INTERNATIONAL ENERGY AGENCY COAL INDUSTRY ADVISORY BOARD

36th PLENARY MEETING

DISCUSSION REPORT

IEA Coal Industry Advisory Board Plenary Meeting IEA Offices, Paris, 20/21 November 2014

IEA – 9, rue de la Fédération – 75739 Paris Cedex 15

2

CIAB PLENARY DISCUSSION SESSIONS Held on Thursday 20th and Friday 21st November 2014

The Coal Industry Advisory Board (CIAB) is a group of high level executives from coal-related enterprises, established by the International Energy Agency Governing Board in July 1979 to provide advice to the IEA from an industry perspective on matters relating to coal. The CIAB Plenary meeting is held annually and is one of the mechanisms by which CIAB Members provide advice to the IEA. The meeting also typically includes discussion sessions on topics of relevance to a wider audience, which include contributions from external speakers. This report covers the three topics discussed at the CIAB’s 36th Plenary meeting.

“European Energy Security” Chaired by Mr Andrea Clavarino, Chairman, Assocarboni and Chief Executive Officer, Coeclerici Logistics, Italy

Coal’s Increasing Importance in Europe Mr. Brian Ricketts, Secretary General, EURACOAL (European Association for Coal and Lignite)

Gas Security Issues in Europe Mr. László Varró, Head of Gas, Coal and Power Market Division, IEA

Proposal for an EU Energy Union Mr. Krzysztof Bolesta, Principal Advisor to the Minister on Energy and Climate Policies, Polish Ministry of Environment

Discussion

“The Future of Coal in the Developing World” Chaired by Mr. Chanin Vongkusolkit, Chief Executive Officer, Banpu Public Co., Ltd., Thailand

Regional Coal Market Prospects: ASEAN and China Mr. Chanin Vongkusolkit, Chief Executive Officer, Banpu Public Co., Ltd.

Regional Coal Market Prospects: India Mr. Prakash Sharma, Head of Asian Coal Markets, Wood Mackenzie and Mr. Roy Hinkamper, Managing Director, KPMG

Update on Multilateral Development Bank Coal Project Lending Policies Mr. Benjamin Sporton, Acting Chief Executive, World Coal Association

Discussion

“Advanced Coal Technology: Recent Progress and the Road Ahead” Chaired by Mr. Harry Kenyon-Slaney, Chief Executive, Energy, Rio Tinto

Progress Report on Major International Research and Development Initiatives Dr. Richard Axelbaum, Jens Professor, Department of Energy, Environmental and Chemical Engineering, Washington University in St. Louis

IEA Update on High-Efficiency, Low-Emissions (HELE) Technology Developments Dr. Keith Burnard, Head of Energy Supply Technology Unit, IEA

Near Term Opportunities in Clean Coal Technology Based Upon Learnings from Boundary Dam Mr. Mike Monea, President, Carbon Capture and Storage Initiatives, SaskPower

Discussion

3

European Energy Security Chaired by Mr Andrea Clavarino, Chairman, Assocarboni and Chief Executive Officer, Coeclerici Logistics, Italy Mr. Clavarino drew attention to the issues for fossil fuel and electricity supply security in Europe. He illustrated the ever increasing dependence of many European countries on imported natural gas, and the extent to which some countries rely to a very large extent on single supply sources for these imports. He highlighted IEA scenarios showing European coal production and imports more than halving over the next 20 years as government policies focus on greenhouse gas emissions mitigation, with potential impacts on European energy security. Coal’s Increasing Importance in Europe Mr. Brian Ricketts, Secretary General, EURACOAL Mr. Ricketts highlighted the prevalence of greenhouse gas mitigation policies and campaigns which encourage switching to gas rather than investing in the more efficient and “cleaner” use of coal. He noted that, while the USA has its own supplies of gas, this switching has increasing energy security implications for Europe, which relies heavily on gas imports. He illustrated the risks to coal supply for electricity generation in specific instances such as Ukraine, where recent fighting has severely disrupted coal mining and transportation. Around 40% of Ukrainian electricity production uses coal and many power stations use indigenously-mined anthracite, for which the only effective alternative source is imports from Russia, so the risk of power

cuts during the winter is now substantially increased. In 2013, the European Union produced 114 million tonnes of hard coal and 407 million tonnes of lignite or brown coal, and imported 216 million tonnes of coal.

He illustrated the extent to which European electricity generation relies on coal (EU average 28.4%), but noted that coal has become the number one target for action on climate change and that this impacts on European energy security. He said that the European Council has recently agreed to the toughest greenhouse gas (GHG) mitigation targets in the world, including a 40% reduction in GHG emissions from 1990 to 2030; which will further increase pressure to reduce coal use and result in an outflow of wealth to gas suppliers in Norway and Russia.. He saw these targets as unrealistic and requiring subsidies, but said that EU subsidies have resulted in a substantial increase in installed renewable energy capacity that has not been matched by its contribution to electricity output. He showed how coal can contribute to the achievement of realistic GHG emissions mitigation targets at lower cost.

