Coal Finance Presentation for NARUC

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					                                                          www.ClimateVISION.gov




Policy Approaches & Incentives
in Financing Gasification Plants
        A Risk Framework Approach
                     Presentation to APPA
                       February 17, 2005

Larisa Dobriansky, Deputy Assistant Secretary, DOE Policy Office
                   David Berg, Chief Advisor, DOE Policy Office
          Andrew Paterson, Principal, Environmental Business International
 President’s Climate VISION Initiative
• On February 14, 2002,
  President Bush set a goal
  to reduce U.S. GHG
  emissions intensity.
• Based on public – private
  partnerships, engaging a
  dozen industry groups.
• Emphasizing voluntary
  actions and accelerated
  commercial use of           “My administration is committed
  advanced technologies.      to cutting our nation’s green-
• And achieving National      house gas intensity over the
  Energy Policy goals.        next 10 years.”
                                          -- February 14, 2002
                www.ClimateVISION.gov
                                                             2
Climate VISION Private-Sector Partners
    Alliance of Automobile            The Business
      Manufacturers                     Roundtable

    Aluminum Association              International Magnesium
                                         Association
    American Chemistry Council
                                      National Mining
    American Forest & Paper             Association
     Association
                                      Portland Cement
    American Iron & Steel Institute     Association

    American Petroleum Institute      Power Partners

    Association of American           Semiconductor Industry
     Railroads                          Association

                                                                3
Why Is DOE Interested in Gasification?
  (for Coal and Other Industrial Applications)




                                                 4
Aging U.S. Coal Fleet: 70% over 30 in 2010

                        In two years, over 50% of US
                        total coal-fired generating
                        capacity will be 30 or more
                        years old. Environmental
                        pressures and legislative
                        reforms could push many of
                        these plants into retirement.

                        While excess capacity has
                        caused plant retirements and
                        the postponing or canceling
                        of projects in some regions,
                        other regions remain—and
                        will continue to be—short of
                        power.
                                         (Source: Platt’s)




                                                             5
                   Advantages of Gasification
Next speaker, Jim
Childress, will cover
these points              • Higher potential efficiency >50% v. 40%, if
                            fuel cells added later.
                          • Removes S, Hg, and other contaminants
                            before combustion, eliminating scrubbers.
                          • Wider range of feedstocks and variability
                            in feedstock quality.
                          • Easier to capture by-products for sale
                          • Less input water use needed: post-
                            combustion flue gas desulfurization is not
                            needed, as with conventional coal boilers
                            to reduce SOx emissions.
                          • Less-cooling water discharge (-30%) than
                            conventional coal.
                          • Most gasifiers in operation today are used
                            for processing refinery wastes and making
                            chemicals (ammonia, syngas, methanol).
                                                                          6
    Clean Coal: Leading Questions
• Market factors and business risks have shifted since
  2000 to favor consideration of clean coal (e.g., sharp
  spikes and volatility in natural gas prices).
• Yet, few IGCC plants being ordered. Is it primarily a
  matter of elevated capital costs? Other business risks?
• Which risks most deter construction of commercial clean
  coal plants?
• Which policies could encourage commercial adoption of
  ―clean coal gasification‖ (e.g., environmental regulations,
  state & federal financial support)?
• How can federal credit approaches be coupled with state
  incentives to improve the prospects for clean coal
  gasification plants?
                                                                7
   Market Failures in Power Sector
Trigger Evaluation of New Approaches




                                       8
    Market Failures in Power Sector
1. Advanced gasification systems for coal face skepticism.
2. Owners of early plants face ―first mover‖ penalties (higher
   cost and technology risk, more delays, than later movers).
3. Customers of early plants also face ―first mover‖ penalties
   from higher cost and lower reliability.
4. Classic externalities (e.g., pollution) hinder action by
   prospective owner / operators and their customers.
5. Regulatory bias in rates (defacto) impacts technology
   choice—PUCs allow generators to pass through marginal
   fuel cost price spikes, but restrict cost recovery of capital.
6. Regional differences are vast (fuel use, urban v. rural…)
• Solving issues requires collaborative approach, nationally.

