Exploring Project Finance Options Building on European IGCC Experience
Workshop on Gasification TechnologiesIndianapolis, IN June 8-9, 2004
Luke F. O’KeefePresident
O’Keefe Consulting, LLCAnd
Frank J. KeltyVice President – IGCC Development Practice
FrontStreet Partners, LLC
Copyright Notice © FrontStreet Partners, LLCAll Rights Reserved
FrontStreet Partners, LLC
• Private Financial Consulting and Investment
• Focus –Energy Investment & Management
• Experienced Energy & Financial Executives
• IGCC Development Practice
• Scope of Services - Feasibility Studies, Project Development, Capital Formation and Facility Optimization
Website: www.FrontStreetPartners.com
Presentation Topics
• Gasification Overview• Italian IGCC Projects: 1,300 MW• Non-Recourse Project Finance • Non-Recourse Project Finance for IGCC in Italy• Emerging US Coal / Petroleum Coke IGCC Market
Differentiators that favor IGCC over other boilertechnologies for future power generation
• Pre-combustion clean-up of fuel prior to power generation • Environmental Technology => Greatest potential for future
proven lowest NOx, SOx, particulate matter proven mercury removal, proven CO2 removal, lower water usage, lower solids productionsulfur and non-leachable slag by-products
• Proven polygeneration flexibility, now and in future power, hydrogen, steam, chemicals, zero-sulfur diesel
• Repowering of existing pulverized coal plants • Refueling of existing natural gas combined cycle plants • Coal/petroleum coke blending for lower fuel cost• Proven gasification industry with over 50 years of experience
Gasification Technology has been adapted for use in many
industries, and is being considered now for other industriesGasoline & Diesel Fuel (zero sulfur & zero aromatics)
Refinery UpgradingNaphtha Steam CrackerAlpha OlefinsLube Oil Base StockSpecialty Waxes
Ammonia SynthesisHydrogenations Hydrocracking (Refining)Possible Fuel-Cell Fuel
Ammonia, Refining: Hydrogen(1960 - 1980’s)
Transportation: Fischer-TropschSyncrude (1940 - 1950’s)
Power: Combined Heat & Power Generation(CHP) and Polygeneration (Power, Heat, Hydrogen)(1990 - 2000’s)
Oxochemicals & DerivativesPossible Fuel-Cell Fuel
FormaldehydeDimethyl Ether (DME)Acetic AcidAcetaldehydeAcetic AnhydrideChloromethanesDMT, MMAMethyl AmineMTBE
Ethylene &Propylene
Chemicals: Methanol && Higher Alcohols(1960 - 1970’s)
Syngas(H2 + CO)
Urea (fertilizers)
On average, gasification enters a new industry every 20 years. Each Industry initially has the same concerns (capital, availability, operations); and each time gasification has been adapted to meet that Industry’s needs.
Gasification Technology Vendors / Technology
Type of Gasification Technology
Vendor / Technology OperatingProjects/Licenses
Nominal Syngas
Capacity,MMscfd
OperatingGasifier Vessels
GE Energy (7/04): TGP 60 3,475 120
Shell: SCGP 28 2,474 86
ConocoPhillips: “E-Gas” 1 160 2
Future Energy: Noell 1 45 1
* Prenflo Entrained Bed 1 160 2
Lurgi Dry-Ash Gasifier 8 3,842 142
British Gas/Lurgi Gasifier 2 106 2
High Temp Winkler 1 200 2
* KRW Transport Reactor 0 0 0
PSDF Transport Reactor (Wilsonville, AL)
0 (demo)
0 0
Fluidized-Bed
Moving-Bed or Fixed Bed
Entrained Flow
Basis: DOE/SFA Pacific Study 1999-2000 “Worldwide Gasification Industry Survey”
* Note: The technologies indicated with an asterisk are no longer offered by these vendors.
