Driving CCUS Forwards in China: What should be considered? 在中国推动 CCUS 发展 : 下一步需要考虑什么?

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1 Driving CCUS Forwards in China: What should be considered? 在中国推动 CCUS 发展 : 下一步需要考虑什么? Dr Xi Liang CFA ( 梁希博士, 特许金融分析师 ) Senior Lecturer in Energy Finance ( 能源金融副教授 ) Business School, University of Edinburgh ( 爱丁堡大学商学院 ) the 8 th Annual European Carbon Capture and Storage Conference, Feb 2014, Brussels,

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3 Content ( 摘要 ) Project Policy Financing Projects International Collaboration Progress in Guangdong All the presentation only reflects my personal view. No institute or other individual should be responsible. 20 February,

4 Total and per million capita CO 2 Emissions from Consumption and Flaring of Fossil Fuel Total Emissions: million tonne CO2 Per Capita Emissions: tonne CO2 Source: EIA,

5 Atmosphere Air Pollution Control Action Plan (released in August 2013) 3. Reduce atmosphere air pollution by 30% by Adjust energy structure, increasing natural gas, coal bed methane 10. Local governments need to be responsible for environmental targets 5

6 煤炭的未来? The Future of Coal in China? China Taiyuan Coal Price Index Source: China Taiyuan Coal Exchange,

7 Some of Current CCUS Pilot Projects in China 中石油 Jilin Oilfield, EOR, 100,000 t/a (2007- ) 中科金龙 CO2 Chemical Utilization, 10,000 t/a (2007- ) 华能 Gaobeidian post-combustion capture, 3000 t/a (2008 -) 中海油 biodegradable plastic CO 2 utilisation, 2100 t/a (2009- ) 华能 Shidongkou post-combustion capture, 120,000 t/a (2009- ) 中电投 Chongqing Shuanghuai post-combustion capture, 10,000 t/a (2010- ) 中石化 Shengli Oil Field post-combustion and EOR, 40,000 t/a ( ) 神华 CTL capture and saline aquifer storage, 100,000 t/a ( ) 新奥 Microalgae Bio-fuel Demonstration, 20,000 t/a ( ) 华能 Green-gen IGCC CCS Pilot, up to 100,000t/a capture ( ) 华中理工 HUST 30MWth Oxy-combustion ( ) 华能 Gas CO2 Capture Test Rig ( ) 大唐 Gaojin Gas CO2 Capture Pilot ( )

8 The Development Cycle of Large-scale Integrated CCS Projects in China are STILL all at an early stage (2013) Source: GCCSI,

9 Large-scale CCUS Projects under Development 中石化 SINOPEC Shengli Oilfield, Post-combustion-EOR, million t/a 大唐 Datang,Oxy-combustion, EOR, 1 million t /a 华能 Tianjin IGCC, 1.8 million t/a 华润 - 中海油 China Resources Power CNOOC, post-combustion / pre-combustion, saline aquifer storage, million t/a 延长 Yanchang Oil Field, CO 2 EOR Source: NZE Magazine, 2013

10 Policy Development ( 政策发展 )

11 Centre Plate Awarded by Chief Climate Negotiator Minister Xie Zhenhua and Guangdong Deputy Governor Xu Shaohua (19/Dec2013)

12 Study Name Year Sample size Number of Responses Data collection method Notable Features BP/DTI (Reiner et al, 2007) CAPPCCO (Reiner and Liang, 2009) HIT Study (Liang and Wu, 2010) STRACO2 (STRACO2, 2009) Face-to-face, telephone Face-to-face, telephone Long-term deployment, focus on Beijing, Wuhan and Guangdong Industry opinions and stakeholder behavioural patterns Face-to-face Barriers and incentives for CCS deployment (industry focus) n/a Technology and policy preferences NZEC (Liang et al, 2011; Reiner and Liang, 2012) GDCCSR (Li et al, 2012) Online, face-toface Online, focus group Commercial CCS Demonstration CCS Ready, focus on Guangdong Energy Security (Liang and Reiner, 2012) Face-to-face CCS and energy security Core Deployment Barriers Online, face-toface Opportunities and barriers for deploying CCS at large-scale IEA GHG (Li et al, 2013) GDICCUS (Liang et al, 2013) and Telecom Impact of Impurities on Operating CCUS Project Face-to-face Financing Large-scale Integrated CCUS Project 12