                                                                    9
     Why Are So Few IGCCs on Order?
                                                          Excerpts from interviews
      DOE: CCPI buys down demo
      plant cost by 40% to 50%, so
                                               Utility: Even if DOE puts up $500M on a
      why are so few utilities
                                               $1 billion plant, we still have $500M at risk
      considering IGCC ?
                                               if the gasifier fails to perform. Reliability is
                                               king in our business—power. We don‘t
                                               want to be ‗guinea pigs‘. Let someone else
PUC commissioner: What does                    try first.
gasification cost per KW? Who stands
behind the performance guarantee to
protect my rate payers?                            Utility: A gasifier looks (and smells)
                                                   like a chemical plant. We are not in
                                                   the chemical business.

   IGCC technology vendor: We
   make only a component of the total
   plant and don‘t want to be liable for        Lab: Our research shows that IGCC
   delivering power. Our units make             may not be the best choice for low-
   fuels and by-products.                       rank coals (sub-bituminous, lignite –
                                                with higher moisture).
                                           ?
                                                                                              10
Risk Profile of Clean Coal Technology
      Faces Market Failures,
 Suggesting the Importance of Risk-
       Targeted Assistance



                                        11
Risk Framework Built to Project Timeline
 Market failures require an assessment of risks.

 ―Risk framework‖ approach is…
 • Not a technical framework, e.g., RD&D roadmap.
 • Not a regulatory framework, e.g., IPCC.
 • Not biased toward any specific fuel source.
 • Not based solely on economic analysis.
 • Not another ―barriers‖ study.

 • Based on the analysis of ―business risks‖ from the
   perspective of project development and plant owner.



                                                         12
Overview of Risk Framework Approach
This diagram depicts the study‘s logic flow and approach to the analysis.
                                                                                        Evaluation,
   Power Plant                Risk Analysis                 Rating and                  Application
      Project                of Coal Project                Ranking of                    of Risk
   Development                Development                    Risks by                    Mitigation
     Timeline                    Stages                       Stages                    Mechanisms

 Timeline                   Risk Analysis by Stage      Interview and Rating         Evaluation of
 Evaluation             .   of Project Development      Approach            .        Mitigation Mechanisms
                            ―Showstoppers‖:
 • Delineation of key       • Air regulatory issues?   • Design of survey           • Financial model and
   development stages       • Tech performance and       instrument                   sensitivity analysis
   for power plant              availability?                                         (conducted by utilities)
                                                       • Work with industry
                            • PUC rate approval?                                    • Delineation of
                                                         groups for interview
 • Matching of                                                                        mechanisms
                                                         candidates
   development stages       Major Risk Category
   with financing events    • Technology / Design      • Selection of interview     • Matching of possible
                            • Development / Siting       candidates                   mechanisms to risks
                            • Regulatory                                            • Evaluation of risk
                                                       • Contact of candidates
                            • Construction                                            coverage for each stage
                            • Operating performance    • Interviews, risk ratings   • Determination of
The risk framework
                            • Fuel price, supply
approach builds on work                                • Evaluation of risks          measures, legislation
                            • Demand
done for the ―Business                                                                needed to implement
                            • Dispatch                 • Workshops with
Case for Nuclear Power‖                                                             • Negotiations
                            • Waste, byproducts          industry on results
(www.nuclear.gov)
                            • Transmission

