3.2 CCS costs and competitiveness

Adding CCS to any process increases capital costs as well as ongoing operating and maintenance costs. Inevitably, this increases the cost of the product resulting from that process, whether electricity or industrial outputs. Such cost increases arise from the role of CCS in significantly reducing CO2 emissions compared with what would otherwise be the case. Placing these cost increases in context, alternative methods of reducing or avoiding CO2 emissions are also generally more expensive than traditional electricity generation or industrial production processes. While there is often a focus on the additional costs of CCS, the appropriate comparison is with alternative means of significantly mitigating CO2 emissions, and on this basis CCS is a cost-competitive technology.

When applied to electricity generation, CCS has four main impacts on the cost structure for any project seeking to meet a given level of electricity demand:

  • additional capital expenditure associated with the CO2 capture and compression plants;
  • additional fuel costs for the energy used in the capture process;
  • additional capital expenditure to build a larger power plant (to ensure net power output is unchanged) in order to compensate for the energy used in the capture process (i.e. host plant compensation); and
  • additional operations and maintenance costs associated with both the larger plant and the capture and compression requirements.

The relative share of cost increases of these effects varies across the different capture technologies – post combustion, oxyfuel or IGCC – reflecting differences in the processes. However, regardless of the process, it is the capture facilities and the additional energy requirements as part of the capture process that have the largest impact on costs (Figure 26).

FIGURE 26 Cost impacts of adding CCS to a power station

Note: For a supercritical post-combustion plant based on Global CSS Institute and WorleyParsons (2011) data.

The cost of electricity production for any given technology is often described using levelised costs. The levelised cost of electricity (LCOE) represents the average price that an electricity generating plant would need to receive for each and every hour of operation over its entire economic life in order to recover all capital and operating costs, including receiving a competitive return on invested capital. Estimates for LCOE for the different capture technologies – post combustion, oxyfuel or IGCC – indicate an increase in costs over non-CCS power plants of around 40 per cent for gas fired power plants and more than 60 per cent for black coal plants (see Appendix D).

Although CCS increases the cost of production, assessing the cost effectiveness of abatement technologies is best done using a different cost metric. As climate change policy directly influences the level of CO2 and other GHG emissions, the cost-effectiveness of different technologies should be based on the cost of each technology’s ability to avoid or reduce those emissions. The cost of CO2 avoided identifies the cost of reducing emissions relative to the amount of fossil fuel emissions displaced, expressed in dollars per tonne of CO2.

Using the avoided cost of CO2 allows different technologies to be ranked on the basis of cost-efficient technology choices to reduce emissions in any given location. The metric can also be compared with carbon prices certain governments are implementing, or to prices generated in models of the various policies that can be implemented to reduce CO2 emissions, or even estimates of the costs of emitting CO2 that impinge on the community.

In 2011, the Global CCS Institute presented a comparison of low-carbon technologies (Global CCS Institute 2011c) in the electric power sector based on a review of technology cost studies by a number of agencies including the IEA, the IPCC, the US Energy Information Agency (EIA), WorleyParsons, the US National Energy Technology Laboratory (NETL) and US National Renewable Energy Laboratory. As these studies each use differing methodologies and assumptions regarding key economic and technology criteria, care was taken to compare the data on the same economic basis and similar resource quality.

There are technologies that have zero or negative avoided costs, such as conventional geothermal and hydropower plants among others. Negative avoided costs can occur if the cost of the low-carbon technology is less than the fossil fuel technology. The finite availability of wind and hydro resources limits their role in meeting emission targets and requires higher cost options of CCS, solar and nuclear technologies (Figure 27). CCS remains a cost-competitive technology alongside other large-scale abatement options in the power generation sector.

FIGURE 27 Costs of CO2 avoided

Source: Global CCS Insitute and WorleyParsons (2011).

Note: For all technologies except gas-fired CCS plants, the amount of CO avoided is relative to the emissions of a supercritical pulverised coal plant. For gas-fired CCS, the reference plant is an unabated combined cycle plant.