Gasification Industry - Technology Learning Curve
Units in Design Stage, Recently Operating
Experience 0-5+ Years
Ammonia: Pet Coke, CoalAmmonia/Hydrogen: Oil Chemicals: Coal, OilF-T Liquids: Coal
Power: Oil – 550 MWPolygeneration: Oil – 550 MWPower: Coal – 250 MW (single train)Power: Coke – 250 MW
Power: Coal, Coke – 550+ MWPolygeneration: Coal, Coke – 550+ MW
Established Technology, Operating Units
Experience 5-10+ Years
Mature, Multiple Trains
Ex
Standard Units
perience 15-40+ Years
IGCC: Timeline of DevelopmentIGCC: Timeline of Development
Technology Pilot Demonstration CTechnology Pilot Demonstration Commercial Size Near Future ommercial Size Near Future
Texaco – Coal Montebello, TVA, Holten pilots (1977 – 1985)
Cool Water 120 MW demo (1984 – 1989)
Tampa Polk 260 MW demo (1996 startup)
550 MW coal IGCC in US
Texaco – Oil Montebello, CA pilot; first unit licensed in 1956
Convent, LA hydrogen plant (1985 startup)
Sarlux, Italy 545 MW unit (2001), NPRC, Japan 320 MW (2003)
800+ MW oil IGCC for PIEMSA, Spain (in development)
Shell - Coal Harburg, Germany pilot (1978 – 1983)
Deer Park, TX syngas demo (1987 – 1991)
Demkolec 260 MW demo (1994)
550 MW coal IGCC US
Dow / Global “E-Gas”, now ConocoPhillips
Plaquemine, LA pilot units (1979 –1987)
Plaquemine III (LTGI) - 160 MW demo (1987 – 1991)
Wabash 260 MW demo (1995)
Lima, Ohio 540 MW coal IGCC
Prenflo Harburg, Germany pilot (1978 – 1981)
Furstenhausen, Germany demo (1986 – 1992)
Puertollano – 320 MW (1998 startup)
Technology not currently offered.
Commercial IGCC ProjectsCommercial IGCC ProjectsProject Project –– Location StartLocation Start--Up Megawatts Products Up Megawatts Products -- FeedstockFeedstock
Nuon (Demkolec) – Netherlands 1994 250 Power / Coal
Wabash (Global/Cinergy) – USA 1995 260 Repower / Coal, Pet Coke
Tampa Electric Company – USA 1996 250 Power / Coal, Petroleum Coke
Frontier Oil, Kansas – USA 1996 45 Cogeneration / Petroleum Coke
SUV – Czech Republic 1996 350 Cogeneration / Coal
Schwarze Pumpe – Germany 1996 40 Power & Methanol / Lignite
Shell Pernis – Netherlands 1997 120 Cogen & H2 / Visbreaker Tar
Puertollano – Spain 1998 320 Power / Coal, Coke
ISAB: ERG/Mission – Italy 2000 510 Power / Asphalt
Sarlux: Saras/Enron – Italy 2001 545 Power, Steam, H2 / Visbreaker Tar
Exxon Chemical – Singapore 2001 160 Cogeneration / Ethylene Tar
API Energia – Italy 2001 280 Power & Steam / Visbreaker Tar
Motiva LLC – Delaware, USA 2002 160 Repower / Pet Coke
Nippon Refining – Japan 2003 342 Power / Asphalt
Total IGCC Megawatts Total IGCC Megawatts –– 3,632 MW3,632 MWTotal Experience, Operating Hours on Syngas > 750,000 hoursTotal Experience, Operating Hours on Syngas > 750,000 hours
Gasification Project FinancingsProject Project
SponsorsFinancial Close
Feed Product Financing
ISAB Energy
ISAB, Mission Energy
March 1996
Asphalt 512 MW Non-Recourse
Api Energia Api, ABB May 1996 Visbreaker Tar
282 MW + Steam
Non-Recourse
Sarlux Saras, Enron November 1996
Visbreaker Tar
545 MW + Steam + H2
Non-Recourse
El Dorado, Kansas
Texaco 1996 Petroleum Coke
42 MW + Steam
Operating Lease
Motiva LLC, Delaware
Star Enterprise
August 1997
Petroleum Coke
160 MW + Steam
Bonds
Farmland Farmland, Texaco
December 1997
Petroleum Coke
1,000 tpd ammonia
Bonds
Singapore Syngas
Texaco, Messer
December 2000
Heavy Oil 54 mmscfd syngas
Non-Recourse
Note: All use Texaco gasification technology.
