1) The document discusses a proposed CCS project called the Don Valley Power Project (DVPP) in the UK. It analyzes the business case for DVPP and identifies key factors for making CCS projects commercially viable such as government support mechanisms, carbon pricing, and using CO2 for enhanced oil recovery.
2) DVPP's plan was to use CO2 from a proposed coal power plant for EOR in the North Sea, with the revenue from EOR covering storage costs. However, DVPP was unsuccessful in obtaining a UK capital grant and the high capital costs remain a challenge.
3) For CCS to succeed, the document emphasizes that future projects must reduce costs, secure diverse sources
2. 2Co Background and Expertise
• 1000 miles of pipelines,
moving 20mtpa of CO2 for
enhanced oil recovery
• A BP-Rio Tinto joint
venture, developed three
advanced CCS projects –
Peterhead, Abu Dhabi and
California
• One of the world’s largest
private equity firms with
almost $50bn invested
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Gareth Roberts, 2Co
Chairman, was Denbury
founder and former CEO
Lewis Gillies, 2Co CEO,
was Hydrogen Energy
founder and former CEO
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Who has published CCS business cases before?
Tenaska - Trailblazer
AEP - Mountaineer
Transalta – Pioneer
ROAD
Rotterdam Climate Initiative
Global CCS Institute project survey
All at globalccsinstitute.com/publications
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What was considered important to the business case?
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Regulated returns
Viable storage solutions
Large, credible suppliers
Long term supply, offtake agreements
Tax incentives
Project clustering
Premium power price
Government-backed lending
CO2 emission price
EOR revenue
Capital grant
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DVPP market context:
UK attractive for CCS
UK attractive location for CCS deployment
• UK government policy to decarbonise
• Government plan to introduce power
premium for CCS
• Capital grants
• Many storage opportunities, including EOR
But
• Several projects competing for government
support
• Storage potentially challenged by
cost, regulation
• Exact nature of government support unclear
DVPP not successful in DECC competition for
capital grant
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DVPP market context:
CfD will theoretically provide sufficient power premium
£/MWh
time
FiT CfD
Wholesale price Generator receives
money from CfD
counterpart when
wholesale price is < CfD
strike price
Source: EMR Consultation Document
Generator pays money
back to CfD counterpart
when wholesale price is
> CfD strike price
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DVPP market context:
EOR in North Sea could also contribute
CO2 EOR considered in North Sea since 1979, numerous studies
conducted since, all indicating the technology is technically attractive;
Numerous sandstone reservoirs have been successfully developed for
CO2 EOR in North America;
Miscible gas EOR has been successfully deployed at scale in the North
Sea (Magnus);
CO2 storage has been successfully deployed at scale in the North Sea
(Sleipner);
BP, Shell, ConocoPhillips developed Miller field to point of FID in 2006,
lack of availability of CO2 being the only reason the project didn’t
proceed.
Successful development of CO2 EOR offshore is a question of cost and CO2
availability, not of technology.
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DVPP funding requirement:
Significant funding challenge
Approximately £5bn capex required across the DVPP value chain
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Estimated total project costs
(excluding financing fees)
Estimated power plant cost
breakdown
Component Share (%) Component Share (%)
Power plant 68% CCS 59%
Transport (2Co share) 0% Non-CCS 26%
Storage 26% Other 7%
Sub-total 94% Sub-total 91%
Financing costs* 6% Financing costs* 9%
Total 100% Total 100%
* Financing costs comprise fees and interest accrued during construction
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DVPP funding requirement:
The potential of different sources
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Equity Debt Grants
• Risk capital
• Several potential
sources depending on
the project phase
• High required return
• Potentially low cost
• Potentially large scale
• Unwilling to take risk
• Fees
• Reduce equity and
debt requirement
directly
• Several were
available
• EEPR
• NER300
• UK government
• DVPP only received
EEPR
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DVPP funding requirement:
Proposed funding allocation
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Potential sources of funding
for DVPP
Potential sources of debt
funding
Share (%) Share (%)
Grants 26% MFI 24%
Equity 14% ECA 58%
Debt 60% Commercial 18%
Total 100% Total 100%
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DVPP business plan:
EOR would enable zero cost storage
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Power Plant
Capture StorageTransport
2Co’s storage costs do not pass back to the plant, as
they will be covered by EOR
Costs from transport
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DVPP business plan:
Production profile
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In mature operations, 650MW net of power, 4.9mtpa CO2, 90%+ carbon capture
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DVPP business plan:
Operating cost split (steady-state)
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CO2 tax = EU ETS allowance purchases
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DVPP business plan:
Impact of key sensitivities on required power premium
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DVPP business plan:
Driving down cost of future CCS projects
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• 2Co estimated that a successful project could reduce the cost of the next project
by £30-£60/MWh.
• A reduction in the cost of technology would be only a small fraction of the benefit.
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Conclusion
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• Capital grant considered important by
all other business case
publications, DVPP challenged
without UK capital grant
• Need to re-address size of capex, its
sources, and the revenue profile
• Cash from EOR and power premium
available mean prospects for success
remain in longer term
• Work to complete technical definition
and certain commercial terms will
reduce risks until circumstances are
right for project tp proceed.
21. www.2coenergy.com
The Don Valley CCS Project is co-financed by the European Union’s
European Energy Programme for Recovery. The sole responsibility for this
publication lies with the authors. The European Union is not responsible for
any use that may be made of the information contained therein.