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Thermal Power with CCS

Nicola Ham Edmonds

Den Gammer

Andrew Green

Jim Ward


Agenda

2

1. Arrival and tea/coffee 10.00 – 10.30

2. Introduction, safety and rules for the day 10.30 – 10.35 AG

3. Introduction to the ETI 10.35 – 10.50 AG

4. Project background and required outcomes 10.50 – 11.50 AG/DG

5. ETI Investment and Value Return 11.50 – 12.20 AG/JW

6. Selection Criteria – what do we expect from the

consortium?

12.20 – 12.50 AG/DG/JW

7. Lunch and networking(*) 12.50 – 13.50

8. ETI Project Contract – Key Features 13.50 – 14.30 NHE

9. Project reporting and finance requirements 14.30 – 14.45 AG

10. Submission, selection and contract negotiating &

detailing process

14.45 – 15.00 AG

11. Open Q&A 15.00 – 15.30

12. Tea, networking and depart(*) 15.30 – 16.15


Rules for the day

• Opportunity to learn more about ETI and its requirements for this investment – feel free to ask

questions

– Covering not just technical issues, but financial, legal, commercial etc

– Q&A sessions after each agenda item

– Will endeavour to stay to schedule!

• Opportunity to network with potential participants

– ETI is not offering to act as ‘marriage brokers’

– Recognise that different consortia may be at different stages of formation

• Discussions in here today are non confidential

– Q&A’s in the open session will be recorded and made available (without attribution) to all

parties registering an interest in the Project

– Break out room available should any attendees want to hold confidential meetings over lunch

or in final session

3


INTRODUCTION TO THE ETI

4


What is the ETI?

5.

• The Energy Technologies Institute (ETI) is a

public-private partnership between global

industries and UK Government

Delivering...

• Targeted development, demonstration and

de-risking of new technologies for affordable

and secure energy

• Shared risk

ETI programme associate

ETI members


What is the ETI?

6.

System level strategic planning

Technology development & demonstration

Delivering knowledge &

innovation


ETI Invests in projects at 3 levels

7

Knowledge Building Projects

typically ....

up to £5m, Up to 2 years

Technology Development projects

typically ....

£5-15m, 2-4 years

TRL 3-5

Technology Demonstration projects

Large projects delivered primarily by large companies, system integration focus

typically ....

£15-30m+, 3-5 years

TRL 5-6+


ETI Programme Areas

8.

Delivering...

New knowledge

Technology development

Technology demonstration

Reduced risk


ETI Investments – what is different

• The ETI is an investor in technology development and implementation, not a grant awarding body

• The ETI is unique and its mode of operating reflects this:

– ETI objectives: acceleration of technology

– Need to meet State Aid requirements

– ETI can fund up to 100% of project costs

– ETI member investment

• The ETI takes a very ‘hands on’ approach to ensure that projects are delivered – and exploited –

successfully

– Supportive Technical and Project Management assurance

– Use the skills of our Members

• How does ETI commission projects?

– ETI defines the projects it wishes to commission taking input from experts

– State aid and ETI’s constitution require open and transparent process to allocate funding

– Typically, request for proposals through open call

– Select against selection criteria: mix of technical and delivery capabilities, commercial

requirements including ability to manage IP

9


ETI Investment: Principles and Mechanisms• Knowledge Building Projects

– ETI owns IP

– 100% funded

• Technology Development/Demonstration Projects

– ETI investment up to 100%

– IP owned by organisation best placed to exploit: mechanisms designed to support, not

hinder, successful exploitation

– ETI Members rights to use (and sometimes exploit) technologies

– Rights to the ETI to ensure exploitation, if not exploited by owner

– ETI expects to financially ‘share in success’ if exploited (but shares the downside risk)

– ETI has experience of a variety of mechanisms to enable this, e.g.:

• Royalties/other direct financial returns

• ETI takes equity in technology company/SPV

• Loans, repayable on successful exploitation

• This investment is somewhat different

– ‘Project’ not ‘Technology’ development

– Need to develop the CCS market to drive innovation: not vice versa

– Same investment principles apply, but mechanisms may vary10


ETI CCS PROGRAMME

11


ESME – ETI’s system design toolintegrating power, heat, transport and infrastructure

providing national / regional system designs

12

ESME example outputs


CCS is high value as it creates options

ETI energy system modelling points to ‘energy system-wide’ value of

CCS extending beyond low carbon electricity generation

‘Negative

emissions’

Enables continued use of fossil

fuels where very expensive to

replace

Competitive low

carbon electricity

from fossil fuels

CCS with biomassGasification

applications

Flexible low carbon fuels

(hydrogen, SNG)

Low carbon energy diversity, portfolio of flexible low carbon energy

vectors, option value & robustness in meeting carbon targets

CCS on industrial

emissions

13


CCS: Challenges for the UK

CCS System:

•Cost-effective roll out

•Operability

•Incentives to invest

1 – 4 km

Storage = Risk

•How much is there?