Presentation Topics
• Gasification Overview
• Italian IGCC Projects: 1,300 MW• Non-Recourse Project Finance • Non-Recourse Project Finance for IGCC in Italy• Emerging US Coal / Petroleum Coke IGCC Market
Italy’s Key Issues in 1990’s
• Energy Dependent• Stricter Environmental Regulations: National and
European Union • Feedstock with increasingly limited Market & Value• Limited Governmental Financial Support Available• Need to increase employment• Need to maintain and improve country debt rating
(EU single currency covenant)• Need to convert high sulfur heavy oil excess into
clean power need
API Energia, Falconara280 Megawatt (MW) IGCC
Sarlux, Sardinia 545 MW IGCC
ISAB Energy, Sicily512 MW IGCC
- Over 1,300 MW Generation capacity, reducing Italian electricity imports- Clean Power/Steam/Hydrogen generation from excess, low-grade residues- Integration with each refinery to maximize refinery’s benefits- Joint Venture ownership, non-recourse project financed for minimum capital
expenditures to refinery
Existing Gasification Plants (Chemicals/Hydrogen).
Refinery IGCC Projects In Commercial Operation.
Italian Refinery IGCC Projects – High Sulfur Heavy Oil (HSFO)
IGCC Project / Feature
Sarlux Sardinia
ISAB EnergySicily
Api Energia Falconara
Primary Feedstock Visbreaker Tar Asphalt Visbreaker Tar
Gasification process Texaco Texaco Texaco
Gasifier Trains Three Two One
Number Gas Turbines (GT), Type
Three, General Electric STAG 109 E
Two, Siemens V94.2K One, Alstom KA 13E2 (former ABB)
Sulfur Removal UOP Selexol Dow MDEA Parsons
Air Separation Unit Air Liquide Air Liquide Praxair
Hydrogen Recovery UOP Membrane/PSA - -
Power Generation 545 MW 512 MW 282 MW
Steam: Medium (MP) and Low Pressure(LP)
MP - 100 tonnes/hr LP – 85 tonnes/hr
None MP – 31 tonnes/hrLP – 34 tonnes/hr
Hydrogen, Normal cubic meters/hour
40,000 None None
Italian IGCC Projects – Technical Summary
Key points: Early 1990’s designs, multiple trains, multiple gas turbines, proven technologies, 500+ MW clean power plus hydrogen and steam for refinery
Example Refinery Environmental ImprovementApi Energia, Falconara, Italy – 280 MW IGCC
Total Refinery Emissions (mg/Nm3 )3000
2400
375190 85
1700
500250
80
507
97 41 14
Refinery - Before GasificationNew EEC Refinery LimitsRefinery - After IGCC Project
2500
2000
1500
1000
500
0SOx NOx CO Particulate
Sarlux (545 MW)/ ISAB (512 MW) IGCC ProjectsYearly Power Generation Capacity Factor
0%10%20%30%40%50%60%70%80%90%
100%
1st Year 2nd Year 3rd Year
Sarlux SyngasSarlux TotalISAB SyngasISAB Total
Note: Updated figures will be presented at the GTC Conference in October 2004.
Presentation Topics
• Gasification Overview
• Italian IGCC Projects: 1,300 MW• Non-Recourse Project Finance• Non-Recourse Project Finance for IGCC in Italy• Emerging US Coal / Petroleum Coke IGCC Market
Successful Project Financing
• KEY:
SOUND PROJECT DEVELOPMENT AND EXECUTION LEADS TO STRONG CAPITAL FORMATION, WHICH RESULTS IN COMMERICALLY SUCCESSFUL PROJECTS.
