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17 January 2012
Environmental-Finance: Leading Carbon Capture Storage project appoints BNP Paribas for £4bn funding effort
Source: www.environmental-finance.com
BNP Paribas has been appointed to raise billions in debt for what its developer describes as the UK’s leading carbon capture and storage (CCS) project.
2Co Energy – formed by former BP and Rio Tinto CCS specialists – has named the French bank to advise on the financing of a 650MW coal-fired power plant in South Yorkshire, and the transport and storage of the carbon dioxide (CO2) emissions in North Sea oil fields.
The CO2 will be used for enhanced oil recovery (EOR), generating tax revenue for the government that will offset the subsidies and grants involved, said Jane Paxman, 2Co’s director of policy and communications.
“The real appeal and the unique feature of our project is that, while we will look for incentives for producing low-carbon power, we will hand back money to the government in terms of tax on oil products,” she told Environmental Finance. “The net-net cost will be broadly neutral.”
The entire project, which is due to become operational in 2016, is projected to cost £5 billion ($7.7 billion) – £3 billion for the power plant and the carbon capture technology, £1 billion for pipelines to transport the CO2 to the coast (which will be borne by electricity and gas transmission firm National Grid), and £1 billion for the offshore pipelines, platform and wells.
Paxman said that the development company is hoping to raise £1 billion in grants, including from the EU’s NER 300 programme and the UK’s £1 billion CCS competition. It has already received, with National Grid, €180 million ($230 million) in grant funding from the European Energy Programme for Recovery.
The project is then expecting to source around £1 billion from concessional lenders such as the European Investment Bank, export credit agencies and, potentially, the UK’s Green Investment Bank, Paxman added. Another £1 billion is to be raised from commercial debt and equity markets, she said.
The offshore section of the project is likely to be financed as a conventional oil and gas project, as it will be underwritten by oil revenues, she said.
Paxman added 2Co believes it should be possible to recover an additional 150 million barrels of oil from the North Sea using the CO2 from the Don Valley, which should generate £5.5 billion of oil taxation revenue. “The actual figures will, of course, depend on the outcome of the studies that are being undertaken with [exploration company] Talisman on a couple of their fields and also, of course, the oil price,” she added.
Project to capture 90% of CO2
The power plant, formerly known as the Hatfield project and owned by Powerfuel Power, received planning permission in February 2009. It was acquired by 2Co Energy in May 2011, and was renamed the Don Valley Power Project. When operational, 90% of its carbon emissions – some 5 million tonnes/year – will be captured.
BNP Paribas will review the company’s business plan and commercial contracts, and 2Co Energy is expecting to make a final investment decision in 2013.
Paxman said that two North American CCS plants – the Boundary Dam project in Saskatchewan and the Kemper County project in Mississippi – have used a similar funding model, combining EOR with grants, soft loans and premium power prices.
She added that carbon prices are “not the biggest driver” within the business model, but she did not disclose the carbon price that the company is assuming. Under the EU Emissions Trading System, power plants that capture and store CO2 emissions are not required to submit allowances, meaning that, at current prices, the plant would avoid €35 million in annual costs.
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