Financing model for power plants with CCS

1. Financing model for power plants with CCS Carbon Capture and Storage: Perspectives for the Southern Africa Region Johannesburg May 31-June 1, 2011 NataliyaKulichenko, World Bank Energy Anchor

2. Motivation and background • Part of regional study “Carbon Capture and Storage: Regional Perspectives in developing countries” • Adding CCS to a power plant will make electricity more expensive • Objective is to investigate: • How much more expensive power from coal plants with CCS is compared to without CCS • Different ways that power plants with CCS in developing countries can be financed • How concessional finance can impact electricity price Carbon Capture and Storage: Perspectives for the Southern Africa Region

3. Method • Calculate how different financing structures can effect levelized cost of electricity (LCOE) • Calculate impact of concessional financing on LCOE • Find 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) Carbon Capture and Storage: Perspectives for the Southern Africa Region

4. Scenarios • Coal price • Low 1$/mmbtu • Medium 3$/mmbtu • High 5$/mmbtu • Revenues from CO2 permits • 0 $/ton • 15 $/ton • 50 $/ton • Revenues from enhanced hydrocarbon recovery • Oil (EOR) • Coal bed methane (ECBM) Carbon Capture and Storage: Perspectives for the Southern Africa Region

5. Assumptions • Technologies examined, 0%, 25% 90% capture • Pulverized coal, wet and dry cooled • IGCC, wet and dry cooled • Oxy-fuel wet cooled • Cost developed based on NETL feasibility study on IGCC plant in India and estimates of costs of a coal plant in South Africa • Costs of CCS components developed through literature review and expert consultation Carbon Capture and Storage: Perspectives for the Southern Africa Region

6. EOR assumptions • Max recovery rate 3.5 bbl/ton CO2 injected • 1Mt/year stored • Lasts for 10 years • CO2 recycled (80% of injected CO2 is recycled by year 10) • Upfront development costs approx $180m Carbon Capture and Storage: Perspectives for the Southern Africa Region

7. ECBM assumptions • Max recovery rate 0.317 tons gas/ton CO2 injected • 1Mt/year stored • Lasts for 10 years • Upfront development costs approx $66m • NB – have not assumed recycling – less data available on ECBM then EOR to make assumptions Carbon Capture and Storage: Perspectives for the Southern Africa Region

8. The model • Based on Levelized cost of electricity model, adapted version of MIT LCOE model • The model allows for different forms of blended financing structures • LCOE 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 Carbon Capture and Storage: Perspectives for the Southern Africa Region

9. The model WACC = 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). Carbon Capture and Storage: Perspectives for the Southern Africa Region

10. Financing structures Similar to IBRD Similar to EBRD spread of 400 bps over LIBOR 50% cheaper than 1st commercial loan Combined Debt rate for 3 cases determines the WACC

11. Further financial assumptions • Assumptions reflect conditions of developing countries that have access to MDB loans and concessional financing • Return on equity (E): 20% • Debt fraction: 65% • Tax rate: 31% • Inflation rate: 3% Carbon Capture and Storage: Perspectives for the Southern Africa Region

12. Medium coal price Case 1: 50/50 MDB1 and commercial loans Results Carbon Capture and Storage: Perspectives for the Southern Africa Region

13. Medium coal price Case 1: 50/50 MDB1 and commercial loans Results Carbon Capture and Storage: Perspectives for the Southern Africa Region

14. Results Medium coal price Case 1: 50/50 MDB1 and commercial loans Average decrease in LCOE with 15$/ton: 6% Average decrease in LCOE with 15$/ton: 21% Carbon Capture and Storage: Perspectives for the Southern Africa Region

15. Medium coal price Case 1: 50/50 MDB1 and commercial loans Results Average decrease in LCOE with EOR : 1.4% Average decrease in LCOE with ECBM : 1.2% Carbon Capture and Storage: Perspectives for the Southern Africa Region

16. Medium coal price Pulverized coal No extra revenues Results Carbon Capture and Storage: Perspectives for the Southern Africa Region

17. Medium coal price Pulverized coal No extra revenues Results • For all cases, applied 30% and 50% concessional financing, to see how LCOE changes • Concessional financing terms similar to Clean Technology Fund terms • Maturity: 20 years • Grace period: 10 years • IRR: 0.75% Carbon Capture and Storage: Perspectives for the Southern Africa Region

18. Medium coal price Pulverized coal No extra revenues Results Carbon Capture and Storage: Perspectives for the Southern Africa Region

19. Medium coal price Pulverized coal No extra revenues Results Carbon Capture and Storage: Perspectives for the Southern Africa Region

20. Medium coal price No extra revenues Results Carbon Capture and Storage: Perspectives for the Southern Africa Region

21. Medium coal price No extra revenues Results Carbon Capture and Storage: Perspectives for the Southern Africa Region

22. Results Medium coal price No extra revenues IGCC price CO2 price CO2 price CO2 price Carbon Capture and Storage: Perspectives for the Southern Africa Region

23. Results • Some 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%) Carbon Capture and Storage: Perspectives for the Southern Africa Region

24. Results Amount of concessional finance required (US$ millions) Carbon Capture and Storage: Perspectives for the Southern Africa Region

25. Conclusions • PC - the highest percentage increase in LCOE with CCS, followed by Oxyfuel, and then IGCC • CO2 price of 15 and 50$/ton - more impact on lowering LCOE than EOR or ECBM revenues • Case 1 (50/50 share MDB & commercial loan) - slightly higher LCOE than cases 2 and 3. Little impact on LCOE • Concessional financing does lower LCOE with CCS • In some cases, less than 50% concessional finance is needed to make LCOE with CCS equal to LCOE without CCS Carbon Capture and Storage: Perspectives for the Southern Africa Region

26. Thank you Natalia Kulichenko nkulichenko@worldbank.org Carbon Capture and Storage: Perspectives for the Southern Africa Region

27. Extra slides Carbon Capture and Storage: Perspectives for the Southern Africa Region

28. Technology inputs 80% increase Carbon Capture and Storage: Perspectives for the Southern Africa Region

29. Technology inputs 38% increase Carbon Capture and Storage: Perspectives for the Southern Africa Region

30. Technology inputs 76% increase Carbon Capture and Storage: Perspectives for the Southern Africa Region

31. Carbon Capture and Storage: Perspectives for the Southern Africa Region