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Carl Bozzuto
ALSTOM © 2006. We reserve all rights in this document and in the information contained therein.
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Overview
z Economic Terms
z Economic Methodologies
z Cost Models
z Pitfalls
z Cost Studies
z Results
z Some words about CO2
z Conclusions
2
Economic Terms
z The Discount Rate considers risk as well interest rates and inflation
– The discount rate is often a project hurdle rate
4
Economic Methodologies
5
Plant Cost
z Today, we really don’t know what the final cost of a plant will be.
– Raw material escalation
– Shipping costs
– Labor costs
6
Plant Cost Terminology
z There are numerous ways to talk about plant cost.
– Engineered, Procured, and Constructed (EPC cost)
• Most commonly used today
• Fits best with Merchant Plant model
• Does not included Owner’s Costs
Ø Land, A/E costs, Owner’s Labor, Interconnection, Site Permits, PR, etc.
• Can often be obtained as a fixed price contract for proven technology
– Equipment Cost
• Generally the cost to fabricate, deliver, and construct the plant equipment
– Overnight Cost
• Either the equipment cost or the EPC cost with the NPV of interest during
construction. This was used in the 70s and 80s to compare coal plants
with nuclear plants due to the difference in construction times.
– Total Installed Cost (TIC)
• The total cost of the equipment and engineering including interest during
construction in present day dollars. This is the cost that a utility would
record on its books without the cost of land and other home office costs.
7 – Total Plant Cost (TPC) – includes all costs
Economic Methodologies
z Simple payback
– The number of years it takes to pay back the original investment
z Return on Equity
– For regulated utilities, the ROE is set by the regulatory body. The equity is determined
by the total plant cost being allowed in the rate base. The equity portion is determined by
the leverage of the company. The ROE is applied to the equity and added to the cost in
determining the cost of electricity and thus the rate to be charged to the customer.
10
Discounted Cash Flow Model
z The goal is to estimate the cash flows of the project over the life of the
plant. A significant number of variables are involved and must be
estimated or assumed in order to make the spread sheet work.
– Input variables include net output, capacity factor, availability, net plant heat rate
(HHV), degradation, EPC price, construction period, insurance, initial
spares/consumables, fixed O&M, variable O&M, fuel price, fuel heating value (HHV),
financial closing date, reference date, depreciation, analysis horizon, owner’s
contingency, development costs, permitting costs, advisory/legal fees, start up fuel, fuel
storage, inflation rates, interest rates, debt level, taxes, construction cash flow,
discount rate, and ROE.
– A detailed cash flow analysis is set up for each year of the project. For shorter term
projects, these estimated cash flows are more realistic. For longer term projects, the
accuracy is debatable.
– Since the cash generation may be variable, it is often desirable to perform some kind of
levelizing function to generate an average that is understandable. There are risks
associated with this step.
– The most common application is to assume a market price for electricity and then try to
maximize the IRR for the project.
11
Discounted Cash Flow Model
z The model assumes that we know a lot about the project and the
number of variables. What if we don’t know very much about the future
project? For example, what if we don’t know where the plant will be
located? What if we don’t know which technology we will use for the
plant? What if we want to compare technologies on a consistent basis?
z One approach is to run the DCF model “backwards”. In this approach,
we stipulate a required return and calculate an average cost of
electricity needed to generate that return. We still need to make a lot of
assumptions, but at least we can be consistent.
z One advantage of having such spread sheet programs is that a wide
range of scenarios and assumptions can be tested. This approach
gives us a little more insight into the decision making process and
helps us understand why some entities might chose one technology
over another.
12
Typical Construction Period w/Cash Drawdown
1. CumulativeDrawdown
11
13
15
17
19
21
23
25
27
29
31
33
35
37
39
41
43
45
47
1
3
5
7
9
-100,000
-200,000
-300,000
-400,000
-500,000
-600,000
13
Typical Levelized Cash Flow
4. EndingEquityCashflow
50,000
0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41
(50,000)
(100,000)
(150,000)
(200,000)
(250,000)
(300,000)
(350,000)
14
Pitfalls
z The biggest pitfall is thinking that these numbers are “real”. They are
only indicative. Just because a computer can calculate numbers to the
penny does not mean that the numbers are accurate. There is a lot of
uncertainty due to the number of assumptions that have to be made.
z It is important to understand what the goal and/or objective of the
analysis is. In the following study, the goal was to compare
technologies that might be used in the future. This goal is different
from looking at a near term project where the site, technology, fuel,
customer, and vendors have already been selected.
z There is no substitute for sound management judgement.
z The analysis itself does not identify the risks. The analyzer must
consider the risks and ask the appropriate “what if” questions. In the
following study, over 3,000 spread sheet runs were made in order to
analyze the comparisons effectively.
z Avoid the “Swiss Watch” mentality.
