Issues in Finance and Economics, Current Status of ,

CCS International Projects

John KesselsUCD Earth Systems Institute DublinUCD, Earth Systems Institute, Dublin

2008

Introduction

What is the IEA Clean Coal Centre?What is the IEA Clean Coal Centre?Overview and future scenariosStatus of CCS projects internationallyEconomics of CCSHow does CCS compare with other energy technologies?technologies?Conclusions

Organisation

Organisation for Economic Cooperation and DevelopmentCooperation and Development

International Energy AgencyInternational Energy Agency

Implementing Agreements (40)g g ( )

Fuel cells, Motor fuels, Solar, Biofuels, Energy conservation, Wind power etc

IEA Clean Coal Centre

IEA Greenhouse Gas R&D Programme

Mission Statement

IEA CCC will provide a source of unbiased information on sustainable use of coal world-wide. Services will be delivered to governments and industry through

di d idirect advice, review reports,facilitation of R & D andprovision of networks

MEMBERS

JItaly JapanRep. of Korea UK

Spain

AustriaCanada

Germany• Kyoto Protocol signatories• Non-Kyoto signatories

Anglo Coal

USACEC

BRICC

y g• OECD Countries• Developing countries

(China, India, S. Africa, Brazil)

• GovernmentsESKOM

Netherlands Group

BG Group

ACIC

CANZ

Banpu • Governments• Industry – coal and power

and equipment

BHEL

p

Eletrobras

DPG

SuekSIG

Schlumberger

IEA CCC Current Situation

Non-Profit making organisation supported mainly by members subscriptionsmainly by members subscriptionsAnnual turnover around £1.8m (US $ 3.6m)Staff – 25Members – 23 members inc those in process Special Reports – 14 -16 every yearTechnical focus – coal fired power and Technical focus – coal fired power and environment

- Co-firing- Greenhouse towards zero emissions

Databases, AbstractsExpert AdviceExpert AdviceAd hoc consulting for members

Future Scenarios and the R l f C lRole of Coal

How much coal is left?How much coal is left?Where is it?What will be the energy demand?What will be the energy demand?What will be the growth in CO2emissions?What is the status of CCS?

GLOBAL CONTEXT FOR COAL

40% of the worlds power is generated from coal

Very often the coal is indigenous, often poor quality – affects efficienciesAbout than 10% of coal used is traded i i llinternationallyI.6 billion people have no access to electricityShortage of water for cooling in some regions –affects efficienciesChina and India beginning to dominate as global users, marginally interested in CCS

Global energy reserves 2005

Source: BP Statistical Review of World Energy 2006

WEO 2007 Reference Scenario: Scenario:

World Primary Energy Demand

141618

alent

141618

alent

Other renewablesBiomassHydro

101214

s of o

il equ

iva

101214

s of o

il equ

iva NuclearGasOilCoal

468

billio

n ton

nes

468

billio

n ton

nes

02

1980 1990 2000 2010 2020 2030

b

02

1980 1990 2000 2010 2020 2030

b

Global demand grows by more than half over the next quarter of a century, with coal use rising most in absolute terms

Average Annual Power Generation Capacity Additions, 2010 – 2050 p y ,

China up till 2020

Chinese Installed Coal Power Generation Capacity*

2007 US Coal

EIAProjected2020 US Coal

Capacity US CoalCapacity

Source: PennWell, Global Power Review, March 2006

*Does not include substantial Chinese construction of coal facilities (such as gasification) for other purposesor construction of other types of power generation or process industry facilities.

Si tt !Size matters!

Cumulative globally sequestered CO2

Weyburn (2000)Cumulative global need to sequester CO2

Sleipner (1996)

Fl 105 000 t d

Feed and emissions for a 1,000MW utility

Flue gas 105,000 tpd

CO2 22,500 tpd

SOx 72 tpd

NOx 70 tpd

Coal 10,000 tpdC l 10 000 d

Mercury 0.6 kgpdp

Water 50,000 tpdCoal 10,000 tpd

Water 50,000 tpd

Unit size, total capacity, age and operating efficiency range of operating coal-fired plants

worldwideo d de

As of 2004…~50% of the operating fleet - >25 years age, ≤300MWe unit sizep g y g , ≤>80% of the operating fleet – sub-critical unitsaverage operating efficiency ~28.4%, HHV, net Source: Battycharya, IEA 2008

CCS Demonstration Developments

• Currently only 4 full-scale CCS demo plants operating worldwide; none with a coal-fired power plant

• The number of major CCS efforts is growing…– Alberta, Canada: $2B funding

A t li AUD$3 400 illi G– Australia AUD$3-400 million, Gorgon – Establishing also a GHG Institute– Norway’s Gassnova UK CCS competitionNorway s Gassnova, UK CCS competition– US FutureGen– OPEC countries (UAE)( )

• …but finance and policy is slowing development down and the current economic climate will not help