                                                                                                                 13
Risk Questionnaire: 33 Respondents
Utilities, IPPs                         Technology Firms, Labs, DOE
AEP                  Global Energy      Air Products & Chemicals
Cinergy              Southern Co.       ChevronTexaco Gasification
EPRI                 Tampa Electric     Gas Technology Institute
Excelsior Energy     WE Energy          Gasification Technology Council
Tennessee Valley Authority              Powerspan
Tri-State Generation                    Siemens
                                        TMS
Engineering Firms & Energy Cos.         DOE & NETL
Alstom              Fluor Engineering
Bechtel             Foster Wheeler      Financial Community
Burns & McDonnell   USA                 CS First Boston
Conoco Energy       Kennecott Energy    JP Morgan Chase
CONSOL                                  EBI
Eastman Chemical                        Rosenberg & Associates

                                                                          14
   Risk Rating Recap: Highest Risks
Clean coal systems offer public benefits, but are not fully
proven. High capital costs magnify risks. State and national
policies not yet clear. Financing large plants poses
challenges… Risk-informed credit-based assistance may help
address them effectively and efficiently.

         Risk Area for IGCC              A          B        AxB
         Highest Risks                Probable   Severity   Rating-1
     1   High capital cost               4.4       4.7        20.4
     3   Excessive downtime              3.7       4.4        16.5
    5    Lack of standardization        3.7        3.5        12.9
    18   No state policies for IGCC     3.3        3.7        12.1
    19   Nat'l policy on IGCC lags      3.4        4.2        14.4
    26   PUC rate approval fails        2.9        4.6        13.2
    27   Financing difficult            3.7        4.5        16.5

                                                                       15
Risk Profile: Too High Early in Plant Life
                                      Startup                1. Not enough coverage of operating
                                                                risks and technical performance at
                                                                startup.
                                                             2. Too much risk coverage after
                                                                successful operations: Buydown
                             • High capital costs
                             • Excessive downtime               of costs reduces generation cost
                             • Regulatory uncertainty           over life of the plant. Cost to
  Risk Profile 




                             • Electricity competition          government unnecessarily high.

                        Selection
                        for support
                                      $

                                       Tax credits don’t provide enough lift early
                                       on, and offer too much over life of plant.

                   Development &          Plant Project Timeline 
                   Engineering
                            Construction
                                           Operations & Maintenance 

                                                                                                     16
IGCC Risk Traits – 1,2,3: Observations

• Industry rates technology risks of IGCC, other advanced
  technologies as too high without government support.
Top concerns:
 Technical: High capital cost and excessive downtime, which
  make financing difficult. Warranties appear to be inadequate.
 Regulatory: Potential for big advantage in CO2, but owners
  remain skeptical of full valuation, near term, of CO2
  advantage. IGCCs have apparent edge on capture of
  mercury, plus on water and solid wastes.
 Market: Note that risk of decline in gas prices rates as a low
  probability, high severity event. Gas price rises make clean
  coal plants more competitive.

                                                               17
IGCC Risk Traits – 1,2,3: Observations
 (continued)
 Other observations:
 • State policy can help, but probably will be insufficient in
   most states. PUC dispatch preference, rate approval, or
   ROI assurance would usefully mitigate risk.
 • Electricity competition is a concern due, in part, to
   uncertainties about regional impacts of market reforms.
 • If government accepts significant technology risk, then
   adequate EPC warranties probably could be negotiated.
   Also, government reliability backing should reduce
   contingency in price of plants by >$100 / kWe.
 • Workforce risks (for construction and operation) rate low.

                                                                 18
Designing Risk-Targeted Assistance
 for the Power Generation Sector




                                     19
 New Financing Approaches Needed?

• Tax credits and co-funding are inefficient and expensive for
  the federal budget. They are not targeted to specific risks.
  – Compounded by tying tax credits to ―heat rate‖ for electricity
    or by allowing conventional plants to qualify for tax benefits
• Government (federal and state) risk-sharing with advanced
  clean coal plant owner / operators could offer more
  flexibility on financing and ownership structures.
  – Could better allocate risks (e.g., higher capital cost on first
    units, technical performance uncertainties)
• Federal credit process could force healthy negotiation and
  independent credit analysis—and it would complement
  state actions. Credit process would add rigor and improve
  project quality, and it may dampen earmarking.
                                                                      20
  Risk-Targeted Assistance for IGCC

