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Acorn Project - BEIS Innovation Study

Commercial meeting
5th October 2020

Technical Development study partners Funding partners

Co-funded by the
Connecting Europe Facility
of the European Union
PCI Acorn SAPLING, Action
12.2-0036
Introduction
1. Introductions via Teams
• BEIS, Pale Blue Dot, Shell, Chrysaor and Total representatives

2. Virtual meeting – normal ground rules (PBD non-presenters to monitor chat/hands)

3. Impact of Covid-19
• Energy Innovation Program COVID-19 support request submitted 31st August
• Continued remote working, current trends in reverse and hard to predict a timescale when regular office
working will return
• PBDE are prepared with a return to office protocol in place
• Any return to the PBDE office will be governed by the Scottish route map

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 Objectives

• Provide project update

• Phase 1 and Phase 2 build out

• Understand BEIS plan into 2021

• Business model/ negotiation milestones
• Rationale for bespoke contract

• Review bespoke model

• Align on opportunity

• Agree next steps

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 Agenda
1. Introduction

2. Acorn CCS Project Update

• Acorn Phase 1
• Costs and schedule
• Permitting and Consents
• Phase 2
• Commercial Updates

3. BEIS update / discussion

• Acorn project schedule – plan to FID
• BEIS Plan and schedule into 2021
• Rationale for bespoke approach for Acorn CCS

4. Bespoke contract development

• Existing Powers
• Model Development

5. Next Steps
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 2. Acorn Project
update

• Acorn Phase 1
• Costs and schedule
• Permitting and Consents
• Phase 2
• Commercial Updates

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Acorn CCS Update - Carbon capture technology ITT issued,
commencing FEED in late October....
• End of Concept Select Stage gate assurance process completed 9th July – progressed
recommendations in 19 areas
• Define phase commencement date reviewed and set to 26th October
• Carbon capture technology procurement ITT issued to 6 bidders
• Subsea power, control & communications design progressed through study agreement with
North Sea platform Operator
• 7 of 25 BEIS deliverables have been issued to date
• Applied for project extension to BEIS due to COVID-19 extension
• FEED is on schedule to be completed end 2Q 2021

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 Phase 1 leading concept full chain Capex estimate…
Indirect Tech.
CAPEX Category Direct Costs Costs Allowance Contingencies Total Cost Range
£ MM £ MM £ MM £ MM £ MM £MM
Pre-FID (inc Intelligent pig) 7.8 5.1 0.0 0.4 13.3 11.9 - 14.6
Subsurface 9.0 2.1 0.0 1.1 12.2 7.3 - 17.1
Carbon Capture Plant 147.7 40.5 47.1 70.6 305.9 214.1 - 458.8
Conditioning & Compression 55.4 15.2 17.6 26.5 114.6 80.3 - 172
Subsea & Pipelines 63.9 7.5 14.3 25.7 111.4 78 - 167.1
Wells (inc trees) 20.5 6.6 5.4 9.8 42.3 29.6 - 55
TOTAL 304.3 77.0 84.4 134.0 599.7 421.2 - 884.6

• Class 4 estimate
• Accuracy range of +50 / -30%
• Contingency equates to 22% of final estimate

• CCP is approximately 50% of the estimate

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 Value enhancement opportunities being evaluated…

• Cost opportunities in the

region of £35M including:
- Umbilical from
nearby platform
- Methanol supply
from platform

• Opex estimate is in the

range of £16 – 38
M/annum

• Abex estimate is in the

range of £57M – £228M

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Acorn CCS Schedule – Phase 1 FID target now end-1Q2022
Commercial/financing timeframes drive uncertainty…
2020 2021 2022 2023 2024 2025
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

Select Define Define + Execute Close Out

Pre-FEED Stage Assurance Preparation for Operations 1st Year Operations

FEED Stage Assurance

FID

COP 26 Owner - Project Management

Subsurface - Design

Wells - Detailed Design

Wells - Procurement

Wells - Offshore Execution

CCS Technology - Detailed Design

CCS Technology - Procurement

Onshore - Detailed Design

Onshore - Procurement

NSMP - Tie-Ins Module 2 Turnaround Module 1 Turnaround

Onshore - Construction

Onshore - Commissioning

Fill Pipeline with CO2

Offshore - Detailed Design First Injection (Deterministic)

Offshore - Procurement
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Offshore - Construction Offshore - Commissioning
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Acorn Phase 2 – supply/demand scaling economies
• ISCF Phase 2 application due 7th October
• CEF2020 application results due in
Oct/Nov