•Which sites?

•Monitoring CO2

Capture = Cost

•Reduced Capital Cost

•Reduced Power Penalty

15


Storage Appraisal: £4M

Capture Economics: £0.2M

MMV Landscape: £0.2M

Mineralisation: £1.4M

Biomass with CCS: £0.8M

Hydrogen & Storage: £0.3M

CCS Development Scenarios £0.1M

CCS System Modelling Toolkit: £3M

High Hydrogen: £2M

Turbine & Engine Safety

Strategic UK Storage Appraisal: £2.5M

Thermal Power with CCS: £2M

Nextgen1: up to £23M

Pre Combustion Coal

Nextgen 2: up to £20M

Post Combustion Gas

Aquifer Appraisal: £2M

Funding of NG Project

MMV: £5M

Marine monitoring

Demonstration

Development

Knowledge

Building

ETI CCS Programme

16


PROJECT BACKGROUND

16


Ambition and momentum

17

• There is no explicit government target for the “mix” of clean power producers, but

– Policy and obligation to reduce GHG emissions by 80% by 2050, from 1990 levels.

– Acceptance of CCC conclusion that power sector decarbonises first (based on cost).

– DECC published CCS projections in the range 1GW – 13GW in scenarios by 2030, 5GW

CCS in most recent case.

– CCC review of 4th carbon budget – 10GW CCS by 2030.

• Accepting we have a late start, and following normal individual project schedules and reasonable

risk taking, the maximum realistic deployment from a technical perspective (ETI Scenarios Work

(2014) is :

– 10 GW CCS by 2030 (nominally 50 MT/a)

• Loss of Capacity,

- LCPD - coal and oil closure (12 GW by 2025?)

- Ageing nuclear (8 GW by 2025??)

• Gas

– New gas not keeping pace with closures – capacity mechanism to stem the exit

– 12 GW wind


After Phase 1

• Expect DECC Commercialisation projects

(Peterhead & White Rose) to take FID in late

2015/early 2016

• Cost Reduction Task Force and other analysis

shows that rapid cost reductions can be achieved

as CCS is rolled out – to less than £100/MWhr

– Reliable, low carbon, on-demand power

– CCS will replace unabated fossil in

preference to wind

• Opportunity to develop ‘Phase 2’ projects to follow

on shortly after

– No capital support, but expect bespoke

CFDs to be available

– Strong incentive to make use of ‘Phase 1’

transport & storage infrastructure being

developed (lower cost, lower risk)

19


ETI Project Concept

• £2M investment to develop a robust investment case and associated vehicle for a CCS/power scheme

which would:

– Make a meaningful contribution to the UK’s clean energy needs in the 2020s (i.e. > 500MWe);

– Lower cost and risk by appropriate selection of technology, location and use of existing assets;

– Be attractive to a broad range of developers and investors by avoiding approaches with

unnecessary risk and potential for delay;

– Be robust to the developing circumstances in CCS, potentially allowing companies to share risk in

the resulting CCS scheme through a co-venturing model;

– Be in a strong position to negotiate a Phase 2 CfD which would be attractive to investors and

DECC;

– Act as a catalyst for future CCS roll out, through ‘template’ projects, transfer of learnings around

making a CCS investment case and involvement of a consortium of developers and investors;

– Clarify the commercial structuring and risk management approaches for CCS projects, particularly

those involving use of shared transport and storage infrastructure.

20


Expected CCS/Power Scheme Features

• The business focus of the CCS/power scheme would be on providing investable, low-risk, low-

cost, low-carbon power, supported by a CfD. Attractive features are likely to include:

– Use of existing/proposed (shared) transport & storage assets to reduce cost, complexity,

schedule and scope of the scheme;

– Low planning cost, time and risk, e.g. basing the CCS scheme on a power station with

Development Consent Order (DCO) or Section 36 consent; siting the station near pipeline

infrastructure;

– Use of ‘best proven’ technologies, balancing cost against investor risk premium;

– Rapid, low risk project delivery;

– Business models with clear allocation of risk along the CCS chain.

• New-build, ‘repowering’, retrofit or adaptation of

unabated schemes are in scope.

• Exact timing of project implementation is not fixed,

expected in the 2022 – 2025 timeframe.

