Powerfuel plc owns and operates the Hatfield Colliery in South Yorkshire through its subsidiary, Powerfuel Mining Ltd. The colliery has access to approximately 100 million tonnes of recoverable, indigenous coal. Powerfuel Power Ltd., a wholly owned subsidiary of Powerfuel plc, has been set up as a special purpose vehicle to build and operate a 900MW IGCC project with CCS using supplies of coal from the colliery.

On 9th December, 2009, the European Commission approved 15 energy projects, including six CCS projects, which will significantly contribute to the economic recovery of the EU. Five of the  six CCS projects, including the Hatfield IGCC project, will receive a grant of €180 million with the sixth project receiving €100 million. Hatfield is the only one of the six CCS projects that will use IGCC technology to capture CO2.

It is probable that the Hatfield IGCC project was successful because of the Commission’s appreciation of the project’s advanced state of development. The Hatfield IGCC project is arguably the leading major CCS project in the UK, if not the world. By September, 2009 it had already secured:-

• local planning permission
• s14 and s36 consents from the UK government
• a gasifier licence from Shell
• an abstraction licence from the Environment Agency
• a full FEED study, including cost estimates to a high level of accuracy, conducted by Jacobs Engineering
• a letter of intent with Air Products for the building, ownership and operation of an Air Separation Unit
• an electricity connection agreement with the National Grid
• an agreement with GE for the supply of key equipment
• an Operating and Maintenance Agreement with an experienced operator
• a Trading Services Agreement with an experienced trader
• a licence from UOP for acid gas removal
• a licence from Worley Parsons for sulphur removal
• a preferred EPC contractor for phase 1 construction (see below)
• a letter of intent with National Grid for the development of CO2 transport
• letters of intent for the development of CO2 storage
• a full range of commercial performance guarantees for all the relevant technologies to bankable standards

Site preparation work is already underway and construction of the plant is planned to take place in two phases. Completion of the first phase, the “syngas ready” CCGT island, will allow the plant to start operation on natural gas while the construction of the second phase, the coal gasification island complete with carbon capture, is still in progress. When the second phase is complete the Hatfield IGCC plant will capture up to 4.5m tonnes of CO2 per annum.

Financing of the project should be completed in 2010 and the project’s financial model is already well developed. It can handle different assumptions for the start of CCGT island and coal gasification island construction and operation as well as the changeover from natural gas fired operation to coal fired operation which results from these assumptions. It can incorporate different input assumptions for up to 3 different loan facilities and is fully flexible with respect to overall debt/equity ratio assumptions. It can also handle a variety of debt repayment arrangements including debt sculpturing.

As the project moves towards financial close it will be further developed to incorporate the full CCS financial support package that will be put in place to ensure that CCS becomes a reality in the UK. We believe, therefore, that when the Hatfield project achieves financial close it will be the definitive financial model for a UK based IGCC project with CCS and, because of the scale of the project, it will be well known to a very large number of lending banks and potential equity investors. As a result it will be our intention to offer the model to the next generation of developers of IGCC projects with CCS both in the UK and elsewhere.

The model is being audited on an ongoing basis by a major UK accounting firm acting on behalf of the lenders.

A link to a recent news item on Hatfield is provided below

http://news.bbc.co.uk/1/hi/programmes/newsnight/highlights/default.stm