15
Technology Position and Experience
16
Baseline Economic Inputs – 1997 400 MW Class
17
Baseline Economic Inputs – 1997 100 MW Class
18
Baseline Economic Inputs - 2005 400 MW Class
19
Baseline Economic Inputs – 2005 100 MW Class
20
Financing Scenario Summary
21
Comparison of Financing Scenarios
400 MW Subcritical PC Fired Plant
10.0
9.0 Financial
Fixed O&M
ts have
8.0 Variable O&M
c ia l c o s
Finan
Fuel
lu en c e o n COE
7.0
major inf
Levelized Tariff, c/ kWh
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Municipal Utility IPP-1 IPP-2 Industrial
Financing Arrangement
22
Comparison of Technologies
Municipal Financing - 1997
(80% CF, $1.20 coal and $3.00 gas)
4.0
Financial
Fixed O&M
3.5 Variable O&M
Fuel
3.0
Levelized Tariff, c/ kWh
2.5
2.0
1.5
1.0
0.5
0.0
Subcrit PC Super PC P-800 IGCC P-200 CFB NGCC
(400 MW) (400 MW) (400 MW) (400 MW) (100 MW) (100 MW) (270 MW)
23
Comparison of Technologies
Utility Financing - 1997
(80% CF, $1.20 coal and $3.00 gas)
5.0
4.5
Financial
Fixed O&M
4.0 NGCC lo Variable O&M
oks bett
but wor er on to Fuel
se on di tal COE
,
Levelized Tariff, c/ kWh
3.5 spatch b
asis.
o s t
3.0
h e r f in ancial c
Hi g n ce on
s in f l ue
2.5 increase
CO E
2.0
1.5
1.0
0.5
0.0
Subcrit PC Super PC P-800 IGCC P-200 CFB NGCC
(400 MW) (400 MW) (400 MW) (400 MW) (100 MW) (100 MW) (270 MW)
24
Comparison of Technologies
IPP(1) Financing - 1997
(80% CF, $1.20 coal and $3.00 gas)
8.0
Financial
Fixed O&M
7.0 Variable O&M
Fuel
6.0
Levelized Tariff, c/ kWh
5.0
4.0
3.0
2.0
1.0
0.0
Subcrit PC Super PC P-800 IGCC P-200 CFB NGCC
(400 MW) (400 MW) (400 MW) (400 MW) (100 MW) (100 MW) (270 MW)
25
Comparison of Technologies
IPP(2) Financing - 1997
(80% CF, $1.20 coal and $3.00 gas)
9.0
Financial
Fixed O&M
8.0 Variable O&M
Fuel
7.0
Levelized Tariff, c/ kWh
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Subcrit PC Super PC P-800 IGCC P-200 CFB NGCC
(400 MW) (400 MW) (400 MW) (400 MW) (100 MW) (100 MW) (270 MW)
26
Comparison of Technologies
Industrial Financing - 1997
(80% CF, $1.20 coal and $3.00 gas)
16.0
Financial
Fixed O&M
14.0
Variable O&M
Fuel
12.0
Levelized Tariff, c/ kWh
10.0
8.0
6.0
4.0
2.0
0.0
Subcrit PC Super PC P-800 IGCC P-200 CFB NGCC
(400 MW) (400 MW) (400 MW) (400 MW) (100 MW) (100 MW) (270 MW)
27
Capacity Factor Effect on COE
Municipal Financing - 1997
($1.20 coal and $3.00 gas)
8.0
Subcrit PC
Supercrit PC
7.0 P-800
IGCC
D is P-200
patc
Levelized Tariff, (c/ kWh)
CFB
6.0 h ra
hav t e a
NGCC
em
ajor nd/or c
influ apac
en c i
5.0 e on ty facto
COE r
4.0
3.0
2.0
20% 30% 40% 50% 60% 70% 80% 90% 100%
3.4
3.3 Subcrit PC
5 days lost availability makes Supercrit PC
Levelized Tariff, (c/ kWh)
3.1
3.0
2.9
2.8
~5 days
2.7
2.6
2.5
6,500 6,600 6,700 6,800 6,900 7,000 7,100 7,200 7,300 7,400 7,500
5%
0%
-5%
-10% Availability
EPC price
Plant heat rate
-15% Fixed O&M
Cycle time
Var O&M
-20%
-20% -15% -10% -5% 0% 5% 10% 15% 20%
il ab il i t y and
g e in av a
15%
N G C C % , c ha n
f l ue n c e on COE
For
h a v e h ighest in
10%
efficiency
Change in COE, (%)
5%
0%
-5%
-10% Availability
EPC price
Plant heat rate
Fixed O&M
-15%