Risk Area                   Possible Assistance Targets
• High capital cost         • Enhance financial returns
• Excessive downtime        • Improve warrantees
  (poor availability)       • Backstop cash to avoid
                              default
• Lagging national policy   • Helpful national policies
• Lagging state policy      • PUC, environmental roles
• Lack of standardization   • Financial support for
                              standardized designs



                                                          21
Next Steps through Climate VISION
For discussion…
• Collaborate with states, NARUC, EPA, EPRI, CURC,
  GTC, APPA and NCC on further risk analysis work.
• Evaluate how to target potential assistance on critical
  business risks that hinder orders of early commercial
  plants.
• Conduct sensitivity analysis of federal assistance
  options, including credit. Review results across DOE
  and with OMB, Treasury.
• Consider complementing state incentives with
  potential federal credit (or other) assistance.


                                   www.ClimateVISION.gov
                                                            22
                         FINISH




  www.ClimateVISION.gov
Contact us:
Larisa Dobriansky 202-586-1524
Deputery Asst. Secretary, DOE Policy Office

David Berg 202-586-1117 david.berg@hq.doe.gov
Chief Advisor, DOE, National Energy Policy Office

Andrew Paterson 619-807-3267 adpaterson@aol.com
Principal, Environmental Business International


                                                    23
Backup Slides




                24
                   Beyond IGCC ?
• Many advanced energy technologies are reaching
  commercialization, but most face market entry difficulties.
• These technologies improve energy efficiency, electricity
  transmission, nuclear power, and renewable energy.
• NEP advocates rapid commercial use of a portfolio of such
  advanced technologies—if, long term, they can compete.
• Market use of advanced energy technologies developed with
  DOE support rewards taxpayer support for applied RD&D
  programs—and advances U.S. energy security.
• Traditional government deployment assistance tools are not
  targeted on key market risks—and they are expensive.
• Negotiated federal credit tools, teamed with state incentives,
  could address specific risks to accelerate market adoption
  effectively—at a lower cost.
                                                               25
       The Climate VISION Challenge
• Climate VISION – Challenges industries to make voluntary
  commitments to adopt cost-effective systems,
  technologies, and best practices to reduce GHG emissions.
• Commitments from 12 industries and Business Roundtable;
  thousands of companies; nearly 45% of U.S. GHG volume.
• Climate VISION partnership:
  – Industries commit to make meaningful commitments toward the 18%
    intensity reduction goal and to report emissions in 1605(b)
  – Partners identify, implement cost-effective solutions for reducing GHGs
  – Partners develop and use the tools to calculate, inventory, and report GHG
    emissions reduction, avoidance, and sequestration
  – Government recognizes voluntary mitigation actions
  – Partners develop enabling strategies across the economy to further reduce
    GHG emissions

                                                                                 26
   Climate VISION Enabling Initiatives
• Goal: Garnering private actions to extend voluntary
  commitments across entire economy.
• Current focus: Major energy end-use sectors, such as
  transportation, buildings, and electricity system.
• DOE, industry exploring enabling initiatives in key sectors:
  –   Efficiency in buildings, starting with new homes
  –   Advanced Clean Coal power generation
  –   Acceleration of renewables and bioenergy
  –   Others based on analysis
• Potential goal for new homes: 50%+ market penetration of
  energy efficient new homes by 2012.
• Potential goal for clean coal power generation: Build first of
  several new plants in a series starting in 2006 – 2007.
                                                                   27
  Climate Vision Promotes Energy Security
Energy Security goals adapted from ―Energy Challenges‖ in NEP (May 2001)
 Climate VISION approaches contribute to overall energy security goals.
Secure Supply             Alternative supplies for fuels helps insulate users from import disruptions;
                          Diversification of fuels (e.g. biofuels) and sources enhances options.