Introduction The aim of the discussion sessions is to engage the IEA Secretariat, CIAB Members including consumers (particularly the electricity industry), producers and infrastructure/transportation providers, and invited guests, in a debate on major issues affecting the coal industry. These issues include; the impact of fossil fuel supply risks on energy and electricity supply security in Europe; the prospects for coal use and investment in developing economies, including an update on multilateral development bank lending policies; and developments in advanced technologies for using coal efficiently while effectively mitigating greenhouse gas emissions.

4

He said that the average load factor of wind turbines in Europe is 22%, and is less than 12% for solar photo-voltaic energy, so that maintenance of a secure electricity supply system requires investment in both alternative and conventional electricity generation capacity. He said that continuing to rely solely on energy efficiency improvements, renewable energy, and increasing gas imports will destroy wealth and leave Europe strategically vulnerable. He pointed out that Europe has significant fossil resources, 88% of which are in the form of coal and lignite, and called for consideration of a three-step strategy to ensure that coal remains a competitive option for achievement of a secure, clean, European energy supply system.

Gas Security Issues in Europe Mr. László Varró, Head of Gas, Coal and Power Market Division, IEA Mr. Varró reported on progress with IEA work on gas security in Europe being undertaken at the request of G7 countries following recent developments in Ukraine. He said that gas supplies of approximately 30 million cubic metres a day (mcm/d) from Russia had been re-directed from the Ukraine pipeline to the Northstream pipeline during the summer, maintaining stable supplies to Europe. Gas markets had operated effectively: the maintenance of summer supplies and low prices, with continuing concern over supplies for the coming winter and the expectation of higher prices, had resulted of large quantities of gas being purchased for storage. In the event of future gas supply disruption, he estimated that current European infrastructure is capable of replacing about 80 billion cubic metres of lost Russian gas supply with LNG imports

through many European LNG import terminals, by using the UK/Zeebrugge pipeline to transport UK imports to other European countries, and by diverting Spanish gas imports to Italy. But the biggest risk concerns LNG availability on world markets. He showed how LNG imports to Europe have declined since the Fukushima incident in Japan as world LNG supplies were diverted Asia to replace lost Japanese nuclear generating capacity.

But he said that little flexibility now remains in Asia to release LNG supplies in the event of European supply disruption. The high cost of gas and the competitiveness of coal-fired power generation mean that Asian coal-fired power stations are already operating at high load factors, leaving little further capability to increase their running to replace gas-fired power generation. He added that the only large scale option to reduce LNG demand in Asia is to substitute oil-fired power generation for gas, with substantial cost implications.

With respect to seasonal gas demand variation, he illustrated the potential for summer storage to help meet winter demand, but said that declining conventional gas production in Europe is reducing that potential, and that the capability for renewable

5

energy to further substitute for gas-fired power generation is limited. Finally, he referred to the USA energy market, where shale gas provides significant supply but has little production rate flexibility, to emphasise the value of coal in sustaining electricity system resilience even in countries with self-sustaining gas systems. Proposal for an EU Energy Union Mr. Krzysztof Bolesta, Principal Advisor to the Minister on Energy and Climate Policies, Polish Ministry of Environment Mr. Bolesta explained the reasons underlying the proposal for a European Union (EU) energy union made by the Polish Prime minister, Mr. Donald Tusk, in May 2014:

• Energy Import Dependency – oil and gas form the major components of a US$400 billion annual import bill for the EU, which is projected to remain at high levels for the next 10-20 years. Many EU member states are exposed to just one source of gas supply and gas supply security is a political issue.

• Gas Market Inefficiencies - the absence of integrated markets and supply infrastructure results in welfare losses estimated at €11-18 billion each year.

• Challenging Geopolitics - supply risks are associated with the gas transportation infrastructure that supplies gas from Belarus and Russia into Europe.

• Competitiveness – wholesale gas prices in Europe are much more expensive than those in the USA and this price gap has been widening for industry and households.

• European Policy Triangle – achievement of a balance between competitiveness, climate and environmental objectives, and energy security, is increasingly being challenged by the US shale gas revolution and the effects of the global financial crisis.

He went on to outline the six pillars of the proposed EU energy union:

1. Priority infrastructure development to support integrated energy markets.

2. EU-level solidarity mechanisms to ensure that emergency gas delivery plans exist for all EU countries, to support emergency responses similar to those already existing for oil.

3. Strengthen EU bargaining power, using the strength of the EU as an integrated entity to counter that of large external energy suppliers.

4. Develop indigenous energy sources to reduce the economic burden of energy imports and increase energy security by; rehabilitating the role of fossil fuels, for example by allowing state aid for capacity payments to electricity plant; supporting research into cleaner coal use and unconventional energy; and promoting development of stable renewable energy supplies.