• Acorn Phase 2 pre-FID studies

encompass:
• T&S expansion (offshore/onshore), initially
to Goldeneye pipeline capacity 5 Mt/yr
• CO2 ship import/export via Peterhead,
onshore transfer to St Fergus to T&S
• Power decarbonisation
• Onshore transportation
• Hydrogen production

• Build out scenario will be included in

Cluster Discovery submission
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 Simplified Permits and Consenting Process developed…
Throughout we have to demonstrate that the project can be done in a safe and environmentally sound way
Need Carbon
Need Planning Storage Permit to
Permission to build and operate
build and operate offshore & CES lease
onshore

Need to
Need to
demonstrate
demonstrate
compliance with
compliance with
Wells and Pipeline
PPC, COMAH and Mean Low Water
Safety Regulations
Pipeline Safety
Regulations

July Multiple other consents and permits will follow FID and be
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Pale Blue Dot Energy Limited gained through Detailed Design building on these consents
P&C Schedule - intent to achieve key consents before COP26,
commercial interface requires more definition…
Key Interfaces:
• Engineering BoD for assessment
• Engineering drawings and layouts
• Construction areas required
• Confirm access to land and
infrastructure
• Financial securities interfaces with
BEIS contract (risk allocation)
• Public consultation events

Recent Changes to Schedule

• Intent to achieve key consents by
COP26
• EU opinion (~4 mth) not required –
OGA, OPRED and legal feedback
• Offshore EIA is the critical path item
• Submission schedule moving with
engineering schedule
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Acorn CCS - Commercial
Tripartite discussions towards MOU to de-
risk the St Fergus site selection decision…
• Parties - PBD/Acorn – SEGAL – FUKA
• Expected to finalise October
• Alignment over site selection
• Commercial architecture - roles of parties
• SEGAL and FUKA Operator roles in FEED
• Commitment to enter into negotiations:
• Construction and Ops Service Agreements
• Flue Gas service agreements

Goldeneye pipeline in-line inspection

contract executed…
• Access discussions commencing with
pipeline owners

New Acorn Governance agreement in

discussions between Acorn parties…

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 3. BEIS update/
discussion
• Acorn Project Schedule

• BEIS Plan and schedule

into 2021 – what should
Acorn plan for?

• Rationale for bespoke

approach for Acorn CCS

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Acorn CCS schedule – commercial development into 2021…
2019 2020 2021 2022 2023 2024 2025

1st CCUS project commissioned, Clean Growth Strategy COP26

BEIS CCUS Business Models Consultation close | response

BEIS response – commercial frameworks/HoTs – finalise business models +Legislation required?

Bespoke contract opportunity

Acorn CCUS Innovation Study duration

Project completes concept evaluation (end Select Phase)

Project completes CCUS Innovation Study (end Define Phase/FEED)

< FID >
Project Final Investment Decision (end Define+)
RFSU
Estimated execute phase period of CCS project

ISCF (Phase 1, Phase 2)

Ph2 award

• BEIS timeframe for HoTs, contractual HoTs, full negotiations, duration and legislation?
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• Capacity for and potential for acceleration with bespoke approach
 Bespoke contract – acceleration opportunity for Acorn CCS…
• Opportunity to accelerate Acorn full chain CCS project - in operation beginning 2025

• BEIS has informed that it is not discounting projects reaching FID earlier (under existing
legislation) through bilateral bespoke contract

• Acorn sought guidance from BEIS in relation to pursuing a bespoke contract:

• Mimic the “minded to” enduring regime (CfD, TRI) to reduce incremental workload on BEIS
• Any bespoke model should be easily transitionable to the enduring regime
• Identify existing powers through which BEIS could progress a bespoke contract with Acorn

• Acorn has conducted a preliminary review of the opportunity

05/10/2020
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 4. Acorn bespoke
Contract

• Identify existing powers

• Model development

• Next Steps

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Acorn CCS Project: Existing powers identified…
Key Considerations for the Acorn CCS Model:
• Structuring private law contracts to:
• Facilitate the development of the enduring regime; and
• Allow the Acorn CCS Project to transition to the enduring regime.
Potential Legislative Powers:
• Environmental Protection Act 1990 (Section 153):
• Empowers the Secretary of State (with the consent of the Treasury) to give financial assistance to or for the purposes of a list of environmental
programmes and schemes that includes:​
• United Nations Framework Convention on Climate Change; and​
• Any scheme for the storage, treatment or disposal of any material or product for the purpose of preventing/reducing environmental damage​

