterdam Climate Initiative Global CCS Institute project survey All at globalccsinstitute.com/publications 4
- 5. the reverse effect What was considered important to the business case? 0 1 2 3 4 5 6 Regulated returns Viable storage solutions Large, credible suppliers Long term supply, offtake agreements Tax incentives Project clustering Premium power price Government-backed lending CO2 emission price EOR revenue Capital grant 5
- 6. the reverse effect DVPP market context: UK attractive for CCS UK attractive location for CCS deployment • UK government policy to decarbonise • Government plan to introduce power premium for CCS • Capital grants • Many storage opportunities, including EOR But • Several projects competing for government support • Storage potentially challenged by cost, regulation • Exact nature of government support unclear DVPP not successful in DECC competition for capital grant 6
- 7. the reverse effect DVPP market context: CfD will theoretically provide sufficient power premium £/MWh time FiT CfD Wholesale price Generator receives money from CfD counterpart when wholesale price is < CfD strike price Source: EMR Consultation Document Generator pays money back to CfD counterpart when wholesale price is > CfD strike price 7
- 8. the reverse effect DVPP market context: EOR in North Sea could also contribute CO2 EOR considered in North Sea since 1979, numerous studies conducted since, all indicating the technology is technically attractive; Numerous sandstone reservoirs have been successfully developed for CO2 EOR in North America; Miscible gas EOR has been successfully deployed at scale in the North Sea (Magnus); CO2 storage has been successfully deployed at scale in the North Sea (Sleipner); BP, Shell, ConocoPhillips developed Miller field to point of FID in 2006, lack of availability of CO2 being the only reason the project didn’t proceed. Successful development of CO2 EOR offshore is a question of cost and CO2 availability, not of technology. 8
- 9. the reverse effect DVPP funding requirement: Significant funding challenge Approximately £5bn capex required across the DVPP value chain 9 Estimated total project costs (excluding financing fees) Estimated power plant cost breakdown Component Share (%) Component Share (%) Power plant 68% CCS 59% Transport (2Co share) 0% Non-CCS 26% Storage 26% Other 7% Sub-total 94% Sub-total 91% Financing costs* 6% Financing costs* 9% Total 100% Total 100% * Financing costs comprise fees and interest accrued during construction
- 10. the reverse effect DVPP funding requirement: The potential of different sources 10 Equity Debt Grants • Risk capital • Several potential sources depending on the project phase • High required return • Potentially low cost • Potentially large scale • Unwilling to take risk • Fees • Reduce equity and debt requirement directly • Several were available • EEPR • NER300 • UK government • DVPP only received EEPR
- 11. the reverse effect DVPP funding requirement: Proposed funding allocation 11 Potential sources of funding for DVPP Potential sources of debt funding Share (%) Share (%) Grants 26% MFI 24% Equity 14% ECA 58% Debt 60% Commercial 18% Total 100% Total 100%
- 12. the reverse effect DVPP business plan: EOR would enable zero cost storage 12 Power Plant Capture StorageTransport 2Co’s storage costs do not pass back to the plant, as they will be covered by EOR Costs from transport
- 13. the reverse effect DVPP business plan: Production profile 13 In mature operations, 650MW net of power, 4.9mtpa CO2, 90%+ carbon capture
- 14. the reverse effect DVPP business plan: Operating cost split (steady-state) 14 CO2 tax = EU ETS allowance purchases
- 15. the reverse effect DVPP business plan: Revenue profile 15
- 16. the reverse effect DVPP business plan: Forecast Cashflow 16
- 17. the reverse effect DVPP business plan: Impact of key sensitivities on required power premium 17
- 18. the reverse effect DVPP business plan: Driving down cost of future CCS projects 18 • 2Co estimated that a successful project could reduce the cost of the next project by £30-£60/MWh. • A reduction in the cost of technology would be only a small fraction of the benefit.
- 19. the reverse effect DVPP business plan: Management of risks crucial 19
- 20. the reverse effect Conclusion the reverse effect20 • Capital grant considered important by all other business case publications, DVPP challenged without UK capital grant • Need to re-address size of capex, its sources, and the revenue profile • Cash from EOR and power premium available mean prospects for success remain in longer term • Work to complete technical definition and certain commercial terms will reduce risks until circumstances are right for project tp proceed.
- 21. www.2coenergy.com The Don Valley CCS Project is co-financed by the European Union’s European Energy Programme for Recovery. The sole responsibility for this publication lies with the authors. The European Union is not responsible for any use that may be made of the information contained therein.