5. Diversify energy supplies by encouraging new oil and gas suppliers.

6. Reinforce the energy community through greater inclusion of Eastern European countries.

He pointed out that EU targets for reducing GHG emissions by 2030 (-40% from 1990) are indicative and include no country-specific targets; and that this provides an opportunity to re-think energy and climate policies and the role of coal and other fossil fuels in those policies.

6

Discussion Mr. Clavarino emphasised that higher gas prices in Europe than in the USA also result in higher electricity prices, and that Europe is importing more gas from Russia and less from Algeria. He remarked on the absence of coal from the Polish energy union proposals; adding that Italy has already moved towards gas and renewable energy but that manufacturing industry is now unhappy with the resulting higher electricity prices. He said that renewable energy subsidies are very high and that, in his opinion, this cannot be allowed to continue. In response to a question on why Poland, as a large coal user, had seen the European 40% GHG reduction target as acceptable, Mr. Bolesta pointed out that Poland has already achieved a 20% reduction from 1990 and that and the coal-fired power station fleet needs upgrading in any case to reduce local emissions. Mr. Sakanashi remarked that coal is used for power generation in both Europe and Japan because the high price of gas precludes its use at high load factor. He said that this also provides the opportunity in Europe to co-fire biomass with coal in large, efficient, coal-fired power plants, questioning why European subsidies for biomass apply only to new, exclusively biomass plant. Mr. Varró pointed out that renewable energy subsidy policies in some European countries support biomass co-firing, while others do not. He added that, in his experience, European governments are not sufficiently concerned about energy security to specifically support the use of coal. The Future of Coal in the Developing World Chaired by Mr. Chanin Vongkusolkit, Chief Executive Officer, Banpu Public Co., Ltd., Thailand Mr. Vongkusolkit said that Asia (ASEAN countries, China and India) cannot avoid using coal to meet their growing demands for electricity: mine-mouth electricity generation, the competitive price of imported coal and the commercial availability of clean coal technologies make this the preferred option. However, he saw the main challenges to this growth in power station coal use as:

• economic growth uncertainties;

• environmental concerns and government regulation;

• competition from nuclear energy, gas and subsidised renewable energy; and

• the availability of finance for CCS and advanced coal technology projects.

He saw India as a major engine for coal demand growth in Asia. He quoted an external estimate showing coal demand in India growing by about 760 million tonnes between 2014 and 2030, an annual growth rate of 4.7%; adding that higher volume growth is expected in China, but that the growth rate is lower. He saw Asian power generation coal demand increasing by 2,900 million tonnes to about 5,500 million tonnes by 2030, supplied mainly by increases in domestic coal production. Regional Coal Market Prospects: ASEAN and China Mr. Chanin Vongkusolkit, Chief Executive Officer, Banpu Public Co., Ltd. At the invitation of Mr. Vongkusolkit, Mr. Chongkittisakul described coal supply and demand projections to 2030 for ASEAN countries. He explained that growth is expected to result largely from a 93GW growth (8% cumulative annual growth rate) in coal-fired power generation capacity, including 40GW in Indonesia and 24GW in Vietnam.

He expected ASEAN domestic coal production to increase by 3% a year to about 1,000 million tonnes and for the regions exports to increase slightly to about 430 million tonnes. However, he noted the regulatory uncertainty in areas including export taxes, export quotas, production quotas and royalties. For China, he saw coal demand growing by 3.3% a year to nearly 6,000 million tonnes in 2030. Installed coal-fired electricity generation capacity

7

is expected to increase by 3.9% a year to about 1,500GW, although the recent trend towards installing gas-fired and hydro-electric capacity at higher rates is expected to continue. The Air Pollution Control and Prevention Action Plan of September 2013 will reduce coal consumption by 2017 in the regions of Hebei/Tianjin/Beijing, the Yangtze river delta and the Pearl River delta. He said that this will be achieved through:

• a switch to gas to reduce coal consumption by about 150 million tonnes;

• a moratorium on all new coal-fired power plant construction except CHP; and

• mandatory operation of industrial and power station emission control equipment.

He saw the prospect of coal production growing to over 5,200 million tonnes by 2030 (2.8% a year) and of seaborne coal imports increasing by nearly 7% a year to 675 million tonnes, with Indonesia and Australia remaining the major supply sources. He described the main trends and regulatory influences that might affect future coal production as mine consolidation, a ban on selling and transporting low-grade coal, expanding new rail lines and a coal import tax which applies from October 2014. Regional Coal Market Prospects: India Mr. Vongkusolkit remarked that changes are happening in India and that emissions are being addressed, but said that although India still lacks sufficient electricity supplies the development of power generation has so far been slow because of relative high electricity cost relative to people’s purchasing power. Mr. Sharma (Head of Asian Coal Markets, Wood Mackenzie) expected energy use in India to grow by about 75% from its current low base by 2030.