20


Impact of Risk on Cost Reduction (Gas Fired Station)

22

116

101

87.3 87.1

70

75

80

85

90

95

100

105

110

115

120

1 2 3 4

PLANT No

PLANT No1

New trunk, store, high risk premium

LEVELISED

COST

£/MWh

PLANT No2

Existing trunk, extended store but high risk

PLANT No3

Lower risk for whole chain

PLANT No4

New Technology: 20% cost

reduction, 3% efficiency

improvement but increased risk

ETI Project Target


Overall Timelines

23

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 H1 H2 H1 H2 H1 H2

CCS Project Timelines

ETI Project Timelines

ETI Project Commission

ETI Project Delivery

ETI Exploitation Support

2021 2022 20232015 2016 2017 2018 2019 2020

Identify

Select

Define

Execute

Gate 0

Project Start

Gate 1

Concept

Gate 2

FID

SPV

Formed

ETI Exits


ETI PROJECT OBJECTIVES & DELIVERABLES

23


ETI Project Objectives

• Three key, interlinked objectives:

– To bring forward a package comprising a robust business case, underlying

permissions, engineering and the associated development vehicle for a low cost,

low risk capital project which has a high likelihood of delivering a GW-scale

implementation of a CCS/power scheme, at a level sufficient for the project to

pass through a ‘Concept Selection’ Stage Gate into the Define (FEED) Phase

– To share learnings and produce a generic business case for power with CCS

which will accelerate cost-effective roll out of CCS in the UK

– To bring together a community of CCS stakeholders to share risk on the scheme

and enhance the future supply chain for CCS in the UK

24


Specific business case for the identified CCS/power scheme

• Package of technical and commercial information at a level sufficient for the scheme to pass

through a ‘Concept Selection’ Gate into the Define (FEED) Phase. e.g.:

– Signed Heads of Terms (HoT) for land use;

– Generation and capture technologies selected (with agreement/engagement from vendor)

– Pre-FEED completed, including c. ± 30% estimate for scheme costs;

– Sufficient progress on an EIA for the plant and/or connecting CO2 pipeline (as required);

– Sufficient progress made on planning aspects to reduce risk (and time) associated with

gaining the required consents in future development stages;

– Outline agreement for CfD;

– CO2 Transport and Storage Capacity Rights (or option) secured, with outline terms and

conditions agreed (ideally not specific to the identified CCS/power scheme);

– Fuel supply and risk management strategy;

– Parameters, partners, financing and delivery structures (e.g. SPV), to execute the Design

(FEED) Stage to prepare for FID; initial strategy to secure funding for plant construction;

– Implementation plan for the CCS/power scheme, through to operation;

– Outline financing strategy for FEED and subsequent construction phase;

– Letters of intent from other key parties that are key to the scheme proposed (e.g. OEMs, fuel

suppliers, site owner);

– The proposed basis on which other investors may support the scheme.

25


Generic business case

• Pull together learnings from so the ETI and other stakeholders can apply such learning to other

power project opportunities or decisions (whether on CCS or otherwise), e.g:

– Review of generation and capture technologies considered and reasoning behind their

selection;

– Non site-specific ‘pre-FEED’ completed for ‘template’ plant, including c. ±40% estimate for

project costs (likely to be based on the specific scheme design);

– Guidance on undertaking EIAs for CCS plant and/or connecting CO2 pipeline;

– Guidance on planning aspects required to consent ‘Power-with-CCS’ plant, covering a range

of alternative options (e.g. new build, retrofit; separate vs integrated power and CCS units;

connecting pipeline);

– Guidance on the key factors involved in structuring and negotiating a CfD;

– Guidance on handling counterparty risk for CCS projects which rely on access to transport

and storage infrastructure owned and operated by other parties.

– If possible non site-specific CO2 Transport and Storage Capacity Rights (or option) secured;

– Guidance on fuel supply approaches (e.g. how to hedge against fuel price changes);

– Exploitation plans setting out how the consortium will (individually and collectively) pursue

other power with CCS projects.

27


ETI Project Deliverables

• Exact Deliverables should be defined by the Respondents, but expected to include:

– Confidential report to the ETI and its Members, fully detailing the specific business case for

the identified CCS/power scheme, including confirmation of any third party agreements to

take the scheme forward (HoT’s etc);

– Full draft shareholder agreement for the SPV (or other mechanism) to take the CCS/power

scheme forward, to include the ETI Project Participants (or an appropriate subset) and the

ETI, plus other key stakeholders required to deliver and fund the next stages of the

CCS/power scheme, with in principle agreement from all key partners;

– Comprehensive public domain report, detailing the generic business case for a power with

CCS project

27


Key Capabilities Required

• The project team is expected to include organisations/individuals with proven experience in:

– Development of major infrastructure (preferably power) projects;

– Securing finance for such projects;

– Consenting of projects;

– Early-stage (pre-FEED) engineering and costing of power with CCS projects;

– Commercial experience of operating in UK electricity market and in depth knowledge of the

future direction of the market (EMR).