Capital Formation
• Project Financing Plays a Key Role• Continuing Thirst for Capital• Equity - Public and Private• Debt - Secured or Project Secured Non-
Recourse• Broad Markets with Varying Options• Provides discipline in Project Development
IGCC Project Development
• Complexity Similar to Other Large Capital Projects - Benefit from Lessons Learned
• Bankable Supply and Offtake Agreements• Strong Equity Partners who are Committed• Commercially - Proven Technology• Strong Development Execution Skills in
Managing Cost, Time & Performance
Presentation Topics
• Gasification Overview
• Italian IGCC Projects: 1,300 MW• Non-Recourse Project Finance • Non-Recourse Project Finance for IGCC in Italy• Emerging US Coal / Petroleum Coke IGCC Market
Italian Financing Experience
•• Government mandated base load PPAGovernment mandated base load PPA•• Committed local and International partnersCommitted local and International partners•• Risk/Reward balanced by Contract StructureRisk/Reward balanced by Contract Structure•• Utilization of Risk Mitigation InstrumentsUtilization of Risk Mitigation Instruments•• Platform for the next generation of IGCCPlatform for the next generation of IGCC•• Leverage off the Lessons LearnedLeverage off the Lessons Learned•• Planning and Management are Critical IssuesPlanning and Management are Critical Issues
Project Finance Requirements
Joint Venture Shareholders
Agreement
Joint Venture Shareholders
Agreement
Government Agreements, Local Permits
Government Agreements, Local Permits
Feedstock/Backup Supply Agreements
Feedstock/Backup Supply Agreements
Land Lease & InsuranceAgreements
Land Lease & InsuranceAgreements
Operation & Maintenance (O&M) Services AgreementOperation & Maintenance
(O&M) Services Agreement
Air Separation Company
O2, N2 Supply Agreement
Air Separation Company
O2, N2 Supply Agreement
Third Party CO2 Offtake Agreement
Third Party CO2 Offtake Agreement
Joint Venture- Major Contracts Map -
Project CompanyProject Company
Engineering, Procurement, Construction (EPC) Plant
Supply Contract
Engineering, Procurement, Construction (EPC) Plant
Supply Contract
GasificationProcess Licence
Agreement
GasificationProcess Licence
Agreement
Power (IGCC) or Syngas Supply Project
Power Purchase or Syngas Offtake Agreement
Power Purchase or Syngas Offtake Agreement
Offsites/Utilities AgreementOffsites/Utilities Agreement
Italian IGCC Projects – Major Contracts Summary
Owners Sarlux, Sardinia: Saras S.p.A. (55%) and Enron International (45%)
ISAB Energy, Sicily: ERG Petroli (51%) and Edison Mission Energy – EME (49%)
Api Energia,Falconara: api 51%, ABB (49%); 1997 api 51%, ABB (25%), Texaco (24%); 2004 100% api
Project Sponsors Saras Raffinerie Sarde, Enron Corporation
ISAB SpA, Mission Energy Company
Anonima Petroli Italiana (api), ABB Asea Brown Boveri Ltd. Texaco
Electricity Offtaker Ente Nazionale per l’Energia Elettrica (ENEL)
ENEL ENEL
Power Purchase Agreement (PPA)
20-year PPA, Base Load , 8-year price premium
20-year PPA,Base Load, 8-year price premium
20-year PPA,Base Load, 8-year price premium
EPC Contract Consortium
Snamprogetti/General Electric/Turbotecnica
Snamprogetti/Foster Wheeler Italiana
ABB Consortium
Operator Saras Raffinerie Sarde ISAB Energy Services (JV ERG and EME)
api raffineria di ancona
Feedstock Supplier Saras Raffinerie Sarde ERG Petroli Anonima Petroli Italiana
Product Offtake Contracts (Steam, Hydrogen)
Saras Raffinerie Sarde n/a api raffineria di ancona
Italian IGCC Projects – Non-Recourse Project Financing Summary
IGCC Project / Financing Feature
Sarlux Sardinia
ISAB EnergySicily
Api Energia Falconara
Financed / Refinanced Amount
$ 1.2 billion $ 1.0 billion / $ 1.2 billion
$ 550million / $ 675 million
Financing / Refinancing Financial Close
November 1996 March 1996 / June 2000
May 1996 / February 2000
Financing / Refinancing Debt/Equity (D/E) Ratio
80:20 80:20 / 90:10 75:25 / 85:15
Margins (average) Libor + 150 basis points Libor + 140 bps Libor + 140 bps
Loan Tenor 15 years 13 years/15 years 15 years / 17 years post construction (20 years)
Facility Agent Babcock & Brown Barclays Bank plc Greenwich NatWest
Mandated Arrangers Banque Paribas, Chase, Natwest Markets & Banca Commerciale Italiana