He said that growth in the county’s primary energy Import dependency will continue, and that the cost of these imports to the Indian economy grew substantially, following depreciation in the value of the Rupee, after 2010. He described the diverse nature of India, where 75% of the population and 70% of the energy use are in 10 states in the north and west of the country; and the coal resources are located in the under-developed Eastern states. He expected the economy (GDP) to return to 5% growth in 2015, 6% in 2016, and to have good longer term growth prospects.

He described the continuing evolution of the power sector in India, the recent growth in coal-fired electricity generation capacity, and the increasing involvement of private sector companies in the generation sector since 2010. However, he noted that these merchant power plants were commissioned just as the economy slowed, reducing electricity demand and coal production; so they are not yet running at high load factors, but provide future electricity supply potential as the economy recovers.

He said that coal will remain the dominant fuel in power generation (about 70%) over the next 20 years, with nuclear and renewable energy each

8

providing about 7-8% by 2035. However, he cautioned that many years of under-investment in network upgrades (the power transmission and distribution sector is 95% government owned) have resulted in inefficiencies and high costs, and that this could constrain future electricity growth. He estimated that marketable thermal coal production could increase to 1.2 billion tonnes a year by 2030, but noted that it is low CV and high ash, so that coastal power stations will continue to use imported coal; as will many inland power stations, to overcome domestic quantity and quality shortfalls. Thermal coal is currently imported mainly from Indonesia and South Africa, but Colombia and Australia are expected to become important suppliers in the medium/long-term as seaborne thermal coal imports more than double to 350-400 million tonnes a year by 2035. This will require massive investment in rail and port infrastructure to ease current logistical constraints, particularly on the east coast. Mr. Hinkamper (Managing Director, KPMG) noted that India has the 5th largest coal reserves in the world and the 3rd largest consumption; but that production has fallen short of demand growth and this has resulted in rapid thermal coal import growth from 20 million tonnes in 2007 to 120 million tonnes in 2014 and a projected 200-250 million tonnes by 2017. He noted that development of coal reserves is constrained by several issues. For example, the existing allocation of coal development blocks to private companies for captive use was declared illegal by the Supreme Court of India in August 2014; and there are issues and procedural inefficiencies associated with land acquisition and environmental/forest clearance. He also said that Coal India Limited produced 463 million tonnes of coal in 2014 and has a very aggressive target production of 1,000 million tonnes by 2019 to make India self-sufficient in coal, but much will depend on the company’s performance and the attitude of state governments. Update on Multilateral Development Bank Coal Project Lending Policies Mr. Benjamin Sporton, Acting Chief Executive, World Coal Association Mr. Sporton gave an update on the lending policies of multilateral development banks in respect of financing coal-fired power station development projects.

He described the very restrictive nature of the World Bank policy, but noted that it is currently considering a project in Kosova and that the outcome of this will give an indication of the rigidity of its policy in practice. He saw evidence that the World Bank is coming to recognise the need for advanced technology electricity generation from coal in African countries. He characterised European Bank for Reconstruction and Development policy as very similar to World Bank policy while, after a recent policy review, the African Development Bank remains open to coal project financing. He noted that the Asian Development Bank (ADB) was the third largest public financier of coal-fired power plants between 1994 and 2012, with US$3.9 billion invested in 21 projects. While there has been no recent policy review, he said that continuing financing of such projects is coming under increasing pressure from NGOs, the US government and European governments. Conversely, he noted the support given by the Japan Bank for International Cooperation (JBIC) to advanced technology coal-fired power plants; the gradual expansion of China Development Bank financing from domestic projects to international projects, including Reliance Power projects in India; and the potential for the New Development Bank to finance infrastructure projects in the BRICS countries. Finally, he discussed ways in which World Coal Association and Coal Industry Advisory Board members could highlight the continuing necessity for financing advanced clean coal technology power station projects in developing economies. Discussion In response to a question regarding the cost to the Indian economy of power outages resulting from