The next decade is critical

The Good News

• Different CCS projects Different CCS projects are underway or planned globally

However ...F l fi d • Few coal-fired power plant projects are funded at large-scale

• A lot of uncertainty yabout full funding for proposed large projects

• UK has announced short list for its CCS tenderlist for its CCS tender

• USA redesigning Futuregen

T, 2

008

Sour

ce: M

IT

Pilot Plant: Cycles of learning

Hydrogen Power Abu Dhabi

Statoil’s CO2 projects

MongstadCO2 injection

capacity illi t /

7

Halten CO2

million tonnes/year

5

6

I S l h

Snøhvit LNG4

Sleipner

In Salah

2

3

p

1

2

Source: Statoil: 2007© IEA Clean Coal Centre www.iea-coal.org.uk

1996- 2004- 2007- 2011/12- 2014-

Development of IGCC by RWE Power

RWE Power will develop a zero-CO2 lignite-fired IGCC in Germany

Plant will be commissioned with CO2 transport and storage if market and regulatory conditions are appropriate

– Capacity: 450 MWgross, 360 MWnetgross net

– Net efficiency (target): 40 %

– CO2 storage: 2.6 million tonnes per year in depleted gas reservoir or saline aquifer

© IEA Clean Coal Centre www.iea-coal.org.uk

q

– Commissioning: 2014

What is the investment needed for CCS and how much

will it cost?

Reference Scenario:

Cumulative Investment in Energy-S l I f t t 2006 2030Supply Infrastructure, 2006-2030

Electricity53%Oil

Power generation

51%

49%

Refining

73%

22%

Exploration and development

Transmission and

24%

Biofuels

Otherg %

5%$5.4

trillion$11.6

trillion

distribution

Gas19%

Coal3%

1%

Exploration and development 55% Mining90%

$4.2 trillion

3%LNG chain

Transmission and distribution 37%

8%Shipping and ports10%

90%

Total investment = $21.9 trillion (in $2006)

Reference Scenario:

Cumulative Energy-Supply Investment in China 2006 2030Investment in China, 2006-2030

Ports

C l

Mining

Oil15%

Coal7%

Electricity74%

$3.7 trillionDistribution

Transmission

CTLRefining

Gas4%

15%Power generation

Transmission& distribution

Upstream

LNGUpstream

China needs to invest $3.7 trillion in energy supply infrastructure – three-quarters of which for the electricity sector

CCS component costs

CCS component Cost range

Capture from a power plant 15 75 US$/tCO net capturedCapture from a power plant 15 - 75 US$/tCO2 net captured

Capture from gas processing or ammonia production

5 - 55 US$/tCO2 net captured

Capture from other industrial sources 25 - 115 US$/tCO2 net captured

Transportation 1 - 8 US$/tCO2 transported per 250km

Geological storage 0.5 - 8 US$/tCO2 injected

Ocean storage 5 - 30 US$/tCO2 injected

Mineral carbonation 50 - 100 US$/tCO2 net mineralized

How much extra for CCS?

7.5

Cost of electricity, c/kWh

5.4

4.9

Extra cost for CO2capture

Cost for

FGDPower plant, excluding FGD

610 700 1000

Capital cost, M$

How much does CCS cost?

(Millions of 2006 U S dollars per 400 MW plant )

Per Plant Incremental Costs of CCS Based on New Plants Based on Plant

Retrofits

(Millions of 2006 U.S. dollars per ~400 MW plant )

Capital Costs

- Capture equipment $210 $250

N t it l $185 $360- Net capacity loss $185 $360

Plant O&M Costs $150 $150

Transport Storage; Admin $190 $190Transport, Storage; Admin. $190 $190

TOTAL (per plant) $735 $950

Source: Kuuskraa, 2007

CCS with carbon at Euro20/tE stim ated n ew -entrant costs for con ventional fo ssil-fuel pow er p lants an d C C S w ith carb on at E uro 20 /t G as p lan t w ith

100% carbon pu rchase

C oal P lan t L ign ite p lan t C C S

C apita l C ost €563 000 /M W €1 313 000/M W €1 650 000/M W €2 222 m mC apita l C ost €563 ,000 /M W €1,313 ,000/M W €1,650 ,000/M W €2.222 m mC apacity 1 ,000 M W 1 ,000 M W 1 ,000 M W 800 M W C ap ital O u tlay €563 €1 ,313m €1 ,650m €1 ,777m R equ ired retu rn (p re-tax)

9 .60% 9 .60% 9 .60% 9 .60%

F uel P rice €6 .2 /G j €2 .23 /G j €0 .7 /G j €2 .23 /G jj j j jE fficiency R ate 57% 47% 45% 35% G as P rice

€39.2 /M W h C oal P rice €17 .1 /M W h

L ign ite P rice €6M W h C oal P rice €22 .9 /M W h

F ixed operating costs

€12/kw €45/kw €45/kw €60/kw

V i b le €2 25 /M W h €2 25 /M W h €2 25 /M W h €3/M W hV ariab le operating costs

