[ 2 0 1 6 I E A G H G C C S S u m m e r S c h o o l ]

T h e C o s t s a n d E c o n o m i c s o f C C S

P e t e r Ve r s t e e g G e n e r a t i o n P l a n n e r

J u l y 1 9 , 2 0 1 6

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Objectives of this Presentation

• Provide an overview of the costs and economics of CO2 capture and storage at electric power plants

• Discuss different measures and methodologies of CCS cost estimates

• Provide context for CCS cost estimates in general, so that audiences can be more informed about the costs of CO2 emission mitigation options

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Background - Large CO2 Emissions Reductions are Required

The RCP2.6 scenario likely keeps warming below 2°C

IPCC, Climate Change 2014: Synthesis Report.

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Background - Large CO2 Emissions Reductions are Required

IPCC, Climate Change 2014: Synthesis Report.

Plume indicates warming in 2100 from a range of models, ellipses indicate warming from one particular climate model

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Boundary Dam CCS Plant

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Boundary Dam CCS Plant

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Boundary Dam CCS Plant

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Key Elements of CCS Today

• An important technology for reducing CO2 emissions, and it has been demonstrated on many anthropogenic CO2 sources, examples include • A power plant: Boundary Dam 3 • An industrial facility: Quest Scotford Upgrader

• General agreement that this is currently a relatively

high cost technology • Government support and / or EOR revenues are

required in the business case • But the CO2 emission reductions are real

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Why are CCS Cost Estimates Important?

Rubin et al, 2015, citing Herzog, 2011

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Audiences and Purposes for CCS Costs

“…the diverse set of audiences and purposes for CCS cost estimates means that different audiences use, provide, and evaluate information from different perspectives and with different objectives and metrics. Because of such differences, cost estimates for CCS must be examined and interpreted with care. While a common language and methodology for costing, together with transparency of methods and assumptions, are critical to the proper assessment of CCS costs, such standardization is often lacking in CCS cost studies. Awareness of such factors is critical to understanding (and correcting for) differences in reported CCS costs.” -Rubin et al., 2015

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Fundamentals of Building a CCS Cost Estimate

• Define the plant as well as the assumptions that are behind the cost estimate

• Assemble the components of a cost estimate • Construct a series of cash flows that are

representative of the costs (and potential revenues) incurred in the project.

• Calculate the relevant cost metric required • Relate to relevant costing methodologies and values

in the literature

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Defining the Plant and the Cost Assumptions

• Plant • Location, type, fuel, plant size, flue gas composition,

combustion controls including the type of CCS system, water and solids management, operating philosophy

• Costs • Year costs reported, constant or current dollars,

discount rate (required returns on debt and equity, debt equity ratio), escalations (fuel, labor), project book life, first-of-a-kind vs. nth-of-a-kind considerations, taxes

• Inclusion of exclusion of specific capital, O&M, owners costs, fees, contingencies (may depend on technological maturity)

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Some Components of CCS Costs

• Capital (engineering, equipment, labor) • Base plant costs (new vs. retrofit) • Flue gas clean up costs (NOx, particulate, SO2 systems) • CO2 capture area costs (absorbers, tanks, piping,

foundation, BOP) • Cooling system costs (cooling tower, piping) • CO2 compression costs (compressor, drying CO2 pipeline) • CO2 injection costs (drilling, wells) • Land, permitting costs, QC, project and process

contingencies • O&M

• Variable including fuel (coal, natural gas), steam, amine, maintenance

• Fixed including administration, overhead, insurance, taxes • Other costs including owners costs, financing, public

engagement • Commissioning, decommissioning

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Factors Impacting Capital Costs

Site Specific First of a Kind Market Factors Design Features

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Sources of CCS Cost Estimates

• Some Options • Reported costs of real projects • Government studies • Academic literature / consultant reports • Modeling programs (Aspen Icarus®, Thermoflow®) • 0.6 scaling law from costs of other equipment

• But be careful, know what is included and what year

costs are being reported in

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A Data Source with a Relatively Detailed Cost Estimate of Power Plants with CCS

• A useful starting point

• Performance and costs for • PC plants with and without

CCS • NGCC plants with and

without CCS

• Good explanation of the methodology used and results

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A Detailed Explanation of the Cost Estimating Methodology Used

• Background and details on assumptions for performance and cost estimates

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2015 NETL Plant Assumptions (Example B11B)

Location Greenfield, Midwestern U.S. Elevation (ft) 0 Barometric Pressure, MPa (psia) 0.101 (14.696) Average Ambient Dry Bulb Temperature, °C (°F) 15 (59) Average Ambient Wet Bulb Temperature, °C (°F) 10.8 (51.5) Design Ambient Relative Humidity, % 60 Cooling Water Temperature, °C (°F) 15.6 (60) Plant Gross Output (MWe) 644 Nominal Net Plant Power Output (MWe) 550 Steam Cycle Subcritical Environmental Controls SCR, FF, Wet FGD, CCS Cooling Wet Cooling Tower Fuel Type Illinois No. 6 Fuel Heating Value, As Received (HHV, kJ/kg) 27,113 Capacity Factor (%) 85% …

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2015 NETL Financial Assumptions (Example B11B)

Cost Year and Type 2011 Constant Dollars Annual Inflation Rate N/A Real Escalation Rate 0% Labor Costs Midwest, Merit Shop Adequate Skilled Craft Labor Available Locally Labor Bonuses to Attract Workers No Additional Incentives Piling Requirement to Support Foundation Loads None - Soil Bearing Years of Construction 5 Plant Book Life 30 Years Fuel Cost (2011$/GJ) $2.78 Fuel Cost Escalation (%) 0% Capital Escalation During Construction (%) 0.6% Transport and Storage Costs ($/MWh) $10/MWh

Discount Rate 9.075% Percentage Debt 45% Percentage Equity 55% Real Bond Interest Rate 5.5% Real Stock Return 12% …

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2015 NETL Results

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How Were These Cost Metrics Calculated?