9

inadequate infrastructure and distribution issues, Mr. Sharma responded that 25% of electricity is currently lost in the distribution system and that it will take time to reduce this to a more sustainable level of 5-10%. He added that rural households cannot afford to pay for electricity, even if the cost is kept low, and their first priority is to meet basic food needs. He said that manufacturing industry has started to install its own power plants and expected that industry will eventually move to using distributed power supplies. As power sector reforms take root, the losses will come down and retail tariffs will become cost-reflective, he added. Mr. Hinkamper noted that the Indian government is supporting expansion of energy access and increased economic well-being, which is coming to be seen as a basic human right, although this will take some time. Mr. Kenyon-Slaney remarked that what people in rural areas of India will be willing to pay for is consistency of electricity supply; and asked whether development banks are equally reluctant to finance gas projects as coal projects. Mr. Sporton responded that gas project activity is limited at present, but that the World Bank has identified gas as an opportunity to improve energy access in developing countries. Mr. Sharma explained that the elasticity of energy demand to economic growth (GDP) is low (perhaps 0.8) but will increase as the economy develops and manufacturing and industry forms a greater share of GDP. Mr. Vongkusolkit expressed the view that the elasticity should move above 1.0 as a country develops. Mr. Sakanashi reinforced JBIC’s positive policy stance on high efficiency coal fired projects and its support for the first Ultra-Supercritical project in Africa; reporting also that the President of ADB will visit J-POWER’s Ultra-Supercritical Isogo power plant early in 2015, and that he anticipated the bank developing its lending policies positively. Mr. Pearson emphasised the great value of ADB developing a policy that supports advanced coal-fired power projects and urged CIAB Members to educate governments on the benefits of using this technology in coal-fired power projects. Mr. Sadamori mentioned moves to influence the OECD to deny financing of coal-fired power plant projects, pointing out that this will in practice increase CO2 emissions as developing countries will then favour lower cost, less efficient, coal-fired power plant. He urged CIAB members to also make this point to their governments.

Advanced Coal Technology: Recent Progress and the Road Ahead Chaired by Mr. Harry Kenyon-Slaney, Chief Executive, Energy, Rio Tinto Mr. Boyce welcomed Mr. Kenyon-Slaney as chair of the session, which provides an update on recent technology developments in the field of coal use, and prospects for their future development. He particularly welcomed the recent start-up of the SaskPower Boundary Dam CCS project which is covered in more detail by Mr. Monea. Mr. Kenyon-Slaney referenced the continuing relentless growth in energy demand in Asia and Africa highlighted in previous sessions, noting that this has improved the quality of life for many millions of people but that many countries are still low on the development curve. He expressed the belief that better technology provides the solution to maintaining energy growth while addressing environmental issues, through application of technologies including energy storage, renewable energy and carbon capture and storage. Progress Report on Major International Research and Development Initiatives Dr. Richard Axelbaum, Jens Professor, Department of Energy, Environmental and Chemical Engineering, Washington University in St. Louis Dr. Axelbaum explained that he acts as Director of the Consortium for Clean Coal Utilization (CCCU), adding that this organisation and the U.S.-China Clean Energy Research Centre -Advanced Coal Technology Consortium (CERC-ACTC) are very active in researching and developing clean coal technologies for the medium- and long-term.

CERC-ACTC was launched in 2011 with initial funding for five years from government and

10

industry in the USA and China, he said, and the joint initiative is being led by West Virginia University (WVU) and Huazhong University of Science and Technology (HUST). He outlined the main areas of interest for the consortium:

• Pre-, Post- and oxy-fired CO2 capture: o Huaneng-Duke amine capture

technical and economic evaluation; o new solvent and sorbent development; o dynamic modelling of solvents; and o the HUST oxy-fired CO2 capture

project.

• CO2 Sequestration: o Ordos Basin anthropogenic CO2

inventory; o CO2 source-sink matching (the

Scalable Infrastructure Model for CCS); o Ordos and Illinois Basin reservoir

characterisation; and o Yanchang EOR tight sandstone

collaborations.

• Utilisation, polygeneration and conversion: o flue-gas fed microalgae

photobioreactor and post-processing; o polygeneration with waste coal and low

rank fuels to produce calcium carbonate;

o novel processes for coal to chemicals; and

o process efficiency improvement. He remarked that the development of carbon capture, utilisation and storage (CCUS) technologies will be expensive and that international co-operation will be required to bring these technologies to fruition. Like the U.S., China is looking to enhanced oil recovery to provide a market for CO2. He added that the Consortium for Clean Coal Utilization (CCCU) at Washington University in St. Louis was established in 2009, through the support of Peabody Energy, Arch Coal and Ameren. One of its aims is to encourage the brightest minds to engage in clean coal research. The CCCU is partnering with 9 international universities and 17 international investigators at Washington University to advance clean coal technologies. He welcomed projects such as Saskpower’s Boundary Dam post-combustion plant, Greengen and Kemper County IGCCs and FutureGen’s oxy-combustion plant, which will demonstrate the technical feasibility of CCUS technologies and encourage cost reductions. At the same time, University research is needed to

identify next-generation technologies that can bring significant reductions in cost. As an example, he said that the high-pressure CO2 streams that are required for sequestration enable the development of pressurised combustion (Staged, Pressurised Oxy-Combustion) to increase CCUS efficiency and reduce costs.

