Final report for One North East And NEPIC 21/12/10 - The Carbon ...

The case for a Tees CCS networkFinal ReportTable 8 Assessment of CCS network project structure optionsCommercial risk profileStructure option Policy & regulatory Technical & operating Economic & marketLikelihoodof fundingLikelihoodof successLaissez-faireSignificant withoutgovernment support andinterventionSignificant, and compoundedby multiple parties andinterests („project on project‟risk unmanageable). Structurevery unstable.Significant, andcompounded by multipleparties and interests(„project on project‟ riskunmanageable)Extremely unlikelyExtremely unlikelyCentrally plannedEffectively addressed dueto government acting asproject sponsor as well asprimary policy-maker /regulatorTechnical risks remain but canbe underwritten bygovernment; key operatingrisks can also be managedthrough use of governmentsupply and demandguaranteesEffectively addressed asgovernment has capacity tocreate new regulation andeconomic framework tosupport objectives, andenforce payments in cashflowmodelExtremely high, due togovernment involvement andcommitment (subject toincentives and project terms)Contingent on thedevelopment of newgovernment policy andregulation; approach at oddswith current UK policyapproachSingle entity ledSignificant withoutgovernment involvement,project guarantees andsupport.„First of kind‟ technical riskremains overriding barrier toattracting commercial debt.Non-supply and demand riskscan be addressed throughdesign of suitable contractualarrangements.Significant, exposed to allnon-supply and demand riskdue to limited involvement ofunderlying users of network(“midstream issues”).Challenging, and likely basedon project sponsor‟s creditworthinessand access tocapital (corporate finance).Few corporate sponsors likelyto have sufficient profile.Unclear, and dependent onprofile and track records ofproject sponsor in addition tolevel of government supportJV consortiumSignificant withoutgovernment involvement,project guarantees andsupport.„First of kind‟ technical riskremains overriding barrier toattracting commercial debt.Non-supply and demand riskscan be addressed throughdesign of suitable contractualarrangementsEffectively addressed, asequity involvement ensurescommitment of partners withinterest in underlying assetsi.e. direct link to networkusers.Likely to be promising, subjectto developing a strongcorporate „coalition of thewilling‟ with good track recordsand credit ratingsDependent on level of equityinvolvement and ability to deriskcounterparty commerciallinkages.Proven track record onTeesside in buildinginvestment consortia andfacilities-sharing.60