GCCSI Financial Model Case Study

© 2012 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved.

GCCSI Financial ModelCase StudySeptember 03, 2012

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Presented byPresented by

Contents

Model Features• Expected Users• Commercial Relation Model• Model Logic & Features

Project Case Study : IGCC + CCS Project• Case Study (Assumption of a fictional project)• Base Case Results (Model Outputs)• Sensitivity Analysis (Model Outputs)• Value & Request

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Model Features/Expected Users

The Model was developed to evaluate CCS Projects at a screening stage

The Expected Users are:• Plant Owners (Utility company etc.)• Project Developers• Investors• Lenders• Policy Makers (Subsidies)• Consultant/Think Tank• EPC Contractor • OEMs

This presentation is prepared by MHI as Project Developer/EPC Contractor/OEM of Gasifier, Gas Turbine, Steam Turbine, CO2 Compressor.

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Model Features/Commercial Relation

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Payment to CO2 Transport & Storage Provider is added to Cost of Generation & Capture Plant

Various type of “Government Subsidies” can be simulated

Model Features/Model Logic & Features

The model is set up to evaluate an integrated CCS Project including:• Upto three (3) Power Generation and CO2 Capture Projects• A Single CO2 Transport Project• A Single CO2 Storage Project

The Model’s worksheets have been structured around four (4) categories as follows:• Inputs : General Assumptions, Price Assumptions, Scenario Manager• Calculations: WACC (Weighted Average Cost of Capital), Timing, Operating Cash Flow,

Capex, Depreciation, Transport & Storage Charges, LCOE (Levelised Cost of Electricity), Government Subsidies

• Outputs • Financial Statements: P/L Statement, Cashflow Statement, Balance Sheet,

Discounted Cashflow Valuation• Summary: LCOE, Commercial Gaps, NPVs, Government Subsidies• Charts: EBITDA, Source & Use of Funds, LCOE constrains, NPV Constituents

Commercial Gaps• Others: Cover Sheet, Table of Contents, Information, Project Scheme, Macros etc.

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Model Features/Model Logic & FeaturesThe Model can run a different scenario of User’s choice using “Scenario Manager”

The Model contains Sensitivity inputs for the following categories• Capex• Capex Subsidies• O&M Costs• Fuel Costs• CO2 Cost• CO2 Transportation Costs• CO2 Storage Costs• PPA Revenue• Other Revenue (such as EOR Revenue• Operating Subsidies• WACC (Weighted Average Cost of Capital)

The Model can run the following Goal Seeking Macros:• Goal Seeking Transport & Storage Charges (optimization to NPV = Zero)• Goal Seeking Government Capex Subsidies (optimizing to NPV=Zero)• Updating Sensitivities

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Case Study : Project Assumption(Base Case)

General AssumptionProject Scope: IGCC + CCSCommercial Operation starts in 2020Business Model : SPC Scheme

w/ Equity 40%: Debt 60%Revenue: Electricity Tariff @$ 50/MWh

No CO2 Revenue

Power Generation & Capture AssumptionGross Generation Capacity: 1017MWPlant Auxiliary Power: 218MWFuel Consumption : 10.2 GJ/MWhFuel Cost: @$2.61/GJCO2 Capture: 0.8 CO2- ton/Net MWh

CO2 Cost: $30/CO2-ton Emission per YrCAPEX: $ 3.0 BillionOPEX(Fixed): $ 3.9 Million /YrOPEX (Variable): $ 6.1/MWh per Year

CCS Assumption CO2 Transport CAPEX, OPEXCO2 Storage CAPEX, OPEXEtc. to calculate CO2 Transport & Storage Fee(Sample of Input Sheet)

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GCCSI CCS Model OKInput - General AssumptionsSHEET CHECK OK

1General Assumptions Unit

1.1 Timing

Model start date Year 2012Model periods Years 70Model end date Year 2,082

Valuation date date30-Jun-

11Mid-period cashflows assumed

1.2 Escalation

Inflation Rate (CPI) % 2.5%Base Year of real revenue inputs Year 2012

Base Year of real cost inputs Year 2012

Price Escalation -Percentage of CPI % 100.0%

Cost Escalation -Percentage of CPI % 100.0%

Base Case Result (Outputs)

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• LCOE= Levelised Cost of Electricity = NPV of Project Costs/NPV of Total Generation= @$103.6/MWh→ Project is not feasible with Market PPA Tariff (@$50/MWh)