Finally, he welcomed renewed commitments made during 2014 by the US Department of Energy (funding for Phase II of the SPOC process research), Arch Coal and Peabody Energy (for CCCU sponsorship to 2019) and funding by the USA and China governments to support the US-China Clean Energy Research Center to 2020. IEA Update on High-Efficiency, Low-Emissions (HELE) Technology Developments Dr. Keith Burnard, Head of Energy Supply Technology Unit, IEA Dr. Burnard set the context for his remarks by noting that electricity demand is projected to increase in all IEA scenarios to 2050, that the carbon intensity of electricity production has remained unchanged over the last 30 years, and that the political will to make meaningful progress at a global scale has yet to be demonstrated. He said that unabated coal use in electricity generation is incompatible with the objective of limiting the global temperature rise to 2°C (the IEA 2DS scenario). He saw the technical challenges for coal-fired power generation as:

• increase fuel conversion efficiency to reduce CO2 emissions per unit of output in the near term and to reduce the costs of eventual CCS deployment;

11

• improve operational flexibility to complement the use of variable, intermittent, renewable energy sources; and

• demonstrate and deploy CCS technology.

He illustrated a high efficiency, low emissions (HELE) technology development path to 2050 that reduces generation from older, sub-critical coal-fired power plants, increases deployment of ultra-supercritical technologies, and then deploys CCS on these higher efficiency plants. He noted that coal-fired power plants in USA and the EU are predominantly older, and many of them will be retired within the next 20 years, while 40% of coal-fired power plant in China (and 25% globally) already employs HELE technologies: advanced ultra-supercritical plant, the next generation of technology, promises efficiencies approaching 50% but will not see major global deployment for at least a decade. He described current CCS demonstration projects in the USA and noted that using amines for CO2 capture is the currently-favoured technology; although retro-fitting issues include amine recovery, a 50% extra space requirement on site, and identification of suitable CO2 sinks. He explained that it takes 5-10 years to characterise a CO2 storage site and that opportunities for enhanced oil recovery (EOR) are being used to offset some of the first-mover CCS costs. With regard to current HELE coal-fired electricity generation technologies, he said that:

• circulating fluidised bed plant (CFB) has the ability to use lower quality coals and 600-800MWe units are now on offer;

• with CO2 removal incorporated, integrated gasification combined cycle (IGCC) plant will be lower cost than pulverised coal plant, and the Kemper County project will provide further indication of future IGCC prospects.

Near Term Opportunities in Clean Coal Technology Based Upon Learnings from Boundary Dam Mr. Mike Monea, President, Carbon Capture and Storage Initiatives, SaskPower Mr. Monea explained that SaskPower is a Canadian, government owned, regulated electricity company that faced a major investment decision in respect of its 45 year old coal-fired generating unit 3 at Boundary Dam power station (BD#3), with retro-fitting it to reduce CO2 emissions or converting it to gas firing being considered. In April 2011 the $1.4 billion decision to proceed was formally approved - the price of coal was projected to be lower and more predictable than gas, and Saskatchewan was able to maintain its coal use while significantly reducing emissions from power generation.

The plant will capture 1 million tonnes per year of CO2, 90% of the CO2 in the BD#3 (110MW net output) flue gas stream, will eliminate SO2 emissions and will substantially reduce particulate emissions.

12

The captured CO2 will be used for EOR at Weyburn under a ten year supply contract, with any remaining CO2 being stored at the SaskPower Carbon Storage and Research Centre’s host project, Aquistore. Sulphuric acid will be used primarily for industrial purposes including fertiliser, and fly-ash will be sold for concrete production.

He reported that the plant is already exceeding performance expectations: the amine absorber tower has been built 40% over-capacity to ensure adequate performance, but it had become clear that for future projects a smaller tower could be used at a lower cost. Finally, he said that initiatives are in hand to disseminate relevant information, to arrange site visits, and to share experience through a global university network. Discussion Boundary Dam

In response to specific questions from meeting participants, Mr. Monea clarified several points with respect to the project and future developments:

• Decisions on future investment in BD units 4 and 5 will be required within a year, and similar coal/CCS developments will be considered. BD#3 had benefitted from $240 million of government support but future power plant developments will need to stand alone on costs.

• Saskatchewan is fortunate in having an EOR market for CO2 use and a government that is supportive of clean coal use, including IGCC.

• The “parasitic” load associated with CCS was planned at 21% of gross power station output, but is lower than expected.

• EOR demand will be the key determinant of BD#3’s running and the unit is expected to run at baseload.

• BD#3 is more expensive overall than other plant in the SaskPower portfolio, but this will have only a small effect on electricity rates and the next such plant is expected to show a positive return.

