CCS Financing Roundtable

Role of Public Sector Financing -The Financing Gap

Singapore, 7 April 2011
Clinton Climate Initiative

Solutions that Work Support Structure

 Projects not Targets  Technical Assistance
 Reduce Emissions  Project Assistance
 High Impact  Purchasing Assistance
 Large Scale  Network Access
 Global  Measurement Tools
 Financing

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 BARRIERS FACING LARGE-SCALE CCS

Costs too high

Communities
mostly
Risks too high uninformed
and uncertain

Technologies
Regulatory
unproven at scale or
frameworks still
still immature
immature

These barriers likely to be higher in developing countries

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 COST OF CCS

• Retrofit has high energy demand (30-40%), new build has high capital cost
• Current costs range from US$60 – 110 /tCO2 avoided (new build and retrofit) and
can add ~80% to cost of production

Image: McKinsey
 The financing gap

“Whilst there are no insurmountable technological, legal,

institutional, regulatory or other barriers that prevent CCS
from playing a role in reducing GHG emissions, early
CCS projects face economic challenges related to climate
policy uncertainty, first-of-a-kind technology risks and the
current high cost of CCS relative to other technologies.”
“CCS technologies will not be widely deployed in the next
two decades absent financial incentives that supplement
projected carbon prices.”

The Report of the Interagency Task Force on Carbon Capture and Storage
7 April 2011 5
 Key barriers to financing CCS

• Uncertainty on architecture of international climate change

agreements and carbon prices
• High initial capital cost and operating cost penalty for first-mover
projects
• Expectation of forward carbon prices too low to drive investment
• Generally poor reputation of CCS relative to other low emission
technologies
• Lack of:
– Funding sources, either international or domestic, for CCS projects in
developing countries
– Funding mechanisms for CCS deployment
– Mechanisms to management investment risks

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 Generic financing solution elements

• Direct application of public funding to support the early

stage development technologies, either directly for CCS
or more broadly for low-emission technologies
• Policy predictability/certainty regarding the value of GHG
emissions reductions
• Underwriting of carbon risk against a future carbon price
or other direct, output-based, support

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 A risk perspective

• Current policy uncertainty and the risks associated with the first large scale
capture plants provide a justification for risk management by the public sector
• The interdependence of CCS elements exposes individual links within the
chain of capture, transport, and storage to additional risks
• Perceived and real risks translate to unfavourable financing terms for CCS
projects, which may inhibit many projects
• The CCS network concept assists in reducing the CO2 volume risk
associated with a single capture source
• Direct contracting with operators of CCS network elements by the government
has potential to substantially reduce risk
• Risks across the chain for large scale integrated CCS give rise to an early
stage role for government in establishing a robust commercial framework that
is most likely to deliver the optimum financial structures and funding for the
network

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 CCS Financing Roundtable
Role of Public Sector Financing -The Financing Gap
Singapore, 7 April 2011
 CCS Financing Roundtable
What would it take for private investment to flow?
Singapore, 7 April 2011
 What is required?

• Direct application of public funding to support the early

stage development technologies, either directly for CCS or
more broadly for low-emission technologies
• Policy predictability/certainty regarding the value of GHG
emissions reductions
• Underwriting of carbon risk against a future carbon price or
other direct, output-based, support

Together, these elements address the challenges of

opportunity and risk
7 April 2011 1
 Specific financing solution elements

• Capital grant funds, either CCS-specific or for low-emission

technologies
• Contracted price support or carbon floor price
• Feed-in Tariffs or Low-emission obligations
• Government support CCS authority with subsequent sell-
down or withdrawal
• Direct funding and development of storage characterisation,
likely contracted to private sector companies
• Establishment of common user principles and financial
structures for transport and storage, in which government
ownership is an option

7 April 2011 1
 Possible risk management structure

CarbonNet

$ / tonne delivered $ / tonne $ for available $ / tonne stored

to network captured capacity (guaranteed minimum)

CO2 CO2 CO2

Generator/CTX CaptureCo TransportCo StorageCo

• Contracted by • Contracted by • Contracted by • Initially funded &

CarbonNet to supply CarbonNet to supply
pre-capture CO2 on captured &
known price basis) compressed CO2 on
• Contracted by known price per tonne
CaptureCo for that exceeds cost of
electricity supply capture
• CTX charged cost • Backed by OEM
+margin by performance
CarbonNet guarantees where
possible
CarbonNet to provide
desired capacity (no
volume or price risk)
• Physically handles
CO2 but CarbonNet
retains title & risk
operated by
CarbonNet for basin
procurement and
validation
• Externally funded
once basin validated
• Known price contract
per tonne stored with
guaranteed volume
minimum (no price or
volume risk)
• CarbonNet accepts
containment risk

7 April 2011 1
 CCS Financing Roundtable
What would it take for private investment to flow?
Singapore, 7 April 2011
CCS Deployment Status
Objectives
G8 aspirations :
 CO2 emissions cuts of 50-80% in 2050 vs
2000
 Commit to 20 large scale CCS demonstration
projects by 2010
CCS (geological) necessary to achieve goals
 In addition to use of clean fuels technologies
 In addition to alternate CO2 conversion
options
Current Global Status
Regulatory/political environment:
 Future carbon pricing uncertain
 Government funding committed, however
project selection processes convoluted and
disconnected from each other
 CCS in developing countries more difficult
CCI experience to date:
 Challenging environment for projects
 Geological storage a significant issue
 Funding & Finance increasingly central
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Business Solutions to Accelerate CO2
Reduction
Needs remain
 Climate change targets necessitate use of
CCS, with geological sequestration, to be
deployed within 10 years
Global interest in CCS is increasing
 Increased recognition for need of CCS to
battle CO2 emissions
 Many CCS forums/committees started
 Public sector funding for large scale CCS
projects has been announced by the EU,
Australia, US, UK and Canada
CCI project experience highlights importance of
 Early stage characterisation of storage sites
 Development of viable and replicable
business models
 Potential for complementary beneficial CO2
usage technologies
GLOBAL CCS INSTITUTE PARTNERSHIP

• Shared objective to accelerate the deployment of commercial-scale, integrated CCS

• Acceleration of early mover projects complemented by development of new projects

• Primary application of relevant expertise:

Key Element Global CCS Institute CCI

Capacity building X
Project development X
Technical evaluation X
Funding & finance X
Community X
Communication
Knowledge sharing X

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 Lowering Barriers - Summary

Barrier Lowering Mechanisms

Commercial Policy drivers:
•Broad – cap and trade, tax
•Focused – portfolio standards, feed in
tariffs
Financial Publicly funded capital grant schemes
Integrated business models that
allocate risk efficiently
Technical R&D funding
Publicly funded storage
characterisation
Regulatory Knowledge sharing – internal
Community Knowledge sharing – external

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