• Ownership of, rights to or potential options on a suitable site for the proposed CCS/Power scheme

will be viewed positively

• Expected that the project will be led by a developer or asset owner – not a contractor/consultant

28


What this project is not

• It is NOT a hypothetical study on what a ‘good’ Phase 2 project might look like: it must be based

on a real potential Phase 2 project with a realistic opportunity to get to FID

• It should NOT be aimed at development of a CCS scheme with a high level of commercial and/or

technical level risk, even if the base economics appear attractive. Hence the following are unlikely

to be in scope:

– Full chain projects on which the primary business case is based on Enhanced Oil Recovery,

EOR (high risk, high complexity commercially)

– Industrial CCS (unless combined with power generation with the prospect of gaining a CfD) –

the basis of any incentive mechanism are unlikely to be in place in the lifetime of the ETI

project

– Step-out CCS technologies (high technical risk: our focus is on ‘best proven’ technologies)

29


ETI INVESTMENT AND VALUE RETURN

30


The principles

• ETI to financially ‘share in success’ in line with the risk taken

– most likely realised at the point of FID on the CCS/power scheme

• ETI shares the downside risk (i.e. no return of funds expected if the scheme doesn’t go ahead)

• ETI Members and ETI to have rights to use project results

• The ownership of IP developed in the ETI project is structured to enable the project to exploit and,

where necessary, to enable the ETI to secure its upside.

• Rights for the ETI to use the project results if the scheme doesn’t go ahead

– Enable ETI to pursue other schemes

– Transfer learnings to encourage alternative schemes

• All mechanisms should be designed to support, not hinder, successful exploitation

– The specified CCS/power scheme and beyond

31


Potential mechanisms• Financial payment to the ETI by the project participants when they realise value (e.g. at FID) but

secured in this stage of the project.

• ETI to participate in an SPV established post-project – expected to exit at FID, noting that

– ETI does not expect to make any further cash investment

– ‘Convert’ ETI investment in this project into equity under agreed terms

– It is expected that the ETI will need to own IP from the project to enable this – see later

presentation

• Licensing revenue from ETI-owned IP

• These are only suggested mechanisms - do not wish to constrain bidders

• ETI will consider proposals provided

– They are constructive and equitable

– They fit in with ETI’s governance structure and are consistent with state aid rules, if

applicable.

– They provide a clear and unambiguous route to the ETI realising its investment return

• Potential bidders are strongly advised to discuss any proposed options with the ETI well in

advance of the submission deadline to ensure that their approach would be acceptable to the ETI

32


SELECTION CRITERIA – WHAT DO WE EXPECT

FROM THE CONSORTIUM?

33


Gateway Criteria

• The ‘must haves’

G1 The proposed CCS/power scheme will substantially capture CO2 emissions from the

equivalent of at least 500MW electricity generation capacity, with the potential to receive a

Contract for Difference as set out in the UK Electricity Market Reform programme

G2 The Respondents have identified a suitable site (or shortlist of potential sites) for the

CCS/power scheme, with expression(s) of interest from the site owner/controller(s) that

they wish to proceed with the development of a power-with-CCS scheme

G3 The proposed site is located within economic reach of the transport and storage

infrastructure for the DECC Commercialisation entrants (Peterhead and White Rose) or

can demonstrate a similar (or better) cost and risk profile to expansion of either of these

infrastructures.

34

May be a little flexible on this one


S1 CCS/power scheme potential

• Materiality, investability and value for money of the proposed CCS/power scheme, including:

– MW of electricity generating capacity abated by the scheme.

– Potential to reduce the risk-adjusted LCOE/required Strike Price below £100/MWh

– Risk profile of the proposed scheme and impact on investability/return on investment,

including:

• Technology risk (generation and capture technology)

• Construction risk;

• Operational risk;

• Ownership & Contractual risk;

• Policy & Regulatory risk; and

• Permitting & Consent risk

35


S2 Location of proposed CCS/power scheme

• The suitability of the proposed site for the CCS/power scheme including:

– Size and suitability for construction and operation of the proposed plant;

– Ease of access to fuel supplies and cooling water;

– Ease of access to grid connection;

– Ease of access to any proposed CO2 export pipeline;

– Current status of consenting and likelihood/complexity of additional consents (plant and

export pipeline);

– Current ownership/control and forward plans;

– Extent of engagement by the site owner/controller in the Project.

36


S3 Resilience, replicability, diversity & openness of the scheme

– Resilience of the scheme to withdrawal of the main party or key co-venturer(s) – for example

loss of site, utilities, grid connection rights or finance;

– Replicability of the scheme in the UK, whether at the identified site for the first scheme or

elsewhere;

– The range of investors and utilities to be involved in the scheme, promoting accelerated

deployment of CCS and later competition, as well as providing resilience to the initial

scheme;

– Ability of the scheme to attract wider/new investor interest after the Project.