Future prospects for advanced coal technologies and CCS

Dr. Burnard clarified details of the IEA 2DS scenario, which describes an energy system consistent with an emissions trajectory that would give at least a 50% chance of limiting average global temperature increase to 2°C. It shows a major reduction in emissions from coal use over time, as well as major deployment of CCS from the mid-2020s at reasonable build rates. Several participants pointed out that the demand for coal has grown strongly for at least the last decade and that future coal demand is unlikely to reduce significantly. They pointed out that major investment in clean coal technologies is required and that government policies must take a much more positive approach to encouraging this investment. Dr. Lennon commented, and Mr. Monea agreed, that the scale of the challenge for CCS investment is unprecedented; and that CCS fitted to a large power station brings with it the challenges of constructing and operating a major chemical plant. Dr. Lennon urged the need to be pragmatic on the potential for CCS and said that, in his opinion, the targets for CCS deployment included in IEA analysis look optimistic. Mr. Monea said that the biggest potential for CCS deployment is in China. Mr. Boyce pointed out that other electricity supply options produce CO2 emissions: wind energy and solar PV are intermittent and require backup from traditional generation, while biomass also produces direct emissions. Dr. Axelbaum agreed that the need to continue using coal will become clear once the realities of renewable energy are better understood; and he emphasised the necessity of educating younger people on that point. In reply to a specific question, he said that research is showing that the use of algae in fuel production is not a competitive option, but may form part of a solution to energy needs if fuel costs increase significantly. Mr. Kenyon-Slaney and other participants questioned whether government energy ministers fully understand the need to encourage investment in advanced coal technologies and CCS, how understanding of the issues can be improved, what part the IEA can play in that process, and how governments in capital-constrained

13

developing countries can be encouraged to invest in advanced coal technologies and CCS. It was also suggested that the IEA should provide more detail on the number of CCS development projects that need to be under way now to ensure that the future deployment profile in IEA scenarios is achievable. Dr. Burnard explained that IEA technology scenario modelling includes technology deployment to the extent that it is seen as feasible to 2050; and that these messages are included in IEA publications and conference presentations; and taken by delegations to COP meetings. He said that governments in developing countries recognise the need for more efficient technologies, that total lifetime costs are lower for more efficient plant, but that high initial capital costs are the issue. Mr. Monea remarked that many countries that have shown interest in the Boundary Dam project do not have capital available, but are interested in the EOR potential of similar projects. He added that SaskPower is providing training on CCS to the Asian Development Bank. Mr. Gentile agreed that

identifying markets for CO2 is the key to CCS development and deployment, suggesting that the potential for its use in shale gas production might be explored. He also called for support from multilateral development banks to encourage rapid CCS deployment. Mr. Kenyon-Slaney complemented Mr. Monea on progress with the Boundary Dam project and the associating information dissemination and education initiatives that SaskPower is undertaking. He suggested that it would be very useful if the company was able to broaden its dealings with the Asian Development Banks to include other multilateral development banks. Mr. Doheny suggested that Saskpower might consider making its video presentations available on media such as YouTube in order to reach a younger audience. He added that removal of SO2 to reduce acid rain, and then production of sulphuric acid to produce fertilisers that benefit the farming community, provides a very positive environmental message. Mr. Monea agreed that educating the younger population is very important.

14

Annex – Plenary Meeting Participants

CIAB MEMBERS: Mr. Gregory H Boyce Chairman and Chief Executive Officer, Peabody Energy Co. Inc. USA Mr. Andrea Clavarino Chairman, Assocarboni and Chief Executive Officer,

Coeclerici Logistics ITA

Mr. Edward (Ted) Doheny President and CEO, Joy Global Inc. USA Mr. Robert H Gentile President and CEO, Leonardo Technologies Inc. USA Ms. Ann Marie Hann President, Coal Association of Canada CAN Mr. Harry Kenyon-Slaney Chief Executive Energy, Rio Tinto plc AUS Dr. Steve Lennon Group Executive (Sustainability), Eskom Holdings Ltd. ZAF Mr. Jim Lightfoot Chief Operating Officer, Fossil Generation Europe, E.ON DEU Dr. Xolani Mkhwanazi Chairman, BHP Billiton South Africa Ltd. ZAF Mr. Wick Moorman Chairman, President and Chief Executive Officer, Norfolk Southern

Corporation USA

Mr. Petr Paukner Chairman of the Board, Coal Energy Ltd. CZE Mr. Brendan Pearson Chief Executive, Energy, Minerals Council of Australia AUS Mr. Yoshihiko Sakanashi Executive Vice-President, J-POWER JPN Mr. Hiroshi Seki Managing Executive Officer and General Manager, Energy & Mineral

Resources Dept., Idemitsu Kosan Co. Ltd. JPN

Mr. Lauri Virkkunen President and CEO, Pohjolan Voima Oy FIN Mr. Chanin Vongkusolkit Chief Executive Officer, Banpu Public Co, Ltd. THA Mr. Fernando L Zancan President, Brazilian Coal Association BRA

CIAB ASSOCIATES: Mr. Rick Axthelm Vice President, Federal Government and External Affairs, Alpha Natural

Resources Inc. USA

Mr. Julian Beere Head of Business Development and Strategy, Thermal Coal, Anglo American Operations Ltd.