• Science and Technology Act 1965 (Section 5.1)​

• Used to Fund the Define Stage of CCS Demos 1 and 2

• Industrial Development Act 1982 (Section 8)

• Empowers the Secretary of State (with the consent of the Treasury) to give financial assistance to benefit the economy of the UK and is in the
national interest and the form and scale of such financial assistance cannot otherwise be provided

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CfD and Economic Regulated models appear feasible to be
incorporated into private law contracts…
Acorn Capture Plant Funding Model: Contracts for Difference (CfD) + Capital Grant Funding
• Combination of CfD and capital grant funding lends itself naturally to a private law contract with HMG
• Centered on cost differential of abatement relative to prevailing carbon emission allowance price
• Capital Grants to be structured as instalments against key construction milestones to incentivise and allocate construction
delivery risk
• Based on the Hinckley Point C Model - CfDs with financial assistance from Government Support Package
• Follows elements of support contracts proposed in the CCS Demos 1 and 2

Acorn Transport & Storage System Funding Model: Economic Regulation Model
• All key building blocks of a traditional economic regulatory model can be incorporated into a private law contract
• Analogous to mechanisms used by HMG for conventional procurement of Major Infrastructure Projects – Hinkley Point C
and Thames Tunnel Tideway
• Requires certain enablers like an Independent Certifier to review and approve RAB expenditure (Hinkley Point C), detailed
regulatory accounting procedures with verification and audit rights, and an expedient dispute resolution process

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Acorn CCS - Commercial
Bespoke Contract
Bespoke Contract: Requirements Single Entity: Split CfD
• Supports Acorn FID and Start-up objectives • Underlying characteristics sympathetic to TRI and
CfD mechanism(s)
• Pre-cursor to enduring regime • Availability / variable payments
• Demonstrable path to dis-aggregation / transition • Internal accounting facilitates:
• Funding path available under existing legislation • 3rd party access
• Dis-aggregation to enduring regime
Assumed Enduring Regime: • Grant funding of Capture would simplify transition
• Single project contract ‘control’
• ‘CapCo’ (CfD)
• T&SCo. (TRI) Dual Entity: Based on proposed enduring regime
• Approximating: 1. CapCo: CfD, 2. T&SCo.: TRI
• Dis-aggregation from outset simplifies transition
• Contracts characterised by BEIS Strawman TRI/CfD
• Limited contract duration and/or transition ‘trigger’
• Additional contract ‘control/regulation’ required
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C&TSCo. Split CfD approach Transitioning to a T&Sco. ‘TRI’ + CapCo. Standard CfD
Or
fixed
Split CfD approach fee
(No TUSA Required) Revenue1 Revenue 2
‘Availability’ Payment: Independent of ‘throughput’ Strike Price + Reference Price

Capital Return on Fixed Opex Opex ‘Fee’ (profit Abandonment CO2 volumes captured /
+ Variable Costs
Repayment Capital Payment component) Provision stored

Grant funding of ‘Capture’ Capex

would aid ‘isolation’ of T&S Fee Accounting separation of Capture Capex / Opex
components for 3rd parties T&S Fee for 3rd Party Usage of components required to generate T&S Fee for 3rd
T&S capacity party usage

Transitioning To:
Entity 1: T&SCo: TRI (with TUSA) Allowed Revenue
(chargeable to CapCo & 3rd Party Entrants)

Capital Return on Fixed Opex Opex ‘Fee’ (profit Abandonment Govt. Support
Incentives
Repayment Capital Payment component) Provision Package

Entity 2: CapCo: Standard CfD:

Revenue + Support
Residual Capture Capex
Operating Costs Strike Price
T&S Fee Ref Price
(incl. risk)
Risk
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 5. Next steps

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 Next steps…
• Acorn CCS Bespoke model
• Alignment on approach with BEIS for Acorn CCS Project
• Progress - initial discussion points
• Roadmap towards bespoke agreement
• Single Entity / Dual Entity
• Contractual Architecture
• Risk identification and allocation
• Acorn build out implications
• Contract duration / transition ‘trigger’

• Continue to develop CCS business model with BEIS towards enduring regime
• Bilateral engagement and Expert Groups
• Acorn/BEIS “splinter” CCS bilateral meetings
• Infrastructure Re-Use (focus Goldeneye pipeline)
• T&S (underway)
• Capture (to be initiated)

05/10/2020
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