1.5 Cost of CCS

1.5.1 What industries were modelled?

The modelling performed as part of this study provides decision makers with the opportunity to consider the cost of installing CCS to a range of large stationary emitters such as fossil-fuelled power generation, natural gas processing, cement, blast furnace steel and fertiliser production using a common set of metrics.

The economic modelling performed in this study is based on contemporary and comprehensive market based estimates across the CCS system as at March 31 2009. As in any form of economic modelling, caution needs to be exercised because factors such as the assumptions used in the model and the affect of a CCS project’s location on fuel costs, for example, can significantly affect it’s economics. The economics of a CCS project needs to be assessed on a case-by-case basis. The modelling did not consider the cost of offshore CO2 transport and storage but these are likely to be an order of magnitude greater than onshore CO2 transport and storage.

1.5.2 What happens to costs when CCS is included?

Using the USA Gulf Coast as a reference location, the analysis shows that the percentage increases in costs of production from the application of CCS, over non-CCS facilities, for power generation were:

CCS increases the cost of production because non-CCS facilities currently emit all of the CO2 they produce to the atmosphere without any financial penalty and do not incur any cost for greenhouse gas mitigation

  • integrated gasification combined cycle, IGCC (39 percent);
  • natural gas combined cycle, NGCC, (43 percent);
  • oxy-combustion (55 to 64 percent); and
  • supercritical pulverised coal (PC) technologies (75 to 78 percent).

The analysis shows that the percentage increases in costs of production from the application of CCS, over non-CCS facilities, for industrial processes were:

  • natural gas processing (1 percent);
  • fertiliser production (3-4 percent);
  • blast furnace steel production (15 to 22 percent); and
  • cement (36 to 48 percent).

The fact that the application of CCS increases the cost of production is unsurprising as non-CCS facilities currently emit all of the CO2 they produce to the atmosphere without any financial penalty and do not incur any cost for GHG mitigation.

The results also indicate that the costs of CCS are lowest for processes that have CO2 capture inherent in its design, such as natural gas processing and fertiliser production. This is significant as the cost of CO2 capture and compression for coal fired power plants in this analysis represented over 80 percent of the total integrated CCS costs.

1.5.3 How much does it cost to transport CO2?

While the cost of CO2 capture and compression generally represents the largest component of the CCS chain, at a project level, transport and storage costs could render a project uneconomic.

Increasing the volume transported by pipeline to greater than 10 Mtpa can cut 50 percent of costs

Sensitivity analysis showed that significant cost savings can be achieved through increasing the CO2 flow through a pipeline. Results from this model revealed that the cost to transport CO2 by a pipeline will be between $3 to $4 per tonne CO2. By combining CO2 emissions from three or more industrial plants, the CO2 flow can be increased to greater than 10 Mtpa leading to a cost of between $1 to $2 per tonne CO2. This represents a saving of approximately 50 percent.

1.5.4 How much does it cost to safely store CO2?

As experience in the oil and gas industry has shown, exploration activities can incur significant costs with no guarantee of reaching production targets. Analogously, for CO2 storage, significant investments could be made in finding and appraising a potential storage site only to learn that it is unsuitable. This is referred to as the finding cost. The finding costs are site specific.

In regards to storage, the initial site identification and characterisation costs represent a significant risk to projects and could cost between $15 million to $150 million. Finding costs of $150 million were considered the threshold before project proponents would abandon investigations into a storage site.

Initial site identification and characterisation costs represent a significant risk to projects and could cost between $25 million to $150 million

Based on the modelling performed, this uncertainty can increase storage costs from $3.50 per tonne of CO2 to $7.50 per tonne of CO2, depending on the number of sites needed to be investigated in order to locate a suitable storage option.

Reservoir properties, specifically permeability, impact the ease at which CO2 can be injected into the reservoir and the required number of injection wells. Reservoirs with high permeability can reduce storage costs by a factor of up to two to below $5 per tonne of CO2 over reservoirs with lower permeability.

1.5.5 What is the cost of CCS for power generation around the world?

The installed capital costs of CCS technologies for power generation were estimated for various regions around the world. Low labour rates in China and India resulted in installed capital costs of approximately 30 percent less than other regions surveyed.

Projects in China and India, all things remaining equal, could be developed at a significantly lower cost relative to where the majority of proposed CCS projects are currently located

This suggests that the cost of CCS projects in these regions could be significantly cheaper than in other regions of the world. Projects in these locations, all things remaining equal, could be developed at a significantly lower cost relative to where the majority of proposed CCS projects are currently located.

The levelised cost of electricity (LCOE) variation across the regions illustrates the importance of fuel costs on plant economics. The low cost of natural gas in Saudi Arabia led to the lowest LCOE in this study. The LCOE for the Europe Area is higher by almost 30 percent due to the higher cost of fuel and installed capital costs.

