Project PioneerCCS in the Power Sector

Global CCS Institute / Carbon Management CanadaCalgary Regional Meeting

Calgary, AlbertaNov 10, 2011

Don WhartonVP Policy and Sustainability

TransAlta Corporation

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Overview

1. Pioneer status & details

2. Some early lessons

3. Knowledge initiatives

4. Policy issues

Pioneer – A World-Scale CCS initiative

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About Project Pioneer Post-combustion retrofit to new

Keephills 3 coal-fired plant, 50 kms west of Edmonton

World-scale demonstration project operating by 2015

Captures 1 million tonnes/year of CO2

Delivery of CO2 to both enhanced oil recovery (EOR) and deep saline storage basins

Keephills 3, Summer 2011

A partnership of companies and governments with expertise across the CCS value chain.

Knowledge transfer

Progress

Amine-based capture technology finalization imminent Front End Engineering Design work to be completed by Jan, 2012 Design and consultation for EOR transport pipeline underway Permit applications in process, work with regulators on filling

regulatory gaps Ongoing dialogue to advance CCS awareness via public

presentations, knowledge exchange and research Commercial negotiations with CO2 purchasers underway Preparing for project sanction decision in Mar, 2012

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Partnership Model• $1.3B - Project, capital and operating over 10 years,

before revenues• $340M – Federal investment• $430M – Alberta investment• Industry partners cover rest and secure offsetting

revenues from EOR and emission reductions

Project Goals Drive down capital and

operating costs through intense focus on systems integration and optimization across all CCS components

Form strategic partnerships to build best-in-class CCS projects

Advance the regulatory framework for approving and permitting CCS projects, particularly CO2 storage

Aggressively pursue knowledge exchange, both outward from Project Pioneer to others, and inward from the global effort.

Transportation & Storage Considerations

Two-pipelines are anticipated – one to aquifer storage and one to EOR injection. Why?

Sequestration• Base-load power plants

need continuous unconstrained storage capacity

• Long term, capacity for EOR uptake could be overwhelmed

• Experience with aquifer storage is important

Enhanced Oil Recovery• Highly valuable revenue source

from CO2 sale• Tremendous opportunities within

mature oilfields of Western Sedimentary basin

• Additional return to Province in oil royalties

• Experience with CO2 management and recycling in EOR projects

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Two Storage Options

Test Injection Well

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Integration Work

A focus of Pioneer is to drive down costs across the entire CCS system through optimization and integration with the existing power plant. This includes:

Steam cycle optimization for regeneration CO2 pressure management optimized to pipeline requirements CO2 purity optimization based on intended usage Modularization of equipment Process and component simplification Supplier customization Aquifer injection well scheme optimization Water use reduction

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Dealing with the Hard Financial Question

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All income and cost components must work in order for projects to proceed.

Costs

- Revenues

= Project financial evaluation

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Project must deliver a minimum return on industry cost of capital, cognizant of higher than normal risk.

Development ConstructionCapital

CCS Operating

Impacts on

business

EOR salesEmission reduction

value

Partnership Discussions

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Scope of involvement - full partners or limited? Structure for decision making? Return expectations? Risk tolerances – how to accommodate variations? Roles – who leads? Transfer agreements – who owns what? Work – done internally or externally? Technology choices – handling preferences Information and knowledge – how transparent?

Commercial Learnings (to date)

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1. Government is an investor - As soon as possible seek out differences between industry and government objectives and resolve.

2. Partner portfolio approach addresses challenges – A diversity of expertise & risk tolerance helps overcome barriers.

3. Non-commerciality of CCS requires new thinking – Partners may have a variety of drivers for participating…project needs to accommodate them all.

4. The business case will be highly sensitive to policy – Small changes in policy can have potentially fatal impacts on project economics

5. Staged decision making is crucial – High learning curve on almost all project elements…frequent commercial re-evaluation is necessary.

Some commercial-related issues have become evident:

Agreements with Governments

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Both governments and industry are learning about the commercial elements of prototype CCS projects. Funding agreements are evolving. Alberta and federal agreements are separate.

Some important areas of negotiation:

Disbursements allocation – front end capital req’mts vs back end performance Disbursements timing - schedules and termination dates Risk of under-performance – who bears it Project schedule risk Knowledge transfer requirements and IP rights

Knowledge Transfer

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Project Pioneer is undertaking an aggressive program of knowledge transfer, both inwards and outwards.

Knowledge Transfer ElementsCapacity Building Reputation Support Relationships Education

Partnership with the GCCSI

Case studies, factsheets, surveys, expert workshops, design & operational reports, economic assessments

$5M AUS funding agreement signed in Dec, 2010 Facilitates delivery of some 15 public knowledge products in 2011-12 Products designed to encourage exchange

Public Research on CCS

Awareness of CCS – 65% in Alberta Good support for CCS – 64% Perceived value of CCS tied to positive

economics and environmental impacts Perceived concerns of CCS tied to health and

safety and cost to implement 76% see CCS having same level or less risk to

other energy infrastructure Focus by industry to reduce GHG’s seen as a

top priority 61% support for govt. funding to enable CCS

71%Interested in

learning more about CCS

62%Support

continued use of coal with

CCS

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Conducted a baseline CCS public opinion survey in 2010, again in 2011:

Public Outreach Activities

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Public consultations and communication on Pioneer are ongoing, and include:

Open houses with neighbours Land discussions along EOR pipeline

route Brochures and factsheets Website Media interviews and activity

Open Houses

Factsheets

Most recent open houseTuesday, Nov 8/11

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Work with the Institute

+ Webinar

Dealing with Policy & Regulatory Uncertainty

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Will GHG policy create a fiscal environment in which CCS is comparable with other compliance alternatives – whether driven by market mechanisms and a price on carbon, or by prescriptive regulation.

Proposed GHG policy for Cdn electricity sector would provide no value to early GHG reductions, or those beyond proposed standards.

EOR price untested. Policy driver will influence future market prices.

Differentiated sector-based approaches could create illiquid CO2 markets if they exist at all.

Future US/Canada alignment could mean two steps for policy clarity.

Bill 24 has helped Alberta projects regarding liability and pore space.

Not clear yet how federal regulatory requirements will be dealt with

Still lots of regulatory details to be tested – how much can existing regs be adapted and what needs to be built.

Ultimately CCS investors need to be convinced that they have a reasonable chance of permitting their project.

Timing and predictability of policies will determine industry’s risk assessment and investment calls.

Will the detailed regulatory requirements be clear enough that CCS investment decisions can be made.

Contact:

Don WhartonVP, Policy and SustainabilityTransAlta CorporationCalgary, Alberta, Canada403-267-7681don_wharton@transalta.com

Thank You