37


S4A Ability of the Participants to deliver: Technical

– Experience and availability of the proposed Chief Technologist;

– Level of experience and completeness of the technical skills amongst the consortium or their

contractors to deliver the Project, specifically including :

• power generation technologies;

• capture technologies;

• creative integration of core plant elements with utilities;

• technology risk assessment;

• planning and scheduling;

– Engagement of key technology owners within the consortium;

– Experience of managing IP, particularly with relation to data and software;

– Availability and stability of deployable resources with the above skills to mobilise sufficiently

rapidly and for sufficient durations;

38


S4B Ability of the Participants to deliver: Commercial

– Experience and availability of the proposed Commercial Manager

– Level of experience and completeness of the commercial skills amongst the consortium to

deliver the Project, specifically:

• Securing viable and resilient investor bases for major capital projects;

• Aligning incentives across wide investor bases which deliver alternative value sets for

different investor types but create a coherent whole;

• Clear and efficient risk-allocation;

• Strategies, relationships or commitments to manage key commercial risks;

• Proven experience of value realisation for investors;

– Availability and stability of deployable resources with the above skills to mobilise sufficiently

rapidly and for sufficient durations;

39


S4C Ability of the Participants to deliver: Delivery

– Experience and availability of the proposed Project Manager;

– Record and ability in quality, timely and on-budget delivery of projects (of the type requested

in this RfP) to the full satisfaction of the main stakeholders;

– Project management systems and expertise appropriate for this sort of project;

– Ability and experience in collaborative working;

– Appropriate health, safety and environmental management systems and experience;

– Effectiveness of the contracting, organisational, governance and control structures and

processes proposed for the participating entities / organisations, including interfacing with

ETI as it requires, etc;

– Quality, clarity and credibility of the project approach and plan, including Gantt chart, suitable

in-Project Stage Gates & Payment Milestones;

– Risk Management. Respondents will need to demonstrate clear evidence of a rigorous, risk-

based approach to management of the Project. A register identifying the key risks and how

they will be managed is required.

40


S5 Attractiveness of commercial offer

– Value and benefits to the ETI, ETI Members and the UK. Respondents should identify the

value and the benefits arising from the proposed Project to be delivered to ETI Members

(public and private sector)

– How equitable the ETI’s position is in relation to other investors in the Project, and the

alignment of the ETI’s interests with other investors

– The security of the ETI’s commercial position and how this is maintained through the legal

agreements from transition to future phases (e.g. FEED and FID)

– The simplicity of the commercial offer and hence ease of contracting and implementing

– The degree to which the ETI’s and the other investors’ route to value is consistent with

stimulating investment in future phases (e.g. FEED and FID)

41


S6 Quality, clarity and credibility of exploitation plans

– Quality, clarity and credibility of the proposed plan to take the CCS/power scheme through to

FID and beyond;

– Completeness and credibility of the consortium delivering the Project in terms of ability to

take the CCS/power scheme through to FID and beyond;

– Existing links to and track record of working with the additional partners required beyond the

Project to finance and deliver a successful outcome to the CCS/power scheme (specific

relationships will be viewed significantly more positively than general statements around

potential future partners);

– Plans for effective dissemination of the generic business case developed in the Project.

42


S7 Value for money with respect to ETI funding

– Extent to which the desired outcomes listed in Section 4 are planned and expected to be

achieved

– Competitiveness of costs;

– Extent of co-investment in the Project by Participants (actual investment in Project delivery

will be viewed significantly more positively than a ‘contribution in kind’ based on previous

work);

– High additionality (ETI investment will provide significant acceleration of the development of

the proposed CCS/power scheme; scheme would not proceed without ETI investment);

– Attractiveness of the scheme for future investors, including those not currently active in CCS;

– Willingness and capacity to accept the financial risk profile for the Project.

– Though necessary tangible assets (e.g. land, grid connections) will be recognised

accordingly

43


S8 Risks of reaching agreement with the ETI

• Risks associated with reaching acceptable agreement with the ETI within the timescales set out in

this RfP:

– Respondents’ willingness to materially comply with the terms and conditions of the proposed

Project Contract or an alternative structure which meets ETI’s core requirements;

– A coherent and credible approach to the contractual framework which meets ETI’s

requirements and the requirements of co-venturers (likely to be demonstrated through

engagement with the ETI);

– Level of commitment from the host site and risks relating to planning consents and

environmental risk management;

– Availability, security and level of commitment of additional funds (in addition to ETI funding).

Relevant Participants will need to provide evidence of where the additional funds required to

complete the development programme will be sourced, including any key approval points in

the schedule;

– Availability and commitment of the necessary technical, legal and financial resources to meet

the requirements of ETI’s commissioning process.

44


PROJECT STRUCTURE – LEGAL ISSUES

45


Thermal Power – Project Structure

• “ETI to financially ‘share in success’ in line with the risk taken

– most likely realised at the point of FID on the CCS/power scheme”

– ETI wishes to ensure that this is secured mechanically – not guaranteed.

• “ETI Members and ETI to have rights to use project results”

– This means that that ETI will need to have a licence to Arising IP to enable this.

– This is distinct from a technology development project.

• “The ownership of IP developed in the ETI project is structured to enable the project to exploit

and, where necessary, to enable the ETI to secure its upside.”

• We consider that it is likely that there is an SPV either established already, during the ETI project

or afterwards.

