4.10 Overview of other key findings

For power generation, the economic assessment enables the key contributors to the LCOE to be identified, based on the facilities in the USA Gulf Coast region. This is shown in Figure 4-4.

Figure 4-4 Comparison of LCOE with CCS for reference facilities in the USA Gulf Coast

Figure 4-4 shows that across the integrated CCS system, the most significant contributor to the LCOE for power plants with CCS is CO2 capture and compression followed by transport and storage costs. The cost of capture and compression (including fuel) in this analysis is greater than 80 percent of integrated CCS costs, and this is within the range articulated in published literature.

Key findings in regard to the transport of CO2 by pipeline and storage costs are highlighted below.

4.10.1 Sensitivity Analysis

A range of sensitivity analyses were performed on the model. These included the impact of CO2 volumes on transport costs, the impact of finding costs on the economics of storage, regional costs on the LCOE for power generation and the CO2 value breakpoint. These are discussed below.

The economics of pipeline networks

Pipeline transportation of CO2 offers potential cost savings through combining the flow of CO2 from multiple sources into a single large diameter pipeline for delivery to a single storage site. In the reference cases, the CO2 flow through the pipelines was set to the CO2 generated by a single facility.

Pipeline transportation of CO2 offers potential cost savings through combing the flow of CO2 from multiple sources into a single, large diameter pipeline for delivery to a single storage site

For coal-fired power generation with CCS, the annual flow from the facilities is in the order of 4 Mtpa of CO2, resulting in a pipeline diameter of approximately 0.5 metres. Current pipeline construction allows for pipelines greater than one metre diameter to be constructed. Increasing the pipeline diameter by a factor of two allows for the pipeline flow to increase by a factor of four. Therefore, there is the potential for four stationary emitters to combine their captured CO2 into a single one meter pipeline for delivery to the storage site.

Figure 4-5 illustrates the cost savings achieved through increasing the CO2 flow through a pipeline. As illustrated in Figure 4-5, the cost to transport the CO2 from a single facility will be between $3 to $5 per tonne of CO2. Through combining three or more plants, the CO2 flow can be increased to greater than 10 Mtpa, leading to a cost of between $1 to $2 per tonne, a saving of approximately 50 percent or more.

Figure 4-5 Transportation cost savings resulting from increasing pipeline flow

Storage economics

For storage in saline aquifers or depleted oil and gas fields, several sites (as many as five or more assuming that limited data are available on each at the start of the study) may need to be characterised in order to identify a suitable site for CO2 injection and storage. To illustrate the impact of this on the CO2 storage cost, a sensitivity analysis was performed using storage costs ranging from $15 million to $150 million. The resulting impact on CO2 storage cost is illustrated in Figure 4-6.

Figure 4-6 Dependence of CO2 storage costs on initial site characterisation and identification costs

Figure 4-6 shows that initial site finding and characterisation costs represent a significant risk to projects. It can increase storage costs from $3.50 per tonne of CO2 to $ 7.50 per tonne of CO2, depending on the number of sites investigated.

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 two to below $5 per tonne of CO2 over reservoirs with lower permeability.

Regional cost

The economics of a project are strongly influenced by the location through variations in fuel costs and labour productivity rates. The costs of CCS in the regions (Australia and New Zealand, Asia, India, Europe, Middle East, Africa and the Americas) were compared to the USA Gulf Coast reference case through setting the labour and fuel costs to values that are typical for the countries or groups of countries in these regions. While this method accounts for the variability on the costs and economics, it does not take into account differences in plant configuration resulting from local conditions or available fuel.

The economics of a project are strongly influenced by the location through variations in fuel costs and labour productivity rates

The installed capital costs of CO2 capture infrastructure for the various regions are illustrated in Figure 4-7. The low labour rates in China and India result in an installed capital cost approximately 30 percent less than the other regions surveyed. The European area has the highest installed costs.

The LCOE variation across the regions illustrates the importance of fuel costs on plant economics as shown in Figure 4-8. The low cost of natural gas in Saudi Arabia leads to the lowest LCOE in this study. The LCOE for the European area is higher by almost 30 percent due to the high costs of fuel and installed capital costs.