13 Review: Perceived Policy Drivers (1) In the 2006 CCP2 study, whether CCS could qualify for CDM (Clean Development Mechanism) credit was considered as a critical factor of implementing CCS. In 2009 UK-EU-China Near Zero Emission Coal (NZEC) study, (a) Demonstrate the Chinese government s efforts in combating climate change and creating an advantage for Chinese companies investing in CCS were considered to be two key benefits of demonstrating CCS at scale in China. (b) There were widely divergent views on the hurdle rates for demonstrating CCS projects (i.e. from 5% to 20%) ; (c) gave hope to foreign government support, development bank loan and policy loan (Reiner and Liang, 2012). 13

14 Review: Perceived Policy Drivers (2) In 2012: (a) The most important drivers of deploying CCS in China was deemed to be Improving the Chinese government s international credibility in combating climate change (average of 3.8 on a scale of 1-5), followed by EOR (3.6) and achieving a deep cut in greenhouse gas emissions in China (3.5). (b) more than half of the stakeholders in the follow-up survey acknowledged that support by foreign governments is not likely to be realistic in funding all additional financial requirement for the first largescale CCS demonstration projects in China. 14

15 Review: Scatter diagram of perceived hurdle rate and equity capital ratio for the extra investment needed for capture facilities (2009) N=16 15

16 List of Institutes Invited for Project Financing Faceto-Face Survey in Nov and Dec 2013 Institute Name Type of Business Region Response China Development Bank Public China Yes Asian Development Bank International Multilateral Yes China Export Import Bank Public China No The World Bank International Multilateral No Pudong Developmet Bank Commercial China Yes Bank of China State-owned China Yes China Merchant Bank Commercial China Yes China Construction Bank State-owned China Yes Pingan Bank Commercial China Yes China Industrial Bank Commercial China Yes CITIC International Finance Commercial HK Yes CITIC Bank Commercial China Yes Guangdong Development Bank Province-owned China Yes China Communication Bank State-owned China No Ministry of Finance CDM Fund State-owned China No 16

17 Scatter diagram of hurdle rate and equity capital ratio for the extra investment needed for large-scale capture facilities at CRP Haifeng Project (Red Dots, n=11) Blue Dots were responses from NZEC 2009 Survey (n=16) 17

18 The perceived pace of CCS development in China compared with developed countries (2012, n=59) 18

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20 Capture Ready investment reduces the closure possibility and increase the option value (a study of generic 600MW power plant in China) Source: Liang et al,

21 Distribution of Cement Production 世界水泥产量分布 Li, J., Tharakan, P., Douglas, M., Liang, X. (2013). Technological, Economic and Financial Prospect of Carbon Dioxide Capture in the Cement Industry. Energy Policy, 61, 李佳,Tharakan, P., Douglas, M., 梁希 (2013). 水泥行业二氧化碳捕集的技术 经济和金融展望, 能源政策,61, February,

22 Economic assumptions and normalized results of existing literature 现有研究对水泥厂碳捕集评估的假设条件和结果 20 February, 2014 Scottish CCS Industry CO 2 Capture Workshop 22

23 Opportunities for Piloting CO 2 Capture from Cement Plants Yuebao Cement Foshan Hengyi Power CRP Luoding Cement CRP Haifeng Power Project Phase II 2x1GW CNOOC Huizhou Refinery Phase II 20 February,

24 Can Chinese CCS be the White Knight?

25 Foreign exchange reserves (billion of US$) United Kingdom Malaysia United States Italy France Thailand Mexico Algeria Germany Singapore India Held by Nations by Dec 2013 Hong Kong Republic of Korea Brazil Taiwan Russia Switzerland Saudi Arabia Eurozone Japan People's Republic of China ,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 25