• Commercial Gap = “LCOE” - “Levelised Electricity Price” = @$53.6/MWh

• Sample of “Built-in” chart for Model Outputs is shown below

CAPEX is the largest constituent $53.61/MWh

Fuel Cost $28.51/MWh is relatively low due to low Coal Cost

The Model calculates Transportation Cost ($1.55/MWh)” & Storage Cost ($7.24/MWh)

$103.6/MWh$103.6/MWh

$50.0/MWh$50.0/MWh

$53.6/MWh$53.6/MWh

Not Considered

Not Considered

Sensitivity Analysis (Outputs)

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2Sensitivity Summary Unit

IGCC

2.4 LCOE changes

Base Case $ / MWh 109.63 109.63 Capex (+/- 10%) $ / MWh 5.62 (5.62)O&M costs (+/- 10%) $ / MWh 0.65 (0.65)Fuel costs (+/- 10%) $ / MWh 2.85 (2.85)CO2 costs (+/- 10%) $ / MWh 0.29 (0.29)WACC (high / low) $ / MWh 18.67 (15.91)

2.5 NPV changes

Base Case $ 000's (373,203.79) (373,203.79)Capex (+/- 10%) $ 000's (230,049) 230,049Capex Subsidies (+/- 10%) $ 000's (211,652) 211,652O&M costs (+/- 10%) $ 000's (36,308) 36,308Fuel costs (+/- 10%) $ 000's (158,453) 158,453CO2 costs (+/- 10%) $ 000's (15,984) 15,984Transport costs (+/-10%) $ 000's (8,624) 8,624Storage costs (+/-10%) $ 000's (40,088) 40,088Other revenue (+/-10%) $ 000's ‐ ‐Operating subsidy (+/-10%) $ 000's ‐ ‐EOR revenue (+/-10%) $ 000's ‐ ‐Gov PPA revenue (+/-10%) $ 000's ‐ ‐Market PPA revenue (+/-10%) $ 000's (277,856) 277,856

WACC Assumption /Calculation

© 2012 MITSUBISHI HEAVY INDUSTRIES, LTD. All Rights Reserved. 10

• The Model provides “Pre-Financing” Cashfow only.• However, it provides “WACC” ( Weighted Average of Capital Cost) simulation.• The following are the Assumption and Calculation of the Case Study Project.

WACC Inputs Transport Storage Hub IGCC

10.1 Funding structureCommercial equity 35.0% 20.0% 25.0%

Concessional equity 0.0% 40.0% 15.0%

Commercial debt 65.0% 20.0% 25.0%

Concessional debt 0.0% 10.0% 20.0%

Government debt 0.0% 10.0% 15.0%

Check OK OK OK

10.2 General valuation parametersRisk-free rate 5.00% 5.00%Market risk premium 6.00% 6.00%Liability Reserve -Interest Rate 5.0%

10.3 Commercial equity valuation parametersBeta - ungeared 0.45 1.05 0.75

Alpha 0.0% 2.0% 2.0%

10.4 Concessional equity valuation parametersConcessional equity rate (all in rate) 8.0% 10.0% 12.0%

10.5 Commercial debt valuation parametersDebt margin above swap 2.0% 3.0% 3.5%

Swap Margin 0.5% 0.5% 0.5%

10.6 Concessional debt valuation parametersConcessional debt interest rate (all in rate) 6.0% 6.0% 6.0%

10.7 Government debt valuation parametersGovernment debt interest rate (all in rate) 5.0% 5.0% 5.0%

WACC calculation IGCC

2.1 Cost of commercial equity Risk free rate 5.00%Beta - ungeared 0.75Debt / Equity 150.00%Regearing factor 2.05Beta - geared 1.54Market risk premium 6.00%Alpha 2.00%Cost of commercial equity 16.23%

2.2 Commercial debtRisk free rate 5.00%Margin above risk-free rate 3.50%Swap Margin 0.50%Cost of commercial debt 9.00%

2.3 WACCWACC Nominal Post Tax - Calculated 8.80%Sensitivity applied to base case 0.00%

WACC Nominal Post Tax 8.80%

Inflation Rate (CPI) 2.50%

WACC Real Post Tax 6.14%

WACC Real Pre Tax - Applied 8.78%

IRR of the Project is 8.80%p.a.(after Government Capital Cost Subsidy Macoro runs)

“Value” and “Request”

• The Model is easy to operate and to simulate not only variation of essential “Project Values” (CAPEX, OPEX, Revenue, Schedule, Plant Performance etc.) but also various form of “Government Subsidies” (Feed-in-Tariff, Capital Cost Subsidies, Operating Cost Subsidies and Tax Credit). This is a unique value of GCCSI Financial Model.

