Financing model for power plants with CCS

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Alannah Hardy
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1 Financing model for power plants with CCS Addressing Barriers to Carbon Capture and Storage in Developing Countries CSLF Financing Task Force Meeting, Beijing September Natalia Kulichenko World Bank

2 Background Objective was to build a levelizedcost of electricity (LCOE) model to investigate how: Coal prices CO2prices EOR/ECBM revenues Level of concessional financing Affect LCOE of coal plants with CCS CSLF Financing Task Force Meeting 09/019/2011

3 Scenarios Coal price Low 1$/mmbtu Medium 3$/mmbtu High 5$/mmbtu Revenues from CO 2 permits None 20$/tonnes CO 2 captured Revenues from enhanced hydrocarbon recovery Oil (EOR) Coal bed methane (ECBM)

4 EOR assumptions Max recovery rate 3.5 bbl/tonne 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

5 The model Based on Levelized cost of electricity model, adapted version of MIT LCOE model by Du and Parsons, May 2009 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

6 Financing structures Loans Terms Case 1 Case 2 Case 3 Similar to IBRD MDB loan 1 Maturity: 30 years Grace period: 5 years IRR: 4.85% 50% 29% 25% Similar to EBRD MDB loan 2 Maturity: 15 years Grace period: 3 years IRR: 4.19% 25% spread of 400 bps over LIBOR Commercial loan Maturity: 15 years Grace period: 4 years IRR: 7.93% 50% 25% 50% cheaper than 1 st commercial loan Commercial loan with guarantee Maturity: 15 years Grace period: 4 years IRR: 6.03% 71% 25% Combined Debt rate for 3 cases determines the WACC 09/019/2011

7 16 Case 1: 50/50 MDB1 and commercial loans LCOE different technologies with and without CCS c/kwh IGCC PC Oxyfuel 2 0 no CCS 25% capture CCS 90% capture CCS

8 70% 60% 50% 40% 30% 20% 10% Case 1: 50/50 MDB1 and commercial loans Percentage increase in LCOE, no CCS to 90% capture CCS 0% IGCC PC Oxyfuel

9 Case 1: 50/50 MDB1 and commercial loans c/kwh LCOE with and without CCS with CO2 price for a unit of emission reduction credit no CCS 90% capture CCS Average 8% decrease IGCC CO2 permit PC CO2 permit Oxyfuel CO2 permit IGCC PC Oxyfuel

10 Case 1: 50/50 MDB1 and commercial loans c/kwh LCOE with and without CCS with EOR opportunity Average 3% decrease IGCC with EOR PC with EOR Oxyfuel with EOR IGCC PC Oxyfuel 0 no CCS 90% capture CCS

11 c/kwh LCOE different financing structures Without CCS MDB loan + commercial loan MDB loan + guarantee + commercial loan Pulverized coal No extra revenues 2 MDB loans + guarantee + commercial loans

12 Pulverized coal No extra revenues Original method was to find the level of concessional financing that will lower LCOE with CCS to LCOE without CCS. But, even with 100% concessional financing LCOE with CCS is still higher! Therefore 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%

13 62% 60% 58% 56% 54% 52% 50% 48% 46% 44% Percentage chance in LCOE from without CCS to with CCS MDB loan + commercial loan MDB loan + guarantee + commercial loan 2MDB loans + guarantee + commercial loans Pulverized coal No extra revenues No concessional financing 30% concessional financing 50% concessional financing

14 70% 60% 50% 40% 30% 20% 10% 0% MDB loan + commercial loan MDB loan + guarantee + commercial loan 2MDB loans + guarantee + commercial loans No extra revenues Percentage chance in LCOE from without CCS to with CCS PC no concessional financing PC 30% concessional financing PC 50% concessional financing IGCC no concessional financing IGCC 30% concessional financing IGCC 50% concessional financing

15 40% 35% 30% 25% 20% 15% 10% 5% 0% Percentage change in LCOE from no CCS, with CO2 price MDB loan + commercial loan MDB loan + guarantee + commercial loan Results MDB loan + guarantee + commercial loan No extra revenues No concessional financing, no CO2 permits price No concessional financing WITH CO2 permit CO2 price 30% concessional financing WITH CO2 permit CO2 price 50% concessional financing WITH CO2 permit CO2 price CSLF Financing Task Force Meeting 5/05/2011

16 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 set LCOE equal to LCOE of plant without CCS found Calculated the monetary value of concessional finance Minimum required concessional finance oxyfuel with EOR and $50/ton CO2 - $53 million Maximum required concessional finance PC with EOR and $50/ton CO2.

17 Thank you The model can be found at: Natalia Kulichenko CSLF Financing Task Force Meeting 09/019/2011

CONTENTS. Promising storage capacity estimates. Expansion of coal in the next 30 years. The economic potential of CCS in Vietnam.

CONTENTS. Promising storage capacity estimates. Expansion of coal in the next 30 years. The economic potential of CCS in Vietnam. CCS DEPLOYMENT POTENTIAL IN VIETNAM S POWER SECTOR Presented by: Nhan T. Nguyen With contribution from Minh Ha-Duong and Anh T.H. Nguyen Centre International de Recherche sur l Environnement et le Développement