ZAF

Mr. Karl Bindemann Technical Executive, Power Generation, EPRI International Inc. USA Mr. Mick Buffier Group Executive, Coal Assets, Glencore AUS Mr. Seiji Chiba Idemitsu Kosan Co. Ltd. JPN Mr. Prach Chongkittisakul Vice President, New Energy Business, Banpu Public Co, Ltd. THA Ms. Gina Downes Corporate Consultant: Environmental Economics, Climate Change and

Sustainable Development Department, Group Sustainability, Eskom ZAF

Mr. Mücella Ersoy Chief Engineer, Project Planning Dept., Turkish Coal Enterprises TUR Mr. Michael J. Flannigan Executive Associate, Peabody Energy Company Inc. USA Dr. François Giger Strategy Manager, Thermal Generation and Engineering Division, EDF FRA Mr. Dazhao GU Shenhua Group Corporation Ltd. CHN Mr. Mike Hubert Alpha Natural Resources Inc. USA Mr. Naoki Kawamoto Energy & Mineral Resources Dept., Idemitsu Kosan Co. Ltd. JPN Ms. Veronika Kohler Director, International Policy, National Mining Association USA Mr. Quansheng LI Deputy General Manager, Science and Technology Development Dept.,

Shenhua Group Corporation Ltd. CHN

Mr. Roland Lübke Economic Affairs, German Coal Association (GVSt) DEU Mr. Itaru Nakamura Executive Managing Officer, J-POWER JPN Mr. Marko Nylund Vice President, Pohjolan Voima Oy FIN Mr. Fredrick D. Palmer Senior Vice President Government Relations, Peabody Energy

Company Inc. USA

Ms. Maggi Rademacher Operational Performance, Global Unit Generation, E.ON DEU Dr. Hans-Wilhelm Schiffer Advisor to the RWE Executive Board DEU Mr. Donald W. Seale Executive Vice President and Chief Marketing Officer,

Norfolk Southern Corporation USA

Mr. Deck Slone Senior Vice President, Strategy and Public Policy, Arch Coal Inc. USA Mr. Benjamin Sporton Acting Chief Executive, World Coal Association GBR Mr. J. Gordon Stephens Washington Representative for Joy Global Inc. USA

15

Mr. Cartan Sumner. Vice President, Office of the CEO, Peabody Energy Co. Inc. USA Mr. Sergey Tverdokhleb Adviser to CEO and Head of Corporate Policy and Special Projects

Department, SUEK (Siberian Coal Energy Company) RUS

Mr. Naoki Ueda Assistant Manager, Planning Division, Energy Business Dept, J-POWER JPN Mr. Alex Zapantis Principal Adviser, Product Stewardship, Rio Tinto Energy AUS Mr. Zhilong ZHANG Shenhua Group Corporation Ltd. CHN

GUESTS & SPEAKERS: Prof. Richard Axelbaum Dept. of Energy, Environmental and Chemical Engineering, Washington

University in St. Louis USA

Mr. Roger Emslie Managing Consultant, Wood Mackenzie USA Mr. Roy Hinkamper Managing Director, KPMG IND Mr. Zenhya LIU China Coal CHN Mr. Mike Monea President, Carbon Capture and Storage Initiatives, SaskPower CAN Mr. Hegang QI China Coal CHN Mr. Brian Ricketts Secretary General, EURACOAL BEL Mr Krzysztof Bolesta Polish Ministry of Environment POL Mr. Christopher Russo Vice President and Energy Practice Leader, Charles River Associates USA Mr. Prakash Sharma Head of Asian Coal Markets, Wood Mackenzie SIN Mr. Matthew Sharples Head of Metals and Mining Consulting, Europe, Middle East, Africa,

Russia and CIS, Wood Mackenzie GBR

Mr. Mike Thomas Partner, The Lantau Group CHN

IEA & STAFF: Dr. Keith Burnard Head, Energy Supply Technology Unit, IEA INT Mr. Carlos Fernández Senior Energy Analyst (Coal), Gas, Coal and Power Markets, IEA INT Mr Brian Heath Executive Co-ordinator, CIAB GBR Mr. Raimund Malischek Gas, Coal and Power Markets Division, IEA INT Mr. Keisuke Sadamori Director, Energy Markets and Security, IEA INT Ms. Misako Takahashi Head, Asia Pacific and Latin America Division, IEA Dr. Johannes Trüby Gas, Coal and Power Markets Division, IEA INT Mr. László Varró Head, Gas, Coal and Power Markets Division, IEA INT

Coal Industry Advisory Board For more information about the IEA Coal Industry Advisory Board, please refer to www.iea.org/ciab, or contact Carlos Fernández Alvarez at the IEA (carlos.fernandez@iea.org) or Brian Heath, CIAB Executive Co-ordinator (mail@ciab.org.uk). IEA – International Energy Agency

9, rue de la Fédération 75739 Paris Cedex 15 FRANCE tel: +33 (0)1 40 57 65 00/01 info@iea.org www.iea.org