• The Model is also useful to understand and evaluate the relation between “Power Generation” and “CCS” in one cashflow model.

Request for Further Improvement1.“Built-in Scenario of EOR (Enhanced Oil Recovery)” The current model has EOR Revenue Selection Input but requires manual adjustment for CCS related cost inputs. It would be ideal if the Model has a built-in function of “CCS: EOR Ratio” (i.e.100%= No CCS but all the captured CO2 goes to EOR)2. “Funding Cashflows”The current Model is set for “Pre-Financing Cashflow” only. The built-in Option for cashflow with various inputs of Debt terms (interest rate, repayment period), Debt amortization and Equity distribution. Then, adding “ROE=Return of Equity” in Outputs and Sensitivity sheets will be very much appreciated, especially, by Investors.

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Hand-out Material for Panel Discussion


Feed-in-Tariff for Clean Coal Power Generation (1 of 2)

• In many countries, the Feed-in-Tariff (FIT) has been adopted as an incentive for constructing Renewable Energy Plant

• If the main purpose of FIT is to reduce CO2 Emission, Why not “FIT for Clean Coal Power Generation” ?

• In the Country X where the majority of Power is generated from Coal, “FIT for Renewable” is established as follows:


Technology Power Tariff CO2 Emission Rate(CO2ton/MWh)

Capacity Utilization Factor

(A) Annual Reduction of CO2 by 1000MW Capacity Plant (CO2 ton/Year)

(B) Annual TotalIncentive ($/Year)

(C) Incentiveper CO2 Reduction per Year($/Ton)

Conventional Coal Power Generation

@$55.30/MWh(Market Tariff)

0.99(Base)

90% Base Base Base

Renewable(Wind)

@$84.60/MWh(FIT)

zero 24% (2,081,376) 61.6 M$ $29.6/ton

Renewable (Solar-PV)

@$192.80/MWh(FIT)

zero 18% (1,561,032) 216.8 M$ $138.9/ton

Renewable (Solar-CSP)

@$258.20/MWh(FIT)

zero 23% (1,994,652) 408.8 M$ $204.9/ton

(A) = CO2 Emission Rate x 1000MW x 24h x 365day x Capacity Utilization Factor(B) = (FIT – Market Tariff) x 1000MW x 24h x 365day x Capacity Utilization Factor(C) = (B) / (A)

Feed-in-Tariff for Clean Coal Power Generation (2 of 2)

The same calculation for IGCC+CCS (90%) shows as follows:

With LCOE of “IGCC+90%CCS” = @$116.0/MWh by GCCSI Financial Model, X～Z can be evaluated as follows:


Technology Power Tariff CO2 Emission Rate(CO2ton/MWh)

Capacity Utilization Factor

(A) Annual Reduction of CO2 by 1000MW Plant (CO2 ton/Year)

(B) Annual TotalIncentive for 1000MW Plant ($/Year)

(C) Incentive per Annual CO2 Reduction for 1000MW Plant ($/Ton)



0.99(Base)

90% Base Base Base

IGCC + CCSPower Plant

X 0.089 90% (7,103,484) Y Z

Technology X: Power Tariff Y: Annual Total Incentive for 1000MW Plant ($/Year)

Z: Incentive per Annual CO2 Reduction for 1000MW Plant ($/Ton)



Base Base

IGCC + CCSPower Plant

@$116.0/MWh 478.6 M$/Yr $67.4/Ton/Yr

If “Wind” FIT is applied @$84.60/MWh 61.6 M$ $29.6/ton

If “Solar-PV” FIT is applied @$192.80/MWh 216.8 M$ $138.9/ton

If “Solar-CSP” FIT is applied @$258.20/MWh 408.8 M$ $204.9/ton

Conclusion: In Country X,1. FIT for “IGCC+CCS” is a valid option for “CO2 Reduction” Incentive.2. FIT for IGCC + CCS should be higher than “Wind” but lower than “Solar”

GCCSI Financial Model Case Study

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