46


Thermal Power - Project Structure • Financial value

A. An agreement to make a financial payment on certain events occurring. This needs to be for

“consideration”. It must work in legal terms.

B. Royalty agreement – this would be a payment or series of payments on use of [most likely]

Arising IP from the project.

C. The ETI obtains a share or an option for shares in an SPV.

D. The ETI provides the Arising IP by way of a loan into an SPV

• Note: “ETI to participate in an SPV established post-project – expected to exit at FID, noting that

– ETI does not expect to make any further cash investment”

• Option C.

– The ETI would need to purchase its shares for non-cash consideration – Arising IP

assignment is most likely

• Option D.

– The ETI could set up the SPV and the purchase price of the deliverables would be left

outstanding as an intra-group loan (which could then be capitalized in some form later

• “These are only suggested mechanisms - do not wish to constrain bidders” - “ETI will consider

proposals” – but talk to us early ahead of submission.

47


INTELLECTUAL PROPERTY

48


Key challenges

• Effective management of IP is critical to ETI Projects.

• This Project will bring together existing IP from many homes and create new IP for two purposes:

– To create a Specific Business Case for a future commercial Power-with-CCS scheme

• Must secure a package of IP which will underpin any vehicle established to take forward

the Power/CCS scheme to FID and beyond

• Must ensure that the ETI can share the information package with its Members

– To create a Generic Business Case that the ETI can disseminate widely

• Must ensure that ETI has all the necessary rights to do this

• Your proposals to manage IP and the ability for ETI to use and licence it as required will be

considered as a part of Selection Criteria

49


Thermal Power Project – IP requirements

• RfP sets out minimum requirements – please read carefully.

• In order to achieve Project aims, the ETI Project Contract will include detailed provisions to deal

with IP as follows

• Arising IP (i.e. newly created during the Project)

– Who owns the Arising IP

– Securing a package of Arising IP which can be used by the vehicle which will take forward

the commercial project

– Providing ownership or licences of relevant parts of the Arising IP to ETI to enable it to

secure its value return

– Providing ownership or licences of relevant parts of the Arising IP to enable dissemination of

the Generic Business Case

– This onward sharing may be through licence or assignment

– The ETI will also look to secure rights to use the outputs of the project if the scheme does not

progress.

• Licences to Participants are expected to be consistent with the future requirements for the project

and to the extent consistent with ETI’s objectives

50



• Background IP (i.e. your own IP, existing already or created separately) (* not the CCS

technology)

• ETI’s standard approach to Background IP applies – Background IP must be made available in

order to ensure that the structure, ownership and licensing rights for the Arising IP are

unencumbered. Note: Ownership of Background IP never changes.

• Licences to be made available by Participants

– For the Project, as necessary between any Participants and Subcontractors in order to

deliver the Project (royalty free basis)

– Post Project, in relation to Background IP incorporated into any outputs/Deliverables in order

for ETI/project to use freely the Arising IP (i.e. the project results permitted to be shared)

– In this case, costs, if any, should be included in up front Project Costs

• For your Proposal, identify any such Background IP and how it will be made available (i.e.

compliant with RfP requirements or otherwise)

51



• Third Party IP (i.e. existing IP owned by a third party)

• Broadly the approach for Third Party IP mimics that for Background IP

• Risk remains with Participants – you must identify what Third Party IP is necessary in your

Proposal and in the Project and manage it so the ETI is licensed to use anything contained in any

Deliverables

• Where third party data, software or IP is critical to the project or the ETI’s objectives, it is desirable

to deal with this as much as possible pre-contract to mitigate risk to delivery of the Project

• Costs for usage of Third Party IP (e.g. technology evaluation licences) should be included in the

Project Costs – note the maximum funding available needs to include IP costs

• The ETI may wish to approve the terms of each licence for certainty

52


Finally

• Effective management of IP is important for this Project to achieve objectives

• Third Party IP existing/standard terms will need careful checking as often will require specific

negotiation to obtain the rights required

• Due diligence on Background IP and Third Party IP will be a key task after any Respondent(s) are

down selected

53


PROJECT CONTRACT: OTHER KEY ASPECTS

54


Project Contract – State Aid

• Part of ETI’s funding is public sector, so Project funding must comply with EU state aid rules

• ETI’s State Aid Clearance

– It is anticipated that the Project will fall within ETI’s existing clearance

– Exceptionally, in the event the optimum proposal and project structure is best suited to be

funded solely with private sector funding, the ETI may choose to do so.

• However, all Proposals must comply with state aid requirements

• Manage State Aid issues through the Project Contract

• 100% return of state funding in certain, limited circumstances, for example:

– withdrawal of a participant without consent

– corruption or fraud

– failure to comply with State Aid requirements (EU law requirement)

55


Project Contract – Other Key Issues

• Stage Gate Reviews

– Structured reviews at key points where project progress and business case reviewed

– Option to stop the project

• Exit Provisions

– Suspension

– Termination – breach and for convenience.