1.5.6 What other factors have increased CCS costs?

Construction costs for conventional power plants with well known and proven technologies have doubled between 2000 and mid-2008 (Cambridge Energy Research Associates, 2008). Therefore, the high cost of CCS was significantly influenced by the general rise in the cost of equipment and in constructing large infrastructure facilities without CCS over this period.

Construction costs for conventional power plants with well known and proven technologies have doubled between 2000 and mid-2008

1.5.7 What other cost issues need to be considered?

First-Of-A-Kind (FOAK) CCS plants inherently tend to have higher costs arising from greater risks in terms of finding and appraising a storage site, transport, financing, design integration and environmental licensing. In addition, the uncertainty surrounding the potential economic value of CO2 (that is, the future marginal cost of compliance with climate change regulations) has caused project proponents to be unable to identify potential long-term revenue streams. As a consequence, few CCS projects have been pursued without significant government financial incentives.

A number of project proponents in the Europe Area are pursuing offshore storage options and generally as a dependent arrangement with other parties. The costs of developing new storage sites offshore will be significantly higher than onshore options. As stated previously, finding and appraising suitable geologic reservoirs and constructing sub-sea pipelines to offshore storage locations is likely to be an order of magnitude more expensive compared to onshore options. Shipping CO2 may offer an alternative, however experience with this is very limited and it will also pose unique economic and logistical challenges.

The availability of existing transportation and storage infrastructure can play a key role in significantly reducing the costs of CCS deployment as the experience of EOR in North America has shown. The availability of skilled labour is the key “soft” infrastructure that can have a significant impact on CCS costs. However, the availability of skilled labour to plan, design, execute, construct and operate CCS projects is limited in many regions of the world.

The availability of existing transportation and storage infrastructure can play a key role in significantly reducing the costs of CCS deployment

1.5.8 Can the cost of CCS come down?

Yes. Costs can come down significantly but only through developing and widely deploying CCS projects so that the learnings can be used to optimise the designs of future CCS facilities.

This represents a classic catch-22 scenario. The only way costs can decrease is by installing a large number of CCS projects worldwide. However, the high cost of CCS is challenging project development.

CCS is in a catch-22 situation -the only way costs can decrease is by installing a large number of projects worldwide, however, the high cost of CCS is challenging project development

Davison and Thambimuthu (2009) suggest that the cost of electricity (COE) from CCS power plants based on current technologies has the potential to decrease 10 to 18 percent after 100 GW of capacity has been installed. This is supported by Rubin et al (2007) who showed that reductions in the capital costs of flue gas desulphurisation (FGD) units decreased approximately 40 percent over two decades from when it was first introduced into the USA power generation market. Furthermore, Rubin et al also showed that the global deployment of selective catalytic reduction (SCR) systems to power plants resulted in capital cost decreases of approximately 50 percent over two decades. These experiences show that costs will only decrease by developing and widely deploying CCS projects. As a result, the G8 objective is fundamental to cost reductions.

1.5.9 What is the estimated level of investment required to develop and deploy CCS technologies?

The energy revolution that must take place to enable deep cuts in CO2 emissions to atmosphere from CCS will not be cheap. The magnitude of this challenge is similar to investing in the entire infrastructure for the hydrocarbons industry developed over the past century in the next 40 years. To achieve this goal some estimates suggest $100 billion annually is required (Ernst and Young 2009).

Some estimates suggest $100 billion annually is required to develop CCS

1.5.10 How much is available to fund CCS projects?

Globally, approximately $17-20 billion is available through a range of government schemes and voluntary industry levies.

Globally, approximately $17-20 billion is available through a range of government schemes and the voluntary industry levies

1.5.11 What is the value of CO2 required to develop CCS projects?

The CO2 credit value was estimated in this study to guide decision-makers on the required value a unit of CO2 will need to be before owners of power utilities for example, will pursue the concept of CCS or alternatively, to purchase emissions credits.

For the USA Gulf Coast region the analysis shows that the oxyfuel combustion technology has the lowest CO2 credit value breakpoint at approximately $60/tonne of CO2. The lower costs for implementing CCS for oxyfuel combustion is related to eliminating solvent capture from the CO2 from the gas stream. However, while the model shows that this technology requires the lowest CO2 credit value, the commercial application of this technology for power generation is limited. Currently, the largest application of this technology for power generation is 30 megawatt electrical (MWe).

The CO2 credit value for IGCC technology is approximately $80/tonne. This is related to the higher capital costs of IGCC. For the supercritical pulverized coal technologies with post-combustion capture, the cost breakpoints are approximately $90/tonne of CO2. This is largely due to the greater auxiliary loads required to capture CO2 from a dilute gas stream.

The high CO2 credit value breakpoint, of approximately $112/tonne, for NGCC technology, is related to the lower CO2 emission intensity of natural gas and higher cycle efficiency compared to coal-fired technologies. The low CO2 emission intensity results in more electricity generation (in terms of MWh) for each tonne of CO2 emitted.