Cycle time
Var O&M
-20%
-20% -15% -10% -5% 0% 5% 10% 15% 20%
3.5 s s i m po r ta nt
t le
First cos e t o h ig h c os t
u e l s e n sitive du
3.0 f
Levelized Tariff, (c/ kWh)
2.5
2.0
1.5
1.0 Financial
Fixed O&M
Variable O&M
0.5
Fuel
0.0
Subcrit Supercrit P-800 IGCC P-200 CFB NGCC
PC PC
32
Comparison of Technologies
China 1997 IPP Financing Conditions
($1.80 coal and $5.00 LNG)
7.00
6.00
Levelized Tariff, (c/ kWh)
5.00
4.00
3.00
2.00
Financial
Fixed O&M
1.00 Variable O&M
Fuel
0.00
Subcrit Supercrit P-800 IGCC P-200 CFB NGCC
PC PC
33
Comparison of Technologies
Japan Market Conditions - 1997
($2.90 coal and $5.00 LNG)
5.0
4.5
4.0
Levelized Tariff, c/ kWh
3.5
3.0
2.5
2.0
l es s i m po r ta nt
t
1.5 First cos t o h ig h c os t Financial
1.0
fue Variable O&M
Fuel
0.5
0.0
Subcrit PC Super PC P-800 IGCC P-200 CFB NGCC
(400 MW) (400 MW) (400 MW) (400 MW) (100 MW) (100 MW) (270 MW)
34
Net Plant Heat Rate Summary
12,000 12%
10,035
9,375
10%
9,350
10,000 10%
8,815
8,750
8,700
8,530
8,405
8,385
8,125
8,030
Net Plant Heat Rate (Btu/kW)
7,800
6,640
6,195
7% 7% 7%
6,000 6%
4%
4,000 4%
3% 3%
2,000 1997 2%
2005
Improvement
0 0%
Subcrit PC Super PC PFBC-P800 IGCC PFBC-P200 CFB NGCC
(400 MW) (400 MW) (400 MW) (400 MW) (100 MW) (100 MW) (270 MW)
35
Summary of EPC Prices
$1,600 40%
$1,380
1997
2005
$1,400 % Decrease 35%
$1,200
32%
$1,100
$1,100
$1,050
$1,200 30%
29%
$1,000
$1,000
29%
28%
EPC Price ($/kW, net)
$850
$750
$750
$750
$725
$800 20% 20%
$600 15%
$350
$325
$400 10%
7%
$200 5%
$0 0%
Subcrit PC Super PC PFBC-P800 IGCC PFBC-P200 CFB NGCC
(400 MW) (400 MW) (400 MW) (400 MW) (100 MW) (100 MW) (270 MW)
36
Coal Technology Cost Trends
Extrapolated to 2005
2,000
1,800
Subcritical PC
Supercritical PC
1,600 P800
P200
1,400
EPC Price ($/kW, net)
1,200
1,000
800
600
“all
4
400 have 00 MW t
the s echn
ame olog
200 mid ies
term
targ
0 et
1989 1991 1993 1995 1997 1999 2001 2003 2005
Year
37
Market Trends
175
Index Base 1982
150
125
100
Month
38
39
Spot Nickel
1.80
2.20
2.60
3.00
3.40
3.80
4.20
4.60
5.00
5.40
5.80
6.20
6.60
7.00
7.40
7.80
8.20
8.60
9.00
9.40
9.80
10.20
10.60
11.00
11.40
11.80
12.20
12.60
13.00
13.40
13.80
14.20
14.60
15.00
15.40
15.80
16.20
January
February
March
April
May
June
July
2000
August
September
October
November
December
January
February
March
April
May
June
Market Trends
July
2001
August
September
October
November
December
January
February
March
April
May
June
July
2002
August
September
October
November
December
Low Ni
January
February
March
April
May
June
July
2003
August
September
Month / Year
Avg. Spot Ni
October
November
December
Nickel Trend: 2000 - 2006
January
February
March
April
High Ni
May
June
July
2004
August
September
October
November
December
January
February
March
April
May
June
July
2005
August
September
October
November
December
January
February
March
April
May
June
July
2006
August
September
October
November
December
Today’s Costs (Estimated)
40
Today’s Costs (Estimated)
z Fuel costs have also escalated. Recent data for fuel costs delivered to
new plants is about $1.75/MMBTU for coal and $6.50/MMBTU for gas.