The analysis shows that the relatively low cost of power generation with CCS in certain regions could catalyse deployment faster than other regions. However, critically, the competition in the electricity market and the regulatory climate for CCS in these respective regions are key factors that could limit this from occurring. For example, in areas with alternate low carbon footprint power generation options, such as hydroelectric, CCS technologies will have difficulty providing electricity at a lower cost. Similarly, CCS project proponents in regions without either appropriate policy frameworks to assign a value on CO2, or property rights for its transport and storage including long-term liabilities, could in practice defer investments in CCS or choose other alternative power generation methods.

Figure 4-7 Installed generation and capture equipment costs as a function of location

Figure 4-8 LCOE including CCS as a function of location

4.10.2 CO2 credit value breakpoint

Emissions of CO2 will impose a cost on future power generation systems as either a share price in a cap and trade system or as a CO2 tax. This CO2 credit value will be an input to be considered by owners and utilities in determining whether to pursue the installation of CCS technologies or alternatively purchase credits. The value of these credits will be driven by policy (CO2 emission reduction goals, CO2 removal efficiencies and CO2 emission limits/MWh), the makeup of the existing regional generation fleet, plans for fleet expansion and future electricity demand.

Below the breakpoint, project proponents and utility owners are likely to conclude that it is more economically favourable to operate the system without CCS, and pay for the emissions in the form of tax or purchased credits

The CO2 credit value breakpoint refers to the CO2 credit value, expressed as $/tonne of CO2 emitted. This has the potential to drive the economics in favour of systems with CCS over those without. Below the breakpoint, project proponents and utility owners are likely to conclude that it is more economically favourable to operate the system without CCS, and pay for the emissions in the form of a tax or purchased credits rather than building and operating a system with CCS.

Figure 4-9 illustrates the breakpoints for the major generation and capture technologies considered in this study.

Figure 4-9 CO2 credit value breakpoint for generation and capture technologies

Note: The LCOE includes capture, transport and storage costs

The oxyfuel combustion technologies have the lowest CO2 credit value breakpoint, approximately $60/tonne of CO2. This is related to eliminating solvent capture of CO2 from the gas stream. However, the largest oxyfuel combustion plant to date is 30 MWe, and therefore, this technology is not considered demonstrated at a commercial scale for power generation.

The IGCC breakpoint, with respect to supercritical PC technology, is approximately $80/tonne of CO2. In addition to the required equipment and auxiliary loads for CCS, this cost is related to the higher capital costs of IGCC facilities.

For the supercritical technologies, the cost breakpoint is approximately $90/tonne of CO2. These are due to greater auxiliary loads required to capture CO2 from a dilute gas stream.

The high breakpoint for NGCC technology of approximately $112/tonne of CO2 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.

4.10.3 Cost reduction opportunities

There are several opportunities to reduce the cost of CCS. Technological breakthroughs could achieve significant reductions in capture and compression but may also reduce the cost of transport and storage. Several organisations have published R&D roadmaps for advanced coal power generation technologies that show pathways to achieving significant cost reductions through technological improvements.

Davison and Thambimuthu (2009) suggest that the 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. Rubin et al (2007) also shows that reductions in costs of technologies by learning-by-doing can be significant over time. Rubin et al’s study showed that the capital costs of new flue gas desulphurisation (FGD) units, when applied to power plants in the USA in 1976, was $250/kilowatt (kW), in 1997 dollars. As the technology became widely applied, experiences in installation and operation saw the cost fall to less than $150/kW in 1995 (approximately 40 percent reduction). Furthermore, in the case of the global deployment of selective catalytic reduction (SCR) systems to power plants, the capital cost of the first commercial installation in 1980 was $110/kW (in 1997 dollars). By the year 2000, the capital cost of SCRs had significantly decreased to less than $50/kW (in 1997 dollars). One of the key lessons from these studies for CCS technologies is that significant cost reductions can be achieved only when CCS plants are built and operating, and that these experiences are widely disseminated.

Significant cost reductions can only be achieved when CCS plants are built and operating, and that these experiences are widely disseminated

Furthermore, the US DOE has established a goal of reducing the cost of CCS technologies for coal combustion-based power plants using oxyfuel combustion or PCC. It has set a goal for these CCS power plants not to increase the COE by more than 30 percent compared to the cost of producing electricity from today’s non-CCS power plants. This will help facilitate and coordinate R&D and demonstration priorities that can develop technologies or processes at lower cost than what is available today.