Barclays Bank plc, Citibank NA, Societe General, Mediocredito Centrale SpA, Dai-Ichi Kangyo Bank Ltd, Sanpalo IMI SpA
ABN AMRO Bank NV, Greenwich NatWest, Banca Nazionale del Lavoro SpA – BNL, Mediocredito Centrale SpA
Lenders International banks pool:Sixty (60)+ banks
International banks pool:Sixty (60)+ banks
International banks pool: Sixty (60)+ banks
Presentation Topics
• Gasification Overview
• Italian IGCC Projects: 1,300 MW• Non-Recourse Project Finance • Non-Recourse Project Finance for IGCC in Italy• Emerging US Coal / Petroleum Coke IGCC Market
Synergies between Italy and USA with respect to IGCC Introduction
Synergies Italy in 1990 USA in 2004
Concerns about domestic energy security
Imported nuclear and imported LNG
Imported LNG for power generation
Abundance of feedstock High sulfur fuel oil (HSFO)
Coal and petroleum coke
Need for cleaner power technologies
Shut down heavy oil fired boilers
Shut down coal fired PC boilers
Government agency / environmental pressures
European Union Directives
U.S. EPA / Clean Air Act
Financing concerns First IPP and first heavy oil IGCC’s
First coal IGCC’s
Advantages for emerging US IGCC market
Synergies Italy in 1990 USA in 2004
IGCC Operating Experience
Limited – Cool Water, Placquemine only
Extensive: 14 IGCC projects, more than 750,000 hours
Capital Costs High, limited contractor experience, limited knowledge of IGCC
Known, standard packages, need to adapt to US market
Feedstock gasification history
Extensive heavy oil gasification experience
Extensive coal and pet coke gasification experience
Financing concerns First IGCC’s non-recourse project financed
Lessons learned are available for first US coal/coke IGCC
IGCC Drivers: Emerging US Market
Economic growth leads to power generation growthIncreased US desire for security of fuel supply sources vs.
Increasing dependence on imported oil for transportation fuels, and soon liquefied natural gas (LNG) for power generation
US has more than 200+ years worth of coal reservesMore stringent environmental regulations, including mercury are
anticipated in the future, and IGCC can meet them Coal has the lowest variable cost fuel vs. higher natural gasLower natural gas supply projections and higher prices will assist
“cleaner coal” market to emerge Expect first refinery IGCC (petroleum coke) polygeneration
projects and then coal IGCC, with multiple products improving economics
US government incentives should be made available to be the “carrot” for reluctant utilities to lead to widespread adoption of IGCC for new baseload power, with these decisions required within the next 1-2 years
When does IGCC begin to play?Economic Comparison of IGCC versus Combined CycleEconomic Comparison of IGCC versus Combined Cycle
based on 20 year COE for large power plants
00.20.40.60.8
11.21.41.61.8
22.2
1.5 2 2.5 3 3.5 4 4.5 5 5.5
Combined Cycle Fuel Price [$/MMBTU]
IGC
C F
uel P
rice
[$/M
MB
TU]
Combined CycleCombined CyclePreferredPreferred
IGCCIGCCPreferredPreferred
Pet Coke
Residues
Coal
Orimulsion
EconomicDivide
Source: General Electric
Note: Current US Natural gas price ranges from $ 5-6/MMbtu.
Summary
• IGCC projects have been non-recourse project financed.• IGCC is recognized by international financial community as a
proven technology.• Discipline of project finance will lead to a stronger project.• High availability with multiple trains has been achieved with oil IGCC • High availability with coal IGCC can be achieved; if a spare gasifier is
required, it is not a significant cost adder.• Gasification is a proven industry. Capital costs are known, with
proven equipment, O&M and environmental performance. • “Nay Sayers” have to be turned into “Yea Sayers” through additional
education and focus on environmental benefits for the USA.• Advisers are in the marketplace to provide leadership and assist
interested companies in project execution using the discipline required by non-recourse project finance.
Contact Details
Luke F. O’KeefePresident – O’Keefe Consulting, LLC91 Concord AvenueWhite Plains, NY 10606914 686 7708
Frank J. KeltyVice President – IGCC Development PracticeFrontStreet Partners, LLC14 Mortar Rock Road Westport, CT 06880203 454 0854
Website: www.FrontStreetPartners.com
