Economies of Scale vs the Learning Curve

Joan MacNaughton, Senior Vice President, Power & Environmental Policies

BIEE 8th Academic Conference, 23 September 2010

Agenda

The challenge

Meeting the challenge in the power sector

The policy framework

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

BIEE - JM - 30/09/2010 - P 2

Conclusions

World abatement of energy-related CO2 emissions

Efficiency 65 57

1. End-use 59 52

2. Power plants 6 5

Share of abatement %

2020 2030

34

36

38

40

42

Gt

Reference Scenario

3.8 Gt

13.8 Gt

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

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Renewables 18 20

Biofuels 1 3

Nuclear 13 10

CCS 3 10

26

28

30

32

2007 2015 2020 2025 20302010

Source: International Energy Agency, "World abatement of energy-related CO2 emissions in the 450 Scenario," World Energy Outlook 2009

450 Scenario

Investment, investment, investment

Baseline $ 270 trn

“Blue Map” $ 46 trn$ 750 bn/yr

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

BIEE - JM - 30/09/2010 - P 4

= 450ppm scenario$ 750 bn/yr

$ 1600 bn

2030

2050

60% of 2030

emissions from existing plants60% of 2030

plants still to be built

Source: International Energy Agency, Energy Technology Perspectives 2010

Agenda

The challenge

Meeting the challenge in the power sector

The policy framework

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

BIEE - JM - 30/09/2010 - P 5

Conclusions

• Technology Mix

- Nuclear

- Renewables

• Production Efficiency

ALSTOMINVOLVEMENT

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Meeting the challenge in the power sector

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

BIEE - JM - 30/09/2010 - P 6

• Production Efficiency

- Fuel Preparation/Retrofit

- New generation plants

- Energy management

• Carbon Capture and Storage

So

urc

e:

Pow

er

Sys

tem

s a

naly

sis

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Meeting the challenge:The full portfolio of technologies is needed

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

BIEE - JM - 30/09/2010 - P 7

Gas Coal Oil

Hydro Nuclear (Conv. Island) Wind

Meeting the challenge

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

BIEE - JM - 30/09/2010 - P 8

Source: EPRI, “Creating our future,“ 2009 Summer Seminar

Meeting the challenge

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

BIEE - JM - 30/09/2010 - P 9

Source: EPRI, “Creating our future,“ 2009 Summer Seminar

Meeting the challenge: evolution of cost of CO2 avoided

€/ tonne CO2

50

60

70

80

90

Pu

bli

c f

un

din

g

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

BIEE - JM - 30/09/2010 - P 10

Source: McKinsey & Company “CCS – assessing the economics” for the cost numbers; policy implications drawn by ZEP

Demo phase Early commercial phase Mature commercial phase

0

10

20

30

40

18

13

13

15

23Solar PV*

Ethanol

Wind Power

LNG

15Higher learning case

Assumption for CCS

Implied learning rates per doubled capacity; various periods

Meeting the challenge: learning rates

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

BIEE - JM - 30/09/2010 - P 11

*Sources indicate learning rates between 18 and 23% for solar PV**Unweighted average of the learning curves, with Solar PV taken at 20.5, the midpoint between 18 and 23Source:Worldwatch Institute; IEA; IPCC; BTM consult; ABS; NREL; IIIEE; ABI; Drewry 2007; UC Berkeley ERG; Navigant consult; McKinsey analysis

3

6

12

12

13LNG

Average**

PV inverters

Solar thermal

7

12Base case

Lower learning caseSO2 and NOxcapture systems

100

1,000

CCS learning curves compared to other industries

Capital cost

2004 USD/W

Learning curve experience from renewables and

LNG as capacity is installed

13%

Implied learning curveper doubled capacity

• CCS differences: more mature component technologies

• CCS main opportunity areas15%

Capacity CAGR

15%

30%Ethanol1978–1996

LNG*1970–2000

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

BIEE - JM - 30/09/2010 - P 12

1

10

1 10 100 1,000 10,000 100,000

*LNG capital cost measured in USD/t and capacity measured in bcm**Other sources indicate learning rates as low as 18% for solar PVSource: Worldwatch Institute; IEA; BTM consult; ABS; NREL; IIIEE; ABI; Drewry 2007; UC Berkeley ERG; Navigant consulting; McKinsey analysis

Cumulative capacity installed MW

3%

23%

13%

• CCS main opportunity areas

• Improving energy efficiency

• Standardization of capture technologies

65%

40%

52%

Solar Thermal1985–1991

Solar PV**1975–2003

Wind Power1981–2001

Wind Power1981–2001

1978–1996

6%

70%

PV inverters1995–2002

Performance is already there…

We Energies

Pleasant PrairieUSA - Coal - Chilled Ammonia

CO2 capture rate

CO2 purity

>99.9%90%

Parasitic load [%] on net efficiency

AEP Mountaineer USA - Coal - Chilled Ammonia

>99%90%

20

25

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

BIEE - JM - 30/09/2010 - P 13

…and will continue to improve…

Vattenfall Schwarze PumpeGermany - Lignite & Bit. Coal - Oxy

Dow Chemical Co. CharlestonUSA - Coal -Advanced Amines

>99.7%

>99.5%90%

90%

Pilot phase Demo phase Commercial phase

Thermodynamic theoretical limit: assuming ideal separation and

compression processes*

Realistic limit

*Theoretical limit assumes ideal separation and compression processes (110bar): isentropic, no losses

15

20

10

… at a competitive cost

Typical cost of electricity OECD new low carbon power plant construction

22

24€/MWh

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

BIEE - JM - 30/09/2010 - P 14

CCS is competitive with other decarbonized power sources

Hard

Coal withCCS

Gas with

CCS

Nuclear Hydro Geo-

thermal

Wind

Onshore

Wind

Offshore

Solar

Thermal

Solar PV

PSP

RoR

Source: Alstom Analysis

Agenda

The challenge

Meeting the challenge in the power sector

The policy framework

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

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Conclusions

Policy framework for CCS

• Funding for large scale demos

• Global – linked cap & trade systems (EU, US, Australia)

• Regional – strategic plan for transport, storage

• National –- Regulation of CO2 storage, including liabilities

- Regulatory framework – foundation for a commercial offering

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

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- Regulatory framework – foundation for a commercial offering

• National/Local –- Public acceptability

Policy framework for CCS

Risks:

• Commercial

• Policy & regulatory (too little too late; inappropriate approaches to e.g. knowledge sharing/IP; tilted playing field)

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

BIEE - JM - 30/09/2010 - P 17

field)

• Political risk

• Absence of infrastructure

Agenda

The challenge

Meeting the challenge in the power sector

The policy framework

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

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Conclusions

Conclusions

• Consensus over decarbonising power sector by 2030

• Technologically entirely feasible

• All technology solutions required

• Policy framework to facilitate:

© ALSTOM 2010. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

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• Policy framework to facilitate:

- Level playing field- Targeted support- Tackling co-dependencies- Better risk management- Effective global co-ordination

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