– Termination by mutual consent

– Withdrawal of participant – can withdraw if all other participants and ETI agree. Conditions

likely to be imposed.

56


Project Contract – Other Key Issues

• Confidentiality

• Warranties

• Liabilities – ETI funding but exclusions to the cap apply

• Indemnities

– third party indemnity (“misdirected” claims)

– IP indemnity

– Indemnities related to warranties, project by project

57


Related Contracts

• Consortium Agreement:

– Agreement between participants: ETI to approve

– Completed prior to Project Contract

• Subcontracts

– Key subcontracts may need ETI approval

• Funding contracts (if relevant)

58


Summary: key issues for review before you bid

• Arising IP – to fulfil ETI objectives and value return needs

• What Background IP and Third Party IP will you need, set out detail in bid

• Rest of contract

– State Aid – return of funding (non-negotiable/legal requirement)

– Third Party IP risk – warranties and indemnity

– Liability (especially in consortium and your expected flow down to subs)

– Payment within funding window

– Acceptance process

– Reporting (make sure you price it in)

– Stage Gates

• Make sure you have buy in of each proposed consortium member and any key subcontractors

• ETI will make available a draft project contract 4 weeks before submission date

– Must have a fully executed Non Disclosure Agreement

– Respondents should provide all comments in single collated list/mark up

59


PROJECT ORGANISATIONAL STRUCTURE

60


Contractual Structure

Overall• No strong preference on structure – provided Respondents justify their approach as best

way to deliver

• The ETI will only select Respondents who have the required skills, experience and

capability (either themselves or within their Subcontractors/Consortium) to complete all

parts of the Project

Consortium• Each Participant in contract with ETI

• Consortium Agreement covering interactions

within Consortium (requires ETI approval

before main contract is signed)

• ‘Lead Coordinator’ acts as primary interface

with the ETI

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Prime Contractor• Single entity in contract with the ETI

• Other participants act as subcontractors

• Appointment and use of Subcontractors

requires ETI approval

• ETI has right to view and approve

subcontracts


ETI

Project

Manager

ETI Executive

Project

Project

Manager

Project Team

Advisory Group

ETI Board

ETI PAG

ETI CCS SAG

ETI Finance

ETI Communications

ETI Legal

ETI Typical Project Structure

Project Steering

Group

Project

Chief Technologist

62

Project

Commercial Manager


Key Roles

Project Manager

– managing and progressing the project team and programme to time and cost

– handling information flows and commercial issues

– ensuring effective team-working and the continued engagement and support of key

stakeholders.

• To make sure that the ETI benefits from a result at the end of the programme of work

that meets the agreed outcomes within time and cost.

Chief Technologist

– responsible for the technical quality and content of the work

– ensuring the competence of key technical staff allocated to individual work packages

– effective review of key outputs and the effectiveness of detailed technical planning to ensure

that the emerging results of work are fed back into the forward plan

• To assure the technical quality of the project and its outcomes

63


Key Roles (2)

Commercial Manager

– Leading on:

• Securing project finance for subsequent stages of development

• Engaging additional development partners

• Structuring, negotiating and securing contractual commitments by the end of the ETI

project, including CfD, key interface agreements etc

• Developing solutions for key cost/risk reduction steps - for example fuel supply

• To assure the commercial success of the CCS/Power scheme that is expected to

arise from the ETI and Participants’ investments

64


Key Roles (3)

• Identify individuals

• Include CVs

• Identify how much resource

• Realism regarding likely availability for the project

65


PROJECT REPORTING AND FINANCE

REQUIREMENTS

66


Reporting Principles

• ETI takes hands on, collaborative approach to management of project

– Regular, informal contact expected (e.g. weekly catch up calls)

– Maximise chance of success by sharing risks and issues

• ETI reports regularly to its members

– Project needs to provide monthly reports

– Proforma reports

• ETI needs monthly finance updates

– Ensure that the ETI meets State Aid regulations

– Ensuring the ETI has the cash to meet its commitments (works on ‘cash call’ from Members)

• Quality of deliverables is paramount

– Payments will be contingent on acceptance of deliverables against agreed acceptance

criteria

– Key deliverables will be reviewed by ETI expert advisors

• Make sure you budget enough time to meet requirements!