Less Price Volatility     Alternative supply eases demand on natural gas, reducing price spikes;
                          More stable generation or distributed generation moderates price swings.

Electricity Reliability   Replacing an aging fleet with new plants and improved transmission systems
                          improves emission control as well as enhancing overall reliability.

Energy Affordability      Maintaining low cost energy and electricity supports competitiveness of
                          U.S. industry and reduces energy cost drag on U.S. households.

Source Flexibility        Developing fuel and power options enables industry and consumers
                          to adopt more efficient consumption patterns with lower emissions.

Modernization             Upgrading grid and pipeline systems reduces disruptions and allows
                          for smart adaptation to fend off shutdowns or bottlenecks, reduce emissions.

                                                                                                         28
Oil & Gas Price Volatility Continued in 2004
                                             Market volatility not being addressed.

                                               Natural Gas
                                               Natural gas volatility, varying more than 80%
                                               within a 12 month period, has aggravated
                                               industries dependent on gas as a primary
                                               feedstock or heating fuel, such as chemicals,
                                               fertilizers, metalworking and cement. LNG
                                               terminals are facing stakeholder resistance.




 Crude Oil
 Ascent of crude oil prices in 2004 has
 hindered full economic recovery, and
 provides a painful reminder of U.S.
 commercial vulnerability due to import of
 more than 60% of our crude oil, the
 primary fuel for all transport modes.



                                                                                               29
Competitiveness in U.S. Chemical Sector
                                      Letter to the President (Nov. 19, 2004)
                                      ―Mr. President, we believe that the
                                      high and volatile price of natural gas
                                      is the number one threat to our ability
                                      to compete in global markets. All
                                      consumers are paying a terrible
                                      price. Solving this problem will require
                                      committed leadership on the part of
         National Petroleum Council   the next Energy Secretary. I urge you
         The NPC calls for            to select an Energy Secretary who will
         increased energy             champion the cause of the consumer
         efficiency, greater
         flexibility in industrial    and tackle the problem of high and
         and residential fuel         volatile natural gas prices head on.‖
         choices, immediate
         development of new
         sources of supply, and
         enhanced infra-                               Thomas E. Reilly, Jr.
         structure investment.
         (gas report, 2003)                             President and CEO
                                                American Chemistry Council

                                                                                 30
Coal’s Leading Role in Power Sector
EIA forecast for U.S. Electricity Generation, 2002 – 2020 (AEO 2004)
                                         6,000
                                                                                By 2020, EIA forecasts
                                         5,000                                  that U.S. will still use
  Electricity Generated (Billion KWhs)




                                         4,000
                                                                                coal for 45% – 50% of
                                                                                U.S. electricity…
                                         3,000

                                                                                Climate VISION:
                                         2,000
                                                                                How do we best use coal
                                         1,000
                                                                                to economically sustain
                                           -                                    industrial competitive-
                                                  2002       2012     2020
                                                                                ness and energy
                                          Coal     Nuclear   Gas    Dual fuel   security with minimal
                                          Hydro    Bio+MSW   Wind   Solar       environmental impact?

                                                                                                           31
          IGCC Risk Study – 1: Questions
Risks are evaluated based on ―probability of occurrence‖ and ―severity of impact‖, if risk is realized.
  TECHNOLOGY & OPERATIONS RISKS (system performance)
  • Risk: Electric price is materially higher for IGCC due to high capital costs.
  • Lack of competitiveness of electricity due to higher labor or operating costs.
  • Excessive IGCC breakdown, downtime, non-routine engineering & repair costs.
  • Poor technical performance of IGCC relative to specs (e.g., higher heat rate).
  • Lack of standardized IGCC systems (higher costs or reduced performance).
  • Lack of skilled workforce to build IGCC plants to specifications.
  • Lack of skilled operators to properly run IGCC plants to specifications.
  • Lack of materials and engineering progress keep system costs high
    (>$1,500/KWe).
  • Acute accidents generate penalties or severely damage the plant.
  • EPC or vendor fails to provide adequate support of IGCC to maintain
    performance after startup.
  • Waste disposal risk (e.g., price of disposal rises sharply or location is closed).


