Financing model for power plants with CCS Carbon Capture and Storage: Perspectives for the Southern Africa Region Johannesburg May 31-June 1, 2011 Nataliya Kulichenko, World Bank Energy Anchor 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 31/5/2011 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 31/5/2011 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 31/5/2011 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 31/5/2011 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 31/5/2011 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 31/5/2011 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 31/5/2011 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 31/5/2011 Financing structures Loans Terms Case 1 Case 2 Case 3 MDB loan 1 Maturity: 30 years Grace period: 5 years IRR: 4.85% 50% 29% 25% MDB loan 2 Maturity: 15 years Grace period: 3 years IRR: 4.19% Commercial loan Maturity: 15 years Grace period: 4 years IRR: 7.93% Commercial loan with guarantee Maturity: 15 years Grace period: 4 years IRR: 6.03% Similar to IBRD Similar to EBRD spread of 400 bps over LIBOR 50% cheaper than 1st commercial loan 25% 50% Combined Debt rate for 3 cases determines the WACC 25% 71% 25% 31/5/2011 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 31/5/2011 Medium coal price Case 1: 50/50 MDB1 and commercial loans Results LCOE different technologies with and without CCS 16 14 c/kWh 12 10 IGCC PC Oxyfuel 8 6 4 2 0 no CCS 25% capture CCS90% capture CCS Carbon Capture and Storage: Perspectives for the Southern Africa Region 31/5/2011 Medium coal price Case 1: 50/50 MDB1 and commercial loans Results Percentage increase in LCOE, no CCS to 90% capture CCS 70% 60% 50% 40% 30% 20% 10% 0% IGCC Carbon Capture and Storage: Perspectives for the Southern Africa Region PC Oxyfuel 31/5/2011 Medium coal price Case 1: 50/50 MDB1 and commercial loans Results LCOE with different CO2 prices 16 LCOE $/MWh 14 12 10 0$/ton 15$/ton 50$/ton 8 6 4 2 0 IGCC PC Oxyfuel 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 31/5/2011 Results Medium coal price Case 1: 50/50 MDB1 and commercial loans LCOE with enhanced hydrocarbon recovery 16 14 LCOE $/MWh 12 10 None EOR ECBM 8 6 4 2 0 IGCC PC 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 Oxy 31/5/2011 Medium coal price Pulverized coal No extra revenues Results c/kWh LCOE different financing structures 16 14 12 10 8 6 4 2 0 Without CCS MDB loan + MDB loan + 2 MDB loans + commercial loan guarantee + guarantee + commercial loan commercial loans Carbon Capture and Storage: Perspectives for the Southern Africa Region 31/5/2011 Results Medium coal price Pulverized coal No extra revenues 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 31/5/2011 Medium coal price Pulverized coal No extra revenues Results c/kWh LCOE different financing structures 16 14 12 10 8 6 4 2 0 No concessional financing 30% concessional financing Without CCS MDB loan + commercial loan MDB loan + 2 MDB loans + guarantee + guarantee + commercial commercial loan loans Carbon Capture and Storage: Perspectives for the Southern Africa Region 50% concessional financing 31/5/2011 Medium coal price Pulverized coal No extra revenues Results Percentage chance in LCOE from without CCS to with CCS 62% 60% 58% 56% 54% 52% 50% 48% 46% 44% No concessional financing 30% concessional financing 50% concessional financing MDB loan + commercial loan MDB loan + 2MDB loans + guarantee + guarantee + commercial commercial loan loans Carbon Capture and Storage: Perspectives for the Southern Africa Region 31/5/2011 Medium coal price No extra revenues Results Percentage chance in LCOE from without CCS to with CCS 70% 60% 50% 40% 30% 20% 10% 0% MDB loan + commercial loan MDB loan + 2MDB loans + guarantee + guarantee + commercial loan commercial loans Carbon Capture and Storage: Perspectives for the Southern Africa Region PC no concessional financing PC 30% concessional financing PC 50% concessional financing IGCC no concessional financing IGCC 30% concessional financing IGCC 50% concessional financing 31/5/2011 Medium coal price No extra revenues Results Percentage chance in LCOE from without CCS to with CCS 70% 60% 50% PC OXY IGCC 40% 30% 20% 10% 0% MDB loan + commercial loan MDB loan + guarantee + 2MDB loans + guarantee + commercial loan commercial loans Carbon Capture and Storage: Perspectives for the Southern Africa Region 31/5/2011 Results Medium coal price No extra revenues IGCC Percentage change in LCOE from no CCS, with CO2 price No concessional financing, no CO2 permits price 40% 35% 30% 25% 20% 15% 10% 5% 0% No concessional financing WITH CO2price permit CO2 30% concessional financing WITH CO2 CO2 permit price MDB loan + commercial loan MDB loan + guarantee + commercial loan MDB loan + guarantee + commercial loan Carbon Capture and Storage: Perspectives for the Southern Africa Region 50% concessional financing WITH CO2 CO2 permit price 31/5/2011 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 31/5/2011 Percent of concessional finance required Results 50 45 40 35 30 25 20 15 10 5 0 Percentage of concessional finance required to set LCOE with full capture equal to without capture case (if less than 50%) 942 1,338 1,600 1,400 53 Amount of concessional finance required (US$ millions) 409 348 316 105 1,200 1,000 800 600 400 200 0 Oxy, low Oxy, low Oxy, low IGCC, IGCC, IGCC, PC, low coal price, coal price, coal price, medium medium medium coal price, EOR, ECBM, 50$/ton coal price, coal price, coal price, EOR, 50$/ton 50$/ton EOR, ECBM, 50$/ton 50$/ton 50$/ton 50$/ton Carbon Capture and Storage: Perspectives for the Southern Africa Region 31/5/2011 Conclusions PC - the highest percentage increase in LCOE with CCS, followed by Oxyfuel, and then IGCC CO2 price of 15 and 50$/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 31/5/2011 Thank you Natalia Kulichenko nkulichenko@worldbank.org Carbon Capture and Storage: Perspectives for the Southern Africa Region 31/5/2011 Extra slides Carbon Capture and Storage: Perspectives for the Southern Africa Region 31/5/2011 Technology inputs Input Units Pulverized coal wet-cooled Full Partial capture capture No CCS CCS CCS Capacity MW 500 495 499 500 495 499 85% 85% 85% 85% 85% 85% Capacity Factor Pulverized coal dry-cooled Full Partial capture capture No CCS CCS CCS Heat rate Btu/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/year 30 46.2 34.5 30 46.2 34.5 Variable O&M Costs mills/kWh kgCO2/mmBtu 6.45 11.94 7.98 6.45 11.94 7.98 300 300 300 300 300 300 % 0% 90% 25% 0% 90% 25% kg CO2/kWh 1.025 0.103 0.769 1.025 0.103 0.769 0 0.9225 0.25625 0 0.9225 0.25625 - 3,402,452 952,020 - 3,402,452 952,020 Carbon intensity Capture rate Carbon emitted Carbon captured Carbon captured 80% increase dioxide dioxide kg CO2/kWh dioxide tonnes CO2/year Carbon Capture and Storage: Perspectives for the Southern Africa Region 31/5/2011 Technology inputs IGCC wet-cooled IGCC dry-cooled Input Units No CCS Full capture CCS Capacity MW 500 417 477 500 417 477 85% 85% 85% 85% 85% 85% Capacity Factor Partial capture CCS No CCS Full capture CCS Partial capture CCS Heat rate Btu/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/year 60 74.4 64 60 74.4 64 Variable O&M Costs mills/kWh kgCO2/mmBtu 6.00 7.80 6.50 6.00 7.80 6.50 300 300 300 300 300 300 25% 0% 90% 25% 0.769 1.025 0.103 0.769 0.25625 0 0.9225 0.25625 910,474 - 2,864,017 910,474 Carbon intensity Capture rate % 0% 90% Carbon dioxide emitted kg CO2/kWh 1.025 0.103 Carbon dioxide captured kg CO2/kWh 0 0.9225 Carbon dioxide tonnes captured Carbon Capture CO2/year 2,864,017 and Storage: Perspectives for the Southern Africa Region 38% increase 31/5/2011 Technology inputs Oxyfuel Input Units No CCS Full CCS Capacity MW 500 495 499 85% 85% 85% Capacity Factor capture Partial capture CCS Heat rate Btu/kWh 8,653 11,594 9,470 Overnight Cost $/kW 2,163 3,810 2,944 Fixed O&M Costs $/kW/year 30 42.6 33.5 Variable O&M Costs mills/kWh 6.45 8.26 6.96 Carbon intensity kg-CO2/mmBtu Capture rate % 0% 90% 25% Carbon dioxide emitted kg CO2/kWh 1.025 0.103 0.769 Carbon dioxide captured kg CO2/kWh 0 0.9225 0.25625 Carbon dioxide captured tonnes CO2/year Carbon Capture and Storage: Perspectives for the Southern Africa Region 300 - 300 3,402,452 76% increase 300 952,020 31/5/2011 Parameter Coal price CO2 price Enhanced oil recovery Values and explanation 1 $/mmbtu (Low) 3 $/mmbtu (Medium) 5 $/mmbtu (High) The values 1 and 5 were selected as extremes, with 3 as the average included. The low price is based on cheap domestic coal prices in South Africa (check source – Eskom PAD?), the high price is the price of internationally traded coal(check source – commodity review), and the medium is the average 0$/ton 15$/ton 50$/ton These 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 coal bed methane recovery Carbon Capture and Storage: Perspectives for the Southern Africa Region 1 million tons per year are injected and stored EOR takes place for 10 years After 10 years, CO2 is assumed to be stored in alternative site. Capital costs are increased by $184,200,000 Assumed oil price 70$/bbl Maximum recovery factor: 2.5 bbl/ton injected Due to recycling, by year 10 only 50% of total CO2 injected is from capture in the plant The CO2 recovery schedule is given in the appendix in figure x. 1 million tons per year are injected and stored After 10 years, CO2 is assumed to be stored in alternative site. EOR takes place for 10 years Capital costs are increased by $66,000,000 Assumed gas price: 3.5 $/mcf Maximum recovery factor: 0.317 tons gas/ton CO2 injected The CO2 recovery schedule is given in the appendix in figure 31/5/2011 y.