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 31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region 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

Method 31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region 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)

Scenarios 31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Coal price Low 1$/mmbtu Medium 3$/mmbtu High 5$/mmbtu Revenues from CO 2 permits 0 $/ton 15 $/ton 50 $/ton Revenues from enhanced hydrocarbon recovery Oil (EOR) Coal bed methane (ECBM)

Assumptions 31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region 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

EOR assumptions 31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region 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

ECBM assumptions 31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Max recovery rate 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

The model 31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region 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

The model 31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region 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).

Financing structures 31/5/2011 LoansTermsCase 1Case 2Case 3 MDB loan 1Maturity: 30 years Grace period: 5 years IRR: 4.85% 50%29%25% MDB loan 2Maturity: 15 years Grace period: 3 years IRR: 4.19% 25% Commercial loan Maturity: 15 years Grace period: 4 years IRR: 7.93% 50%25% Commercial loan with guarantee Maturity: 15 years Grace period: 4 years IRR: 6.03% 71%25% Similar to IBRD Similar to EBRD spread of 400 bps over LIBOR 50% cheaper than 1 st commercial loan Combined Debt rate for 3 cases determines the WACC

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region 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% Further financial assumptions

Results 31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Medium coal price Case 1: 50/50 MDB1 and commercial loans

Results 31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Medium coal price Case 1: 50/50 MDB1 and commercial loans

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region 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%

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Results Medium coal price Case 1: 50/50 MDB1 and commercial loans Average decrease in LCOE with EOR : 1.4% Average decrease in LCOE with ECBM : 1.2%

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Results Medium coal price Pulverized coal No extra revenues

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region 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%

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Results Medium coal price Pulverized coal No extra revenues

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Results Medium coal price Pulverized coal No extra revenues

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Results Medium coal price No extra revenues

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Medium coal price No extra revenues Results

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Medium coal price No extra revenues IGCC Results price CO2 price

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region 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%)

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Results Amount of concessional finance required (US$ millions)

Conclusions 31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region PC - the highest percentage increase in LCOE with CCS, followed by Oxyfuel, and then IGCC CO 2 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

Thank you 31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Natalia Kulichenko

Extra slides 31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Pulverized coal wet-cooledPulverized coal dry-cooled InputUnitsNo CCS Full capture CCS Partial capture CCSNo CCS Full capture CCS Partial capture CCS CapacityMW Capacity Factor 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/year Variable O&M Costsmills/kWh Carbon intensity kg- CO2/mmBtu 300 Capture rate%0%90%25%0%90%25% Carbon dioxide emittedkg CO2/kWh Carbon dioxide capturedkg CO2/kWh Carbon dioxide captured tonnes CO2/year - 3,402, , ,402, ,020 Technology inputs 80% increase

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region IGCC wet-cooledIGCC dry-cooled InputUnitsNo CCS Full capture CCS Partial capture CCSNo CCS Full capture CCS Partial capture CCS CapacityMW Capacity Factor 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/year Variable O&M Costsmills/kWh Carbon intensity kg- CO2/mmBtu 300 Capture rate%0%90%25%0%90%25% Carbon dioxide emittedkg CO2/kWh Carbon dioxide capturedkg CO2/kWh Carbon dioxide captured tonnes CO2/year - 2,864, , ,864, ,474 Technology inputs 38% increase

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region Technology inputs Oxyfuel InputUnitsNo CCS Full capture CCS Partial capture CCS CapacityMW Capacity Factor 85% Heat rateBtu/kWh 8,653 11,594 9,470 Overnight Cost$/kW 2,163 3,810 2,944 Fixed O&M Costs$/kW/year Variable O&M Costsmills/kWh Carbon intensitykg-CO2/mmBtu 300 Capture rate%0%90%25% Carbon dioxide emittedkg CO2/kWh Carbon dioxide capturedkg CO2/kWh Carbon dioxide capturedtonnes CO2/year - 3,402, ,020 76% increase

31/5/2011 Carbon Capture and Storage: Perspectives for the Southern Africa Region ParameterValues and explanation Coal price  1 $/mmbtu (Low)  3 $/mmbtu (Medium)  5 $/mmbtu (High) The values 1 and 5 were selected as extremes, with 3 as the average included. The low price is based on cheap domestic coal prices in South Africa (check source – Eskom PAD?), the high price is the price of internationally traded coal(check source – commodity review), and the medium is the average CO2 price  0$/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 oil recovery  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. Enhanced coal bed methane recovery  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: tons gas/ton CO2 injected  The CO2 recovery schedule is given in the appendix in figure y.