z We can input these new costs into the spread sheet model and get an
estimate for the COE for a utility trying to make a decision today.
– Under these conditions, with no CO2 capture, the COE for the PC plant would be 6.55
cents/Kwhr and the IGCC plant would be 9.41 cents/Kwhr.
– The natural gas plant would again look competitive at 6.3 cents/Kwhr with an 80%
capacity factor. However, at a more typical 40% capacity factor, the COE is 8.30
cents/Kwhr.
– As a result, we see a lot of utilities considering supercritical pulverized coal plants.
41
Efficiency –
Critical to emissions strategy
Source: National Coal Council
From EPRI study
100% Coal
Coal w/ 10%
co-firingbiomass
Commercial
Supercritical/
First of kind IGCC
Existing US coal
fleet @ avg 33%
Net Plant Efficiency (HHV), %
42
Meeting the Goals for
Plant Efficiency % (HHV Basis) Coal Based Power - Efficiency
50
40
30
20
10
0
POLK/WABASH Target for New SCPC Today USC Target Next Gen IGCC
IGCC IGCC*
43
CO2 Mitigation Options –
for Coal Based Power
9Increase efficiency
Maximize MWs per lb of carbon processed
9Fuel switch with biomass
Partial replacement of fossil fuels =
proportional reduction in CO2
9Then, and only then ….Capture remaining CO2
for EOR/Sequestration
= Logical path to lowest cost of carbon reduction
44
CO2 Capture – Post Combustion
Technology Status
CO2 Scrubbing options – Demonstration in 2006. Advantage of lower costs than Amines.
ammonia based
Applicable for retrofit & new applications
CO2 Frosting Uses Refrigeration Principle to Capture CO2 from Flue Gas.
Process Being Developed by Ecole de Mines de Paris, France, with ALSTOM Support
CO2 Wheel Use Regenerative Air-Heater-Like Device with Solid Absorbent Material to Capture ~ 60% CO2
from Flue Gas.
Being Developed by Toshiba, with Support from ALSTOM
CO2 Adsorption with Solids Being Developed by the University of Oslo & SINTEF Materials & Chemistry (Oslo, Norway),
in Cooperation with ALSTOM
Advanced Amine Scrubbing Further Improvements in Solvents, Thermal Integration, and Application of Membranes
Technologies Focused on Reducing Cost and Power Usage – Multiple suppliers driving
innovations
46
Going Down The Experience Curve for
Post Combustion CO2 Capture
3000
ABB
Lumnus
Heat of Reaction (BTU/lb)
2000
500
47
Multiple Paths to CO2 Reduction
Innovations for the Future
‘Hatched’ Range reflects cost variation from fuels and uncertainty
8
6
4
2
0
3
PC
2
CC
EA
e
2
2
es
O
NH
in
CO
CO
SC
in
C
IG
/M
rb
am
PC
v
w
tu
w
ad
ad
g
SC
PC
F
v
in
PC
ad
w
CC
SC
fir
e
C
PC
xy
IG
in
US
rb
O
SC
tu
H
CC
Note: Costs include compression , but do not include sequestration – equal for all technologies
IG
48
Economic Comparison
Cost of Electricity (common basis)
8.00 O2 fired PC w/
7.50
capture
(Cents/kWhr)
7.00
O2 fired CFB w/ capture
6.50
6.00
Ammonia scrubbing
5.50
5.00
Chemical Looping
4.50
4.00
0 10 20 30 40 50
CO2 Allowance Price ($/Ton CO2 Emitted)
49
Conclusions