Due to the immaturity of the global CO2 pipeline industry relative to the global oil and gas pipeline industry, there are also significant gaps in knowledge that require further research to increase safety and reduce costs. International research bodies including the Pipeline Research Council International (PRCI), the European Pipeline Research Group (EPRG), the Australian Pipeline Industry Association Research and Standards Committee (APIA RSC), the School of Marine Science & Technology at Newcastle University in the UK and Det Norske Veritas (DNV) are proposing research studies to address these areas of uncertainty. All of these institutions intend to cooperate and coordinate their programs to ensure that research is not duplicated and the results are shared.

Despite the clear value R&D can have in driving CCS technology breakthroughs, funding is a key issue

Despite the clear value that R&D can have in driving CCS technology breakthroughs, funding is a key issue. For example, R&D in CO2 capture and storage represented approximately 1 percent of the share of IEA member countries total public R&D expenditure in 2004 (Coal Industry Advisory Board, 2008).

The unanimous view of key CCS stakeholders is that cost reductions will only occur with the construction and operation of demonstration projects as proposed by the G8. The learning and know how gained from the construction and operation of these plants are essential to achieving overall cost reductions. However, although it appears that some government support is being planned for a number of CCS demonstration projects, funding of the full costs of undertaking these projects is yet to be established.

Evidence suggests that the economic benefits of an accelerated technology program for mitigating CO2 emissions from fossil fuel generation plants are substantial. A study for the Pew Centre (Kuuskraa 2007) stated that “with the experience gained from 30 demonstrations of CCS, the capital costs of wide scale implementation of CCS in fossil fuelled plants could be $80 to $100 billion lower than otherwise.” International agreements could also provide an enabling mechanism for additional sources of funding for CCS projects in developing countries.

4.10.4 Availability of infrastructure on CCS costs

The availability of existing transportation and storage infrastructure can play a key role in significantly reducing the costs of CCS deployment. While there is conjecture over whether EOR represents long-term storage of CO2, these projects currently inject CO2 sourced naturally or through industrial processes. The economics of these activities have benefited from the presence of existing CO2 transportation networks and storage options. Similarly, it is important to note that the industrial processes that have provided CO2 for EOR have had CO2 separation technologies inherent in their process design. This has also significantly reduced the overall cost of incorporating CCS.

The implication of this on the economics of future CCS projects, especially for fossil fuel power generation, is significant. The economic hurdle inherent in these FOAK plants could be overcome if they are located in regions that have, for example:

  • existing infrastructure such as pipeline networks;
  • identified and characterised storage sites;
  • access to coal supply; or
  • access to the electricity distribution network.

The availability of skilled labour is a key “soft” infrastructure that has a significant impact on CCS costs. Availability of skilled labour impacts the costs of CCS projects in that it is a key resource affecting the ability of proponents to plan, design, execute, construct and operate CCS projects. In some regions of the world, competition for skilled labour with experience in these fields is limited. While these skills can be drawn from existing companies in the oil, gas and engineering and project management professions, competition from other industries could limit their availability to be applied to CCS projects.

Availability of skilled labour impacts the costs of CCS projects in that it is a key resource affecting the ability of proponents to plan, design, execute, construct and operate CCS projects

As an example, in Queensland, Australia there are at present seven proposed coal seam gas (CSG) to LNG projects. The scheduled timeframes for proponents to make financial investment decisions are within the next five years which is commensurate with the G8 schedule. It is estimated that if all of these projects proceed to the Execute stage, in excess of 15,000 highly skilled jobs could be created, placing a significant strain on the availability of labour for CCS projects in the country. This could cause CCS project proponents to delay their commitments to commercial scale, integrated CCS projects and put at risk the delivery of these projects within the G8 timeframe.

4.10.5 Conclusions

This analysis shows that the installation of CCS inherently increases the cost of production for power generation facilities and a range of industrial applications. This cost increase is unsurprising as existing facilities currently emit CO2 into the atmosphere without any financial penalties.

It is important to consider the economics of CCS projects on a case by case basis. Factors such as fuel, labour, productivity and distance to suitable storage sites all affect the economics of a project.

All things remaining equal, the cost of installing CCS for power generation in China and India is approximately 30% lower relative to the USA Gulf Coast. This implies that the economic barriers to deploying CCS projects in these countries may be relatively easier to overcome.

The study also shows that significant economies of scale can be achieved through the transport and storage of large volumes of CO2.