WEC ITALY – ROLE OF CCS IN DECARBONIZATION

Perspective on the UK Cost Reduction Task Force

16 May 2013

Nathalie Lemarcis

Director - Power Advisory & Project Finance

nathalie.lemarcis@sgcib.com

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THE CCS COST REDUCTION TASK FORCE ......

UK Government initiative:

● Established in March 2012 by DECC as “an industry-led joint task force

established by Government to assist with the challenge of making CCS

commercially available for operation by the early 2020s.”

● Chaired by Geoff Chapman (CCSA), project managed by the Crown Estate

● Analytical and other support from Poyry

● Broadly representative of the stakeholders in CCS - 23 members drawn

from industry, trade associations, developers, finance and academia

“The objective of the Task Force is to publish a report to advise

Government and industry on reducing the cost of CCS so that

projects are financeable and competitive with other low carbon

technologies in the early 2020s.”

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TASK FORCE METHODOLOGY ......

Identification of three key areas of potential cost reduction: ● Planning & Infrastructure (Mike Saunders / Alastair Rennie)

● Commercial & Financial ( Allan Baker/Nathalie Lemarcis)

● Generation & Capture (Leigh Hackett / Tom Stringer)

Consultation: ● Work stream work shops

● Questionnaire – cost reduction opportunities & impact

● One-to-one interviews with stake holders

Modelling & Analysis – led by Poyry: ● Review of existing analysis in the public domain

● Challenge of assumptions

● Analysis

The report: ● is a representation of the Task Force members view of the opportunities for cost

reduction in CCS

● is not a list of government or other stakeholder actions or a detailed model / representation of CCS project costs

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THE IMPORTANCE OF COST REDUCTION ......

The role of CCS in the UK generation mix is

crucial to the low carbon strategy of the UK

● Decarbonisation of generation needs CCS

● CCS facilitates Nuclear and intermittent renewable development

CCS Commercialisation and the support

mechanisms now in place can kick start the

development of commercial CCS

● Commercialisation grant

● Feed-in Tariff /Contracts for Difference

● Emissions Performance Standard

UK poised take a leading role (again !)

Cost reduction is the essential step from FOAK

to Nth-of-a-kind

● CCS has to be cost competitive to deliver potential

● Desired outcome should be operational plants and a clear cost

reduction trajectory

● “No regrets strategy” – planning for success

Source: Department of Energy and Climate Change

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KEY CONCLUSIONS FROM THE INITIAL REPORT ......

Need for a supportive regulatory landscape:

Commercialisation program provides an

opportunity to resolve many of these

issues and create a template for future

industry development

Within this environment tangible cost savings can come from:

● Planning & infrastructure developments

● Generation & capture technology development

● Evolution of commercial and financing arrangements

Deliverability is not the responsibility of government alone

Development of CCS requires constructive full engagement of all stakeholders

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PLANNING AND INFRASTRUCTURE DEVELOPMENT ......

Achieving optimal scale in CO2 storage

● Storage reservoir development represents a significant part of CO2 storage cost

● Expensive process so benefit from focussing on “high volume” opportunities

● Substantial risk (cost) reduction from storage clusters

Essentially a volume business – higher volume = lower per unit cost

Optimisation of transport infrastructure

● Cost of increasing a pipe size is not proportional to the volume transported – lower per unit transport cost

● Trunk lines and local feeder hubs provide volume benefits over early point to point projects

● Distance matters – shorter less complex routes have obvious cost benefits

Planning and investing for future projects in the first projects could lead to significant reductions in per unit of CO2 stored in follow on-projects

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GENERATION AND CAPTURE TECHNOLOGY DEVELOPMENT ......

Early plants unlikely to be optimal – optimising would improve per unit:

● Capital equipment costs

● Capture operating costs, including energy penalties (parasitic load)

Benefit of experience

● Reduced redundancy in design and execution

● Process optimisation

● Better integration

● Piggy-backing on commercial, regulatory, planning and other existing knowledge

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ACHIEVING AFFORDABLE FINANCING ......

Appropriate risk allocation across the full chain – never easy in a new industry !

● Complex mix of disciplines and “cross border” risks and liabilities

● Appropriate allocation on FOAK is unlikely to be the optimal allocation for the Nth-of-a-kind :

improvement with experience

Role of Government, developers, insurance industry and finance being defined

● Real time risk allocation discussion under way – Commercialisation Competition

● We don’t know what we don’t know – pragmatic approach from all stakeholders

Continued engagement with finance and insurance industry crucial

● Genuine interest now – momentum needs to be retained

High cost of capital in early projects offers scope for material cost reductions if a

replicable template emerges from the Commercialisation competition

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POTENTIAL DELIVERABLE COST REDUCTIONS ......

Cost reductions only achievable if a number of projects are built

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POTENTIAL DELIVERABLE COST REDUCTIONS ......

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CONCLUSIONS .......

An LCOE with CCS at or below £100/MWh is achievable by the 2020s

This is confirmation that CCS is comparable with traditional renewables – even

more so when it’s ability to back up intermittency is taken into account

Clear that the industry needs to capitalise on the Commercialisation

competition but to realise the full potential a credible long term commitment is

required by all stakeholders

Cost savings will only come from multiple operating full chain projects with a

well conceived transport and storage solution

Challenge is to look beyond the Commercialisation phase

and plan for success

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ADDITIONAL INFORMATION .......

Information relating to the CCS Cost Reduction Task Force is available on the

DECC web site

The Final Report of the Task Force will be delivered to the Minister in Spring 2013

A number of “Candidate Actions” have been identified by the Task Force and these

will be taken forward

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SOCIETE GENERALE AND CCS .......

Leading Financial institution in the CCS sector:

Financial Advisor to one of the short-listed commercialisation projects

Financial Advisor to Abu Dhabi “full chain” CCS (Masdar) project

Financial Advisor to Powerfuel IGCC, UK

Financing Feasibility study for Hydrogen Energy California

EEPR guarantee facility for the 2Co Don Valley CCS project

Member of the UK Government CCS Forum

CCS Cost Reduction Task Force Member