67


Types of Reports

• Monthly Report

– Project Management

– Finance

• Milestone Report

– Brief report outlining the deliverables and why the Consortium believes the acceptance

criteria have been met

– Identify Arising IP generated under, or in connection with, the production of each

deliverable should also be disclosed

• Milestone Cost Report

– Cost report for each participant in relation to the relevant payment milestone

– Generated from the Finance Monthly Report

– Independent Accountants’ Report for some milestones (see draft contract)

• Deliverable/Technical Report

– Not prescriptive in terms of format and structure

– Some minimum standards

68


Reporting – additional requirements

• Ability of ETI and members to attend meetings

• End of year financial report

• Additional reporting and inspection obligations

– ETI has right to have projects audited by external auditors and experts

• Obligations on project participants to archive materials

– 10 years = State Aid obligation

– 20 years = patent prosecution and protection

69


Project Funding

• The Project Funding is a maximum amount

– Capped Cost

– Fixed Price (exceptional circumstances)

– Require transparency of cashflow & cost breakdown in either case

• Project will be broken down into milestones – payment will be against milestones

• Payment

– Actual costs

– Eligible costs

• Acceptance Process

– Technical

– Cost

• Detailed spreadsheets required to manage costs

• Stipulated payment mechanism with independent accountant’s report(s) at set stage

70


Payment Milestones, Deliverables and

Acceptance Criteria

• Payment Milestones are key points in project where value is delivered to the ETI

• One or more Project Deliverables provided

• Formal review of Deliverables against ‘Acceptance Criteria’

– Agreed acceptance Criteria set out in Project Contract

– ETI uses ‘Project Advisors’ to review deliverables

– ETI can – and often does – initially reject deliverables which do not meet the Acceptance

Criteria

– Details for review procedure set out the Project Contract

• Payment only approved when Deliverables are agreed by the ETI

71


Accountants Reports

• ETI requires Accounts Reports at key milestones, dependent on level and funding and participant

type

• Apart from HEI’s this is not an eligible cost

72

Total Funding for First, Last and Each £500k First, Last First & Last

Each Participant Cumulative Payment** & Anniversary Last Only

>£2m YES

>£500k - £2m YES

>£250k-500k YES

>£50k -£250k YES

HEIs >£100k YES

Milestone Payments*


SUBMISSION REQUIREMENTS

73


Timetable for Submission

• Deadline for signed NDA/Intention to submit:

– 14th August 2015

– Confidential briefings available on receipt of NDA

• Submission deadline:

– 14th September 2015, 12 noon: Word and PDF

– 3x hard copies within 3 working days

• We recognise this is challenging timeline, especially where new consortia are being formed and

commitments to own investment needs to be secured

– If any potential bidders have problems with the proposed timeline they should contact the ETI

at the earliest opportunity

– The ETI will review responses in early August and may, at its sole discretion, decide to defer

the Submission deadline

74


Submission Requirements

• Detailed Proposal

• Supporting information

– CVs of key staff

• Risk Register

• Due Diligence

• Statement of Compliance

– Signed by Prime Contractor or each member of Consortium

– Include exceptions on Project Contract – ideally consolidated mark up

– LINE UP YOUR LEGAL/CONTRACT STAFF TO REVIEW

75


Selection Process• Selection Panel – late September/early October 2015

• Selection Panel Members

– Group providing appropriate technical & commercial expertise

– ETI staff

– Experts from ETI Members (public/private sector)

– Third party experts as appropriate

• Process

– Panel members individually consider proposals against Selection Criteria

– Respondents may be invited to provide presentation to the panel

– Meeting to discuss and agree recommendations to ETI Executive

– ETI Executive approves which proposal(s) – if any – should go forward, based on

recommendations of panel

– All Respondents (successful or not) given feedback on strengths and weaknesses of bid

– Successful bidder(s) notified by 12th October 2015

• May decide to invite more than one consortium through and hold a second selection panel

76


Detailing and Negotiation

• Series of fixed meetings

– Detailing of technical programme, definition of deliverables and acceptance criteria

– Detailing and agreement of Stage Gates (if appropriate)

– Negotiation and agreement of the Project Contract

– Detailed due diligence (Annex A1 Section 2)

– Agreement and approval by the ETI to terms of other key contractual arrangements, e.g.

• Sub-contracts

• Consortium Agreement

– Gaining all necessary Respondent and ETI approvals to undertake the Project

– Further information or assessment that may be necessary to meet state aid requirements

• Fixed period of 12 weeks set for this stage

– Very challenging

– Respondents must commit to making all technical, legal and finance resources available

to meet this target

• Contract signature target date 15th January 2016

77


A final reminder: the Investment Opportunity

• Early investors in CCS have the opportunity to access bespoke CfDs

• Requirement for additional fossil generation with high load factors to balance the system in the

early/mid 2020s

• ETI analysis shows that appropriate technology selection, project location and contractual

relations with the rest of the CCS chain can provide manageable risks, within the appetite of many

investors

• Shared risk through co-venturing – with the ETI and other participants

• Base to develop further projects in CCS roll out – en route to 10GW by 2030.

79


OPEN Q&A

79


For more information

about the ETI visit

www.eti.co.uk

For the latest ETI news

and announcements

email [email protected]

The ETI can also be

followed on Twitter

@the_ETI

Registered Office

Energy Technologies Institute

Holywell Building

Holywell Park

Loughborough

LE11 3UZ

For all general enquiries

telephone the ETI on

01509 202020.

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