• Total overnight costs (TOC) • Sum of all plant equipment, material, labor, engineering,

overhead, contingencies, and owners costs

• Cost of electricity (COE) • COE is the revenue that the generator needs to meet the

required return on equity (12%) • COE escalates with inflation, but remains constant in real

terms over the life of the plant • Develop cash flows for the lifecycle of the project, including

construction and operation • Translate these varied cash flows into a single dollar year

using present value (PV) calculations to account for the time value of money

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Structuring a Net Present Value Calculation

• “For most financial decisions…costs and benefits occur at different points in time…In general, a dollar today is worth more than a dollar in 1 year… we call the difference in value between money today and money in the future the time value of money.”

Corporate Finance 3rd Edition by Berk and DeMarzo

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Structuring a Net Present Value Calculation

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Simplified Calculation of the Cost of Electricity Using Representative Values From the NETL Baseline

Report (Example B11B)

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A Quick Check: Add $133.38/MWh * 4,095,300 MWh/Year = $546,231,114 to the Revenue Column...

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Notes On This Calculation

• Distribution of overnight capital costs over the 5-Year Period: 10%, 30%, 25%, 20%, 15%

• Cash flows for capital costs include escalation 0.6% as well as interest equal to 5.5% (the interest rate) on 45% of the capital (the percentage of debt)

• T&S costs of $10/MWh are used as in the NETL report

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Relating to Other Relevant Cost Indicators in the Literature

• Levelized cost of electricity (LCOE) • Under some conditions, LCOE (based on the math) is COE -

Rubin 2013 • But other definitions, COE escalates at a nominal annual rate

equal to the general inflation rate while LCOE does not change in current dollars, and a levelization factor is needed to translate between the two - NETL 2015

• Cost of CO2 avoided • “…reflects the cost of reducing CO2 emissions to the

atmosphere while producing the same amount of product from a reference plant” - GCCSI

• “Directly comparable to a market price or tax on CO2 emissions” – Rubin et al., 2015

• Cost of CO2 captured • “The cost of CO2 captured refers to the system of cost for

capture, transport and storage” - GCCSI

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Alternate Calculations of LCOE

• Fixed charge factor = The fixed charge factor is calculated based on year by year carrying charges and a present worth factor according to the equation: FCF =[CC1*(1+i)-1+CC2*(1+i)-2 +...+CCn*(1+i)-n]/an where n is the book life of the plant, i is the interest rate, CC is the year by year carrying charges of the plant, and an is the present value worth factor for a uniform series. The year by year carrying charges are the sum of: (the return on debt, the return on equity, the payable income taxes, book depreciation, property taxes, and insurance)/the total plant cost (TPC). The value of an is calculated according to the following equation: an = [(1+i)n-1]/[i*(1+i)n] (EPRI, 1993).

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Calculations of Cost of CO2 Avoided

• Directly comparable to a market price or tax on CO2 emissions

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Calculations of Cost of CO2 Captured

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The IECM - A Useful Model for Getting You Get Started With Your Own Cost Estimates

• For many configurations of coal, natural gas, and IGCC plants

• User select the plant assumptions, IECM does the cost accounting and develops LCOE costs

• https://www.cmu.edu/epp/iecm/iecm_doc.html

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Examples - Technology Assessments

Lazard, 2015

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Examples - Projects with Site Specific Factors

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Potential Revenues from CO2 with Enhanced Oil Recovery

• $/MCF (1000 cubic feet) of CO2 vs oil price in $/bbl

• Contract prices for CO2 appears to be decreasing over time in this graph

• An engineer might estimate $1-2/MCF at $100/bbl based on past data.

• 1 metric tonne CO2 = 19.2 MCF CO2

• Therefore CO2 price might be in the range of $15-40 at an oil price of $100/bbl

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References

• IPCC, 2014: Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, R.K. Pachauri and L.A. Meyer (eds.)]. IPCC, Geneva, Switzerland, 151 pp.

• “The cost of CO2 capture and storage” by ES Rubin, JE Davidson and HJ Herzog in International Journal of Greenhouse Gas Control, Volume 40, September 2015, Pages 378-400

• Herzog, H., 2011. Audiences and uses for CCS cost estimates. Proceedings of the CCS Cost Workshop, 22-23 March 2011 (Paris, France), Global CCS Institute, Canberra Australia

• “Corporate Finance” J. Berk and P. DeMarzo, Pearson, 3rd Edition, 2013, 768 pages • http://www.cmu.edu/epp/iecm/rubin/PDF%20files/2011/Rubin_CCS%20cost%20methods%20

and%20measures_3-22-11.pdf • “4.5 Cost of CO2 avoided” Global CCS Institute (GCCSI)

https://hub.globalccsinstitute.com/publications/strategic-analysis-global-status-carbon-capture-storage-report-5/45-cost-co2-avoided

• “4.6 Cost of CO2 captured” Global CCS Institute (GCCSI) https://hub.globalccsinstitute.com/publications/strategic-analysis-global-status-carbon-capture-storage-report-5/46-cost-co2-captured

• “CO2 EOR – Quite a Story” http://www.co2conference.net/wp-content/uploads/2012/12/1.5-LuncheonKeynote-BradleyCO2Perspectives2011-CO2FloodingConf.pdf

Q u e s t i o n s ?

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