                                                                                                   32
      IGCC Risk Ratings – 1: Technical


1) Technical Risks                         Rating of IGCC Risks (probability x severity)               33 ratings
                                                                                                     25 ratings

                               0.0   5.0             10.0               15.0               20.0               25.0

           High capital cost
  High labor/operating cost                                                        IGCC system not fully
                                                                                   developed, and faces extra
       Excessive downtime                                                          dow ntim e early on to fine tune
    Poor tech performance                                                          perform ance. Lack of EPC
                                                                                   confidence show s up here.
    Lack of standardization
 Lack of workforce to build                         Workforce issues are
                                                    not rated as high risks.
   Lack of skilled operators                                                           Problem : no real
                                                                                       standard IGCC
Lag in engineering progress                                                            system

   Damage from accidents
   Thin EPC/vendor support
 Waste disposal disruption




                                                                                                                      33
  IGCC Risk Study – 2: Questions
REGULATORY & POLICY RISKS (differentiation for IGCC)
• Risk: State-level air permitting delays fail to deter conventional coal plant
  orders.
• Federal mercury regulations favor conventional coal (e.g., PC) plants.
• Federal SOx and NOx regulatory delays favor conventional coal plants.
• Economic value of carbon capture fails to materialize, reducing
  advantage of IGCC.
• Risk that IGCC is regulated (by states or EPA) based on NGCC
  performance.
• Cost of carbon sequestration for PC plants approximates that for IGCC.
• Regional and state policies fail to provide any or sufficient incentives for
  IGCC
• National policies provide insufficient rewards, incentives for IGCC (e.g.,
  tax, NSR, etc.).




                                                                                  34
     IGCC Risk Ratings – 2: Regulatory

                                       Rating of IGCC Risks (probability x severity)                  ratings
                                                                                                   33 25 ratings
2) Regulatory Risks
                                 0.0    5.0             10.0             15.0              20.0              25.0

   State air permitting on PC

  Fed mercury regs favor PC

  Fed SOx/NOx regs help PC

  Little carbon capture value                                                   Regulatory issues are not seen
                                                                                as "deal-killers", though doubts
       IGCC reg tied to NGCC                                                    remain about national policy
                                                                                commitment and that carbon
No cost edge on CO2 sequest                                                     capture value will ever
                                                                                materialize.
   No state policies for IGCC

     Nat'l policy on IGCC lags




                                                                                                                   35
       IGCC Risk Study – 3: Questions
MARKET & FINANCE RISKS (dynamics of demand and supply)
• Long-term electricity demand (for utilities, IPPs) fails to grow as fast as forecast.
• Erosion of coal transportation infrastructure raises delivered cost of coal over
  time.
• Competing ―old coal‖ generation reduces dispatch of IGCC, thereby curbing
  revenues.
• Low natural gas prices make NGCC more competitive (reducing dispatch).
• Coal prices rise markedly, inflating IGCC electricity generation costs.
• Interest rates rise in the medium term, penalizing new capital-intensive projects.
• State PUC does not approve long-term contract or rate review to cover IGCC
  costs.
• Financing of IGCC is difficult, or requires lots of equity, even at low interest
  rates.
• Revenues of IGCC by-products (e.g., sulfur, slag) fail to materialize as forecast.
• Customer of IGCC suffers significant losses and cancels IGCC project midway.


                                                                                          36
           IGCC Risk Ratings – 3: Market


                                   Rating of IGCC Risks (probability x severity)                 33 ratings
                                                                                                  25 ratings
3) Market Risks
                            0.0   5.0             10.0              15.0                20.0               25.0

    LT electric demand
                                                                The competitive position of coal might have
 Coal transport erosion                                         improved with recent gas price spikes and
                                                                volatility. "Old coal" poses some challenge,
   Old coal competition                                         but not overwhelming because of its low
                                                                efficiencies. Most believe that gas prices will
      Lower gas prices
                                                                stay higher now.
        Coal prices rise
                                                                                Vulnerability to interest rate
      Interest rates rise
                                                                                rises is keyed to high capital
 PUC rate approval fails                                                        costs; though some buyers
                                                                                have access to low rate debt.
      Financing difficult                                                       PUC approval and financing are
                                                                                still viewed as problematic.
By-product revenue lags

    IGCC customer fails




                                                                                                                  37
Example Terms: Three Risk Mitigants
1. Standby credit facility:   • Purpose: For the first few new plants, address startup risks due uncertainties
                                about the system technology and scale-up. Default coverage will not be
A. Default coverage             provided for contractor fault or utility actions that lead to abandonment of a
                                plant. In the event of technical failure, government...
                              • …would reimburse a negotiated % of project equity + debt.
                              • The likelihood of such default is much lower after three years of successful
                                operations, and the coverage can expire.
1. Standby credit facility:   • Purpose For the first few new plants, address startup risks due uncertainties
                                about the system technology and scale-up. Default coverage will not be
B. Interest coverage during     provided for contractor fault or utility actions that lead to abandonment of a
commissioning delays            plant. In the event of technical failure, government...
                              • …would cover a negotiated portion interest payments during startup
                                downtime. Payments would convert to project loans at negotiated terms.
                              • If a loan is executed, the likelihood of repayment is high once plants are full
                                operational, dispatch as baseload and generate positive cash flow.
2. Direct loans               • Purpose: Address high capital cost and downtime risk, and leverage private
                                sector financing, so plant financial returns reach utility investment
                                requirements. The government…
                              • …would provide part of plant costs in the form of loans to the project at
                                Treasury rates, which would be repaid over ~25 years after commissioning.
3. Power production           • Purpose: Reduce market risk and address high plant cost, so plant financial
                                returns reach utility investment requirements. The government…
incentive (PPIs), as loans
                              • …would buy power at negotiated elevated rates (above market) for a period of
                                time. Payments would be converted to loans (~25 years). Repayment begins
                                after other government payments are completed.


                                                                                                                  38
                           Power Project Timeline
   Different risks arise at each                                       Operations
                                                        Start-Up       and
   phase of power projects; value                                      generation
   in matching appropriate tools
   to particular risks.                                       $                      Repayment of
                                                                                     debt and equity
                                                                                     from future
Industry Investment
                                                                                     revenues
            $                Close                      $
                           Financing

                              $
                                                                       Scheduled
                                                                       Startup



Power Project Timeline 
                                       Long Lead-Time
                                        Procurement

            Regulatory Approval         Engineering     Construction     Operation (or delay)


                               ―Go / ―No Go‖ decision
                                                                                                       39
     Timing of Mitigants: Combined
                                                                              1a) Interest Coverage
                                1

Standby Credit Facility for Regulatory &                                      1
                                                                                   Possible early       1b) Loan
Commissioning Risk: Debt + Equity                                  Start-Up        downtime             guarantees
1a) Coverage of interest payments in downtime
1b) Loan guarantees for debt coverage
(established before close of financing)                                 $                               Repayment
2) Direct Loan for Engineering & Construction                                     Scheduled             of government
                                                                                  rampup                credit from future
 Industry Investment                  Close                                                             revenues
             $                      Financing                  $
 Government Credit
            $                                                                                       3

                                $                                                       3) Power production
                                                                                        incentive for X years
                                          2


 Power Project Timeline                                                          ―Shakedown‖
                                              Long Lead-Time
                                               Procurement

             Regulatory Approval              Engineering      Construction         Operation (or delay)


                                                                                                                             40

				
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