26 Chinese Overseas Direct Investment Source: Heritage Foundation, 2014

27 Potential Drivers for Chinese Overseas Investment in CCS - Industry Benefits e.g. Manufacturing Opportunities, Diversify Investments - Government Policy e.g. Go Global Policy, Pressure to increase sales and revenue (state owned enterprises) - Low Cost Capital e.g. low cost loan from China Development Banks or large State-owned Banks 27

28 The Next Move in China Million tonne scale integrated project - Ideally opportunities to learn from large-scale project development from Europe and North America - Chinese Domestic and International Supports Province-wide and nation-wide CCS Ready Policy Industry CO 2 Capture Viable Business and Political Models (Dynamic / beyond CCS) Investment to Overseas CCS International Collaboration 20 February,

29 UK-China (Guangdong) CCUS Centre Open Platform (welcome new members and partners, forge true collaboration) Government Industry Academia Focus on project (large-scale million tonne project with CO 2 storage in saline aquifer) Consider Industry CO 2 Capture Government suggested setting up three working groups: - Technology (Led by GEDI and UoE, Post-combustion, Gasification) - Demonstration (led by CRP, CRP-CNOOC) - Policy and Finance (Led by UoE) One International Advisory Board 8 people in Secretariat (3 from GEDI, 3 from CFEDI, 2 from Edinburgh) Bilingual magazine and website Secretariat actively looks after IPR, Health Safety issues and other cultural aspects (work out practical mechanisms) 20 February,

30 Acknowledgement 感谢支持 The following institutes supports for centre establishment and industry project support: For the following institutes support and works through the earlier Guangdong CCS Readiness Research Project: 20 February,

31 31 Acknowledgement 感谢支持 Photo taken at UK DECC in Jan 2013, Guangdong Government

32 Welcome to Share your thoughts at Near Zero Emission A new trade magazine, supported by Guangdong Government, to introduce and promote clean fossil fuel technologies in China 32

33 Thanks for your attention. 33

34 Annex I Regulation and Cost Issues for CO 2 Capture from Cement in China

35 Emissions regulations in US, EU and China 美国, 欧盟与中国水泥厂排放监管对比 注释 : 在欧盟, 每立方米的基础是含 10% 氧的零度干燥气体 而在美国, 氧的含量通常为 7% ¹ 提议的新规定目前在公开听证中, 转换近似值为 1 lb/mwh=34 mg/m³ ² 300 兆瓦及以上新建燃煤电厂的 BAT 排放标准 ³ 法规草案 2012 年 1 月 1 日开始生效 Li, J., Tharakan, P., Douglas, M., Liang, X. (2013). Technological, Economic and Financial Prospect of Carbon Dioxide Capture in the Cement Industry. Energy Policy, Corrected Proof. 李佳,Tharakan, P., Douglas, M., 梁希 (2013). 水泥行业二氧化碳捕集的技术 经济和金融展望, 能源政策, 初较版. 20 February,

36 Comparison of estimated cost structure for CO 2 capture technologies in the UK and China 中英水泥厂碳捕集成本结构比较 增加的非燃料可变运营成本 ( 包括胺 ) 增加的固定运营成本 增加的燃料 ( 煤和电力 ) 额外的成本支出 IEA GHG 富氧燃烧 IEA GHG 燃烧后捕集 中国广东燃烧后捕集 中国广东燃烧后捕集 ( 调整为英国地点 燃料成本和贴现率 ) 20 February,

37 Comparison of 5-year average return on equity (ROE) and current financial leverage (long term debt/equity) between the construction material industry, the power generation industry,the oil and gas industry, and S&P500 index average 水泥行业与发电, 石油天然气行业与标普 500 指数, 平均净资产回报率和资本成本的比较 建设材料 (%) 发电 (%) 石油气 (%) 标准普尔 500 平均值 5 年平均股本回报率 ( 长期负债 )/ 股本 名义加权平均资本成本 ( 假设负债成本 =5%) 名义加权平均资本成本 ( 假设负债成本 =8%) 实际加权平均资本成本 ( 假设负债成本 =5%) 实际加权平均资本成本 ( 假设负债成本 =8%) February,

38 Annex II Introduction to SCCS Activities

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