Pyry Energy Consulting

Is There Space in the Low Carbon Markets of the Future?

Platts CCS Summit February 2009

Dr. Phil Hare

HARE_Platts CCS Brussels 2009 v1_0..ppt

Is there space.?

Cost of electricity generation at $60/tonne coal

80 Assumes Gas Price: 20 /MWh Coal Price: $60 per tonne

Cost of carbon /tonne 15 25 35

70

60

/MWh

50

40

30

20 PC PC&CC IGCC IGCC&CC CCGT CCGT&CC

Cost of electricity generation at $90/tonne coal

80

Cost of carbon /tonne 15 25 35

Assumes Gas Price: 20 /MWh Coal Price: $90 per tonne

70

60

/MWh

50

40

30

20 PC PC&CC IGCC IGCC&CC CCGT CCGT&CC

Economic drivers suggest that gas can be competitive

CCGT&CCS
60

Coal&CCS

Carbon Price (EUR/tCO2)

40

20

CCGT Coal
0 4 7 11 14 18 21 25 28 32 35 Gas Price (/MWh)

Assumes coal price of $90.00 /tonne

Assumption 7.5/tonne transport and storage for carbon

 and that cannot ignore fuel price movements

Curve for 2015: Central Favouring Coal, ETS @ 0/tCO2, Technology costs: Custom 45 40

Cost of abatement (/tCO2 abated)

Gas Retrofit Coal Retrofit

35 30 25 20 15 10 0 20

40

60

80 Coal Retrofit

100

120

140

160

180 Industry

200

Total volume abated (mtCO2) annually Gas Retrofit Gas New Build Coal New Build Cogeneration Plant

Impact of coal gas differential reversal

45 40

Coal Retrofit

Cost of abatement (/tCO2 abated)

35 30 25 20 15 10 0 20 40 60 80 100 120 140 160 180 200 Total volume abated (MtCO2) annually

Gas Retrofit

CCS power stations will have to compete with other low carbon technologies and has higher short run costs

Long run costs

100 80

NGCC +CCS Coal + CCS

CO 2 price ($/tCO 2)

60

40

NGCC
20

0 1 2 3 4 5 6 Price of gas ($/mmbtu)

Coal
7 8 9 10

100 NGCC&CC NGCC IGCC&CC PC IGCC PC&CC Nuclear OnshoreWind OffshoreWind

80

NGCC+CCS

Coal+CCS

CO2 price ($/tCO2)

60

40

20

NGCC Coal
1 2 3 4 5 6 7 8 9 10 Price of gas ($/mmbtu)

Short run costs

8

CCS plant will target the baseload part of the power market..

Demand

BASELOAD
hours per year

but the renewable electricity penetration implied by 2020 requirements could transform the power sector...

10

Share of Renewables in electricity production

100% 10% BAU 2010 BAU 2020 Incremental to meet the 2020 target 20% 30% 40% 50% 60% 70% 80% 90% 0%

France Germany Italy Spain United Kingdom EU 27 Austria Belgium Bulgaria Czech Republic Denmark Estonia Finland Greece Hungary Ireland Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Sweden

Nuclear plant also claims baseload operation

Demand

BASELOAD
hours per year

Wind Nuclear

11

 and wind intermittency may still prove too much of a challenge..

Demand

BASELOAD
hours per year

Wind Nuclear

12

Winds intermittency means that proportionately more capacity needs to be built to realise renewables targets
70,000 60,000
Demand

50,000 40,000

MW

30,000 20,000 10,000 0 100% -10,000

Demand to be met by thermal plant

80%

60%

40%

20%

0%

Projection for GB market in 2030:- 43GW installed wind capacity

13

Interesting months January 2000

January 2000 is an interesting period as there is significant excess wind capacity in SEM followed by two low wind periods January 2000 SEM January 2000-GB

8,000 7,000 6,000 5,000

MWh

70,000 60,000 50,000 40,000 30,000

4,000 3,000 2,000 1,000 0

-J 03 an -J 05 an -J 07 an -J 09 an -J 11 an -J 13 an -J 15 an -J 17 an -J 19 an -J 21 an -J 23 an -J 25 an -J 27 an -J 29 an -J 31 an -J an 01

MWh

20,000 10,000 0
01 -J 03 an -J 05 an -J 07 an -J 09 an -J 11 an -J 13 an -J 15 an -J 17 an -J 19 an -J 21 an -J 23 an -J 25 an -J 27 an -J 29 an -J 31 an -J an

Date Demand
14

Date Demand WindGeneration

WindGeneration

Number of starts will grow, even for coal stations

100% 90% 80% 70% % of periods 60% 50% 40% 30% 20% 10% 0% 2010 2015 2016 2020 2025 2030
Runs Near Baseload, sometimes going to MSG (mainly overnight). Runs less. Often off when windy, and sometimes at weekends. Often runs at MSG when on overnight and at demand troughs, with little room for thermal generation.

100 90 80 70 60 50 40 30 20 10 0 Max Starts/year #starts Off MSG or Less Inter Outage

15

Low load factors changes the economic outlook

CCGT&CCS
60

Coal&CCS

Carbon Price (EUR/tCO2)

40

85% load factor

CCGT Coal

20

0 4 7 11 14 18 21 25 28 32 35 Gas Price (/MWh)

Assumes coal price of $90.00 /tonne

CCGT&CCS
60

Coal&CCS

Carbon Price (EUR/tCO2)

40

45% load factor

CCGT Coal

20

0 4 7 11 14 18 21 25 28 32 35 Gas Price (/MWh)

Assumes coal price of $90.00 /tonne

Assumption 7.5/tonne transport and storage; coal delivered at $90/tonne 16

Different business models will be challenged in different ways

Joint Venture
Revenue Power and capture Transport Distribution of Profit Storage

Take-Or-Pay
Fixed contract Revenue CO2 Flow Power and capture Transport Fixed contract Storage

CO

Flo w

Variable Contract
Price per tCO2 CO2 Flow Price per tCO2 CO2 Flow

Revenue Power and capture

Transport

Storage

17

Uncertainties: effect on levelised costs of both technologies

Coal + CCS

Gas + CCS

-20

-15

-10

-5

10

15

20

25

30

-20
Low load factor
Discount rate 15% High Capex Low Capex High commodity prices Low commodity prices Discount rate 12.5% High Opex Low Opex Build time +2 years Low efficiency High efficiency

-15

-10

-5

10

15

20

25

30

18

Impact of volume change on different business models

12% Powerstation 10% Pipeline Storage Full Project

Return on Investment

8%

6%

4%

2%

0% Joint Venture
Impact of 50% reduction in Load Factor

Full Take or Pay

Full Market Contract

50:50

19

Can we afford to ignore the risk

20

Pyry Energy Consulting

Dr Phil Hare
+44 (0) 7770 828644 phil.hare@poyry.com
Pyry Energy Consulting King Charles House Park End Street Oxford, UK OX1 1JD +44 (0) 1865 722660 www.poyry.com www.ilexenergy.com

Pyry Energy (Oxford) Ltd. Registered in England No. 2573801. King Charles House, Park End Street, Oxford OX1 1JD.

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