€2 .25 /M W h €2 .25 /M W h €2 .25 /M W h €3/M W h

C arbon P rice €20/tonne €20/tonne €20/tonne C arbon In tensity

0 .365 0 .75 0 .93 0

L oad facto r 1 st 7 .5T W h 7 .5T W h 7.5TW h20 yrs L oad facto r fo r rem ain ing 20 yrs

40% 40% 40%

A nnual outpu t fo r rem ain ing

3 .5T W h 3 .5T W h 3 .5TW h fo r rem ain ing 20 years P ow er p rice needed to earn requ ired retu rn

€57.6 /M W h €63.1 /M W h €58.9 /M W h €68.5M W h

Source: D eu tsche B ank 2007

Comparison of power generation costs for various technologiescosts for various technologies

490Power generation costs for newbuilds in €/MWh

120

140

160

Typical fluctuation margin depending oncapacity utilization and fuel price

Steam power plants IGCC-CCS Renewables

80

100

120

20

40

60

0

Nuclear

Lignit

e

Hard co

alGas

(CCGT)

Coal CCS

Gas C

CS

Hydro

Wind

onsh

oreW

ind of

fshore

Biomas

sPho

tovolt

aics

G W W P

Source: VGB (German Technical Association of Large Power Plant Operators), supplemented by CO2allowances costs of €20/t and plants with carbon capture

CCS Commercialization

• There are currently too few large scale demonstrations to accelerate deployment of CCS technologies

• This approach could result in risk of project failure • High profile failures concerning CCS projects will

result in a reluctance to invest in the deployment of CCS technologiesCCS technologies

• What is the path forward to rapid commercialisation of CCS?

• EU plans to have 12 demonstration plants built by 2015 and preparing a proposal for the end of the year to accelerate the use of CCS in the EU ETSyear to accelerate the use of CCS in the EU ETS

Options for Funding CCS

• Expand traditional “technology policy” options (tax credits, subsidies, etc.)p ( , , )

• Set new regulations requiring CCS (e.g., generator CO2 performance standards) (as in California CO2 stds)standards) (as in California CO2 stds)

• Adopt stringent cap-and-trade program w/ CCS bonus allowances and/or a tech fund (e g from auction oftech. fund (e.g., from auction of allowances)

• Use of 500,000 EUA to fund CCS demo projects in Europedemo projects in Europe

Challenges for investorsChallenges for investors

Environmental concernsEnvironmental concerns– Potential climate change regulation– Other potential emissions regulations– Water availability– Rate of return on investment

Unavailability of resources and rising

costs

Public perception– Opposition of Environmental NGOs

CCS finance issuesCCS finance issues

• Development of CCS regulatory frameworks is• Development of CCS regulatory frameworks is underway internationally in a number of regions.

• Several CCS projects underway in North p j yAmerica and future possibilities with the restructuring of FutureGen. Canada intends to have new coal fired plants• Canada intends to have new coal fired plants capture ready by 2018.

• Emissions trading scheme will not accelerate gdeployment of commercial CCS projects in the future and other incentives will be required.

Outcome of CCS finance meetings

• Quantifying the actual liability of CCS projects in• Quantifying the actual liability of CCS projects in dollar terms would assist and allow insurance companies a better means of assessing what underwriting is needed. Otherwise limited insurance on a 1-2 year revolving contract.

• Globally a lack of CCS information with the• Globally a lack of CCS information with the general public and within the financial sector

• Legal and environmental liability is an issue. Insurance companies have several models that could be applied to CCS.

Conclusions

• Clean coal technologies are key for a sustainable energy futuregy

• IEA and IPCC scenarios indicate that coal will dominate the power sector

• Difficult to prepare a strategy with regulatory uncertainty and this is likely to remain for the foreseeable future

• Economics of CCS are marginal and will require Government funding to support projects

Conclusions

• Currently CCS costs including transport and storage are around €35-70/tCO2 costs could drop with 2 ptechnology development to €25/35/tCO2

• Financial issues for investors include Government acceptance of longterm liabilit and a reg latoracceptance of longterm liability and a regulatory environment that is viable CCS otherwise there will be minimal investment in CCS projects

• Status of CCS projects is 4 existing projects, none with coal as yet. Global economic downturn will impact on existing proposed projects however it isimpact on existing proposed projects, however it is likely that several proposed projects will proceed in the UK, Canada, Germany and the USA

“All I’m saying is NOW is the time to develop the technology to deflect an asteroid”p gy

THE ENDTHANK YOU FOR LISTENINGTHANK YOU FOR LISTENING

IEA CCC www.iea-coal.org.uk+44 (0)20 8780 2111 (tel)+44 (0)20 8780 1746 (fax)+44 (0)20 8780 1746 (fax)

John Kessels john.kessels@iea-coal.org.uk