Impact of CCS on the economics of coal-fired power plants. Why investment costs do and efficiency doesn't matter

Transcription

1 Impact of CCS on the economics of coal-fired power plants Why investment costs do and efficiency doesn't matter Richard Lohwasser*, Reinhard Madlener Institute for Future Energy Needs and Behavior (FCN) / Chair of Energy Economics and Management at RWTH Aachen University, Germany 10th IAEE European Conference, Vienna September 7 10, 2009 * External PhD. candidate and presenting author

2 Agenda Background and research objectives Expectations for CCS plant economics Simulation model Results Conclusions 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 2

3 Global warming and reducing greenhouse gas emissions is a major challenge with defined targets Steadily increasing emissions: Energy-related CO 2 emissions, Source: IEA World Energy Outlook 2008 Commitment to reduce greenhouse gas emissions: EU: -20% below 1990 level by 2020 USA: -17% below 2005 levels by 2020 CCS has the potential to contribute to GHG mitigation while: using fossil fuels, a major pillar of the energy mix in the future (IEA) relying on coal with supplies lasting for another 155 years (WCI) being independent of volatile wind or sunlight not relying on subsides given sufficiently high CO 2 prices 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 3

4 Classification and study focus Success factors for CCS / research fields: Technological feasibility Storage capacity Public acceptance Regulation Economics of CCS plants Investment costs Efficiency (thermal) Variable and fixed O&M* costs CO 2 capture ratio Technical lifetime Electricity market * Operation and maintenance Scope of presented research 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 4

5 The research questions analyze how the economics of coal-fired CCS power plants impact their market success Economics of CCS plants Investment costs Efficiency (thermal) Variable and fixed O&M costs CO 2 capture ratio Technical lifetime Research questions: 1. What are the expectations for the economics of CCS in coal-fired power plants? 2. How relevant are they for competitiveness of the new technology, measured in terms of installed capacity by 2025? Approach: 1. Literature review 2. Simulation model with sensitivities for individual economic factors 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 5

6 Agenda Background and research objectives Expectations for CCS plant economics Simulation model Results Conclusions 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 6

7 Desk research of published CCS economics as basis for study Max Avg Min Investment costs EUR/kW el Efficiency Percent, Net, LHV Fixed O&M EUR/MW el /year Variable O&M EUR/MWh Pilot Commercial 2950 Pilot Commercial Pilot Commercial Pilot Commercial Sep 2009 FCN, E.ON ERC/RWTH Aachen University 7 Further Focus analyzed of furtherin next analysis chapter

8 Agenda Background and research objectives Expectations for CCS plant economics Simulation model Results Conclusions 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 8

9 The HECTOR market simulation model analyzes relevance of investment costs and efficiency for market diffusion Economics of CCS plants CCS hard-coal plants are available for construction for the model at average values of literature review Sensitivity to investment costs (Range 1400 to 3000 EUR/kW) Scenario assumptions Scenario assumptions from EU commissions' DG-TREN "Trends to 2030" Outlook Coal price EUR/boe Gas price EUR/boe Demand growth 1.2% on avg. in EU-19 until 2030 CO 2 price development: 2010: 20 EUR/t 2020: 43 EUR/t 2030: 49 EUR/t EU renewables target of 20% by 2020 is achieved HECTOR Simulation model Hourly Electricity, CCS and Transmission Optimizer Simulates European electricity market until 2040 Endogenous modeling of CCS coal, traditional coal, gas and oil capacity Base case (Average efficiency and investment costs) Sensitivity to efficiency (Range 37 to 44%) 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 9

10 The model simulates European power supply and demand bottom-up to calculate hourly prices Model builds new plants if NPV >0 for an extended period of time Plants offer capacity at marginal production cost + opportunity cost + a market tightness uplift Input Model Output Hourly simulation: Power plants in 14 regions Fuel and CO 2 prices Transmission data Demand Capacity Investments Decentral production Plant bidding Residual demand Market clearance (obj. function) Repeated ~ x until 2040 Capacity investments and shutdowns Hourly price and production data Wind turbine production is calculated based on observed wind speeds CHP, biomass and solar is external input and, together with wind generation, subtracted from demand Supply and demand given regional constraints and export costs are matched by solving for minimum costs 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 10

11 Agenda Background and research objectives Expectations for CCS plant economics Simulation model Results Conclusions 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 11

12 Results: In the base case, CCS is steadily adopted and reaches 8% by 2025 and 14% by 2040 BASE CASE Total installed generation capacity in Europe [GW] % of generation capacity is CCS by 2025 Wind Biomass* Oil Gas CCS Coal Nuclear Hydro * incl. other renew Sep 2009 FCN, E.ON ERC/RWTH Aachen University 12

13 Results: Deployment of CCS hard coal technology in the market reacts highly sensitive towards investment costs 2025 INVESTMENT COST SENSITIVITY Share Ratio of CCS in European generation capacity % 10% 8% 6% 4% 2% 0% Base case Ø Hardly any CCS capacity with most pessimistic investment cost expectation Investment costs for CCS hard coal power plants EