KCP-EUK-COM-DPR-0001

Revision: 02

Project Title: Kingsnorth Carbon Capture & Storage Project Page 1 of 4

Document Title: Economic and Commercial Definitions Philosophy

Economic and Commercial Definitions Philosophy

Table of Contents

1. Scope and Functional Requirements

2. Presentation of Costs

3. Risk and Uncertainty

4. Mandatory References

5. Supporting References

Sch 7 ref.: 6.13 Approved for Knowledge Transfer

Signature:

Date:

Kingsnorth CCS Demonstration Project

The information contained in this document (the Information) is provided in good faith.
E.ON UK plc, its subcontractors, subsidiaries, affiliates, employees, advisers, and the Department of Energy and Climate Change (DECC)
make no representation or warranty as to the accuracy, reliability or completeness of the Information and neither E.ON UK plc nor any of its
subcontractors, subsidiaries, affiliates, employees, advisers or DECC shall have any liability whatsoever for any direct or indirect loss
howsoever arising from the use of the Information by any party.
 KCP-EUK-COM-DPR-0001
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Project Title: Kingsnorth Carbon Capture & Storage Project Page 2 of 4

Document Title: Economic and Commercial Definitions Philosophy

1. Scope

The purpose of this philosophy document is to provide guidance for all FEED
Participants as to the impact on the projects economics of decisions with commercial
impact. This is intended to allow participants to conduct rough cost benefit analysis
when considering a number of potential solutions. However, this philosophy is not
(and could not be) a guide for all circumstances, but should act to give guidance to
participants before review with the project commercial team.
The document covers:
The principles methods by which decisions can have a commercial impact and
thereby alter the project economics.
Guidance as to the magnitude of economic impact of various commercial changes.
Guidance about when further clarification from the project commercial team should
be sought.

2. Impacts on Project Economics

2.1 Capital costs

Any anticipated capital cost should be considered, including any integration cost with
other systems.

2.2 Fixed Operating Costs

There are a number of costs of operating a station which are actually or effectively
set on an annual (or similar) basis, irrespective of the extent to which the station
operates within the year. The impact of any decision on these costs must be
considered and it should be straightforward to do so.
Staffing costs should be considered when making any change which would involve
increase or decrease in staff responsibilities. This should include any staff costs
(whether or not we would currently expect them to be directly employed or
contracted) and should include total costs of employment, not simply salary.
Regulatory and Good Practice Compliance costs including any monitoring and
health and safety costs should be considered.
Business Rates are unlikely to be altered by most engineering decisions, but must
be considered if relevant.
Grid connection charges should be considered when any change to project
capacity is discussed; this would require discussion with grid connection experts
within E.ON.
Administrative overhead costs (office costs, etc.) should be included where
relevant.
Kingsnorth CCS Demonstration Project
The information contained in this document (the Information) is provided in good faith.
E.ON UK plc, its subcontractors, subsidiaries, affiliates, employees, advisers, and the Department of Energy and Climate Change (DECC)
make no representation or warranty as to the accuracy, reliability or completeness of the Information and neither E.ON UK plc nor any of its
subcontractors, subsidiaries, affiliates, employees, advisers or DECC shall have any liability whatsoever for any direct or indirect loss
howsoever arising from the use of the Information by any party.
 KCP-EUK-COM-DPR-0001
Revision: 02

Project Title: Kingsnorth Carbon Capture & Storage Project Page 3 of 4

Document Title: Economic and Commercial Definitions Philosophy

2.3 Variable Operating Costs

Variable operating costs are those which alter the cost of using the CCS plant to
operate and vary with the number of hours the plant operates or with the manner in
which the plant operates.
Due to the mechanics of the UK power market, considerations of operating cost are
more complex than it would initially appear. A change to the cost of generating one
MWh of plant (i.e. a /MWh cost) does not directly translate to an income for the
plant (as it can also alter when the plant runs) for this reason we must provide a
value impact per /MWh increase in cost (or, equivalently, per % change in
efficiency).
Equivalently, any changes in either the cost of the plant starting or the cost of varying
output will also alter the running of the plant and so have a complex relationship with
profitability.

3. Guidance Costs

Below we give some approximate multiplication factors through which the effective
cost to the project of a variation can be determined for a price in real 2011 money.
These costs are based on approximate inflation and discount rates (as actual rates
are strictly commercially confidential and cannot be shared). Where the value XXX is
shown the actual figure has been redacted for confidentiality reasons.
As the results of any financial impacts will be inexact, guidance from the project
commercial team should be sought through the Project Decision process when
comparing options where analysis of financial impact shows both:
a) An impact to the project of greater than 1 million (between different options).
b) Less than a 50% distinction in cost/benefit when considering the two most
attractive options.

3.1 Capital Costs

The value of variations in capital cost (in 2011 real money) should be multiplied by
XXX to determine the effective cost to the project.
3.2 Fixed Operating Cost
The value of any variation in fixed operating cost per calendar year (in 2011 real
money) should be multiplied by XXX to determine the effective cost to the project.
Where fixed annual costs will vary significantly over the life of the project (other than
with inflation), please contact the project commercial team for further guidance.
3.3 Variable Operating Cost
The value of any loss (or gain) in variation in efficiency (in %) should be multiplied by
XXX /% to obtain an effective cost (or benefit) to the project. On an 800MW unit,
Kingsnorth CCS Demonstration Project
The information contained in this document (the Information) is provided in good faith.
E.ON UK plc, its subcontractors, subsidiaries, affiliates, employees, advisers, and the Department of Energy and Climate Change (DECC)
make no representation or warranty as to the accuracy, reliability or completeness of the Information and neither E.ON UK plc nor any of its
subcontractors, subsidiaries, affiliates, employees, advisers or DECC shall have any liability whatsoever for any direct or indirect loss
howsoever arising from the use of the Information by any party.
 KCP-EUK-COM-DPR-0001
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Project Title: Kingsnorth Carbon Capture & Storage Project Page 4 of 4

Document Title: Economic and Commercial Definitions Philosophy

this equates to a XXX /kW multiplier for any increase or decrease in net electrical
power generated by the plant.
The value of any loss (or gain) in direct (non fuel or carbon) variable cost in /MWh
should be multiplied by XXX MWh to obtain an effective cost (or benefit) to the
project.
As the effect of any (significant) changes in start up or load variation costs is
particularly complex, the project commercial team should be consulted where it is
necessary to understand the financial impact of any given option.

4. Mandatory References

None.

5. Supporting References

Project Decision process

Kingsnorth CCS Demonstration Project

The information contained in this document (the Information) is provided in good faith.
E.ON UK plc, its subcontractors, subsidiaries, affiliates, employees, advisers, and the Department of Energy and Climate Change (DECC)
make no representation or warranty as to the accuracy, reliability or completeness of the Information and neither E.ON UK plc nor any of its
subcontractors, subsidiaries, affiliates, employees, advisers or DECC shall have any liability whatsoever for any direct or indirect loss
howsoever arising from the use of the Information by any party.