Seller's market prompts rethink on Nuon's Magnum contracting strategy

Visualisation of the plant

During the later stages of project development, market conditions have changed drastically. This has forced Nuon to revise its whole approach to the project and the contracting structure.

In particular quotations for the plant gasification plant sections have proved to be very high, rendering the total project as originally conceived not economically feasible for now.

Instead it has been decided to build the 3x400 MWe combined cycle units first, with a commercial operation date of 2011 – which is in line with the schedule originally planned for the plant.

These combined units would be initially run on natural gas only. However, Nuon remains committed to the multi-fuel concept, which envisages the plant running on gasified coal and secondary fuels (eg, biomass), as well as natural gas.

Therefore the Magnum plant will be built for eventual conversion to gasification. This means that the gas turbines will be designed to be capable of running on syngas.

Today's market conditions do not support coal gasification, but should market conditions turn positive for this technology Nuon plans to add the necessary equipment to convert to IGCC.

Meanwhile, Nuon is paving the way for the eventual adoption of carbon capture and storage by preparing for an extensive pre-combustion pilot plant test at Buggenum, its existing 253 MWe IGCC plant, operational since 1994.

Increased risk and a change of mindset

Changes in the market had led to an unacceptably high risk profile for the Magnum project as originally conceived. Quotations from suppliers were very high and came with a limited validity period, creating significant uncertainty about prices.

In addition longer delivery schedules for equipment and severe constraints in the construction industry introduced multiple potential critical paths in the time schedule.

Also, the lump sum turn-key (LTSK) approach for the coal gasification section is not supported in current seller's market conditions.

This is basically the reason why Nuon is now going for the phased execution of the project, with the combined cycle section to be commissioned in 2011, followed by the gasification section, depending on economic conditions.

Nuon has thus adapted its mindset in an effort to assure the success of the project. Several actions have been taken. In particular as the original LSTK approach is not supported by the potential suppliers the contracting is now based on a more open-book type of approach with revised estimates.

New business case

With Magnum now coming in at a higher price level than expected the business model has been adapted accordingly.

Nuon, for example, is now seeking to improve the business case by partnering with third parties and delivering syngas, CO2 and H2.

It is also considering equipping the plant from the outset with a partial CO2 capture installation and having more flexibility in delivered products.

Becoming part of the EU Flagship Programme for the demonstration of carbon capture and storage would be an additional argument for the immediate construction of the capture unit in parallel with the gasifiers.

Design modifications

In order to accommodate these business case modifications some aspects of the design of the plant also need to be changed. The following actions are being taken:

• The design basis is being reviewed and changes are being made to the original design.

• CO2 capture options are being examined.

• The power plant layout is being improved. And

• Consideration is being given to replacement of the proposed Sulfinol desulphurisation unit with a MDEA unit. This promises significant cost reduction and simplification by eliminating offgas recycle compressors.

The new phased approach

The timetable for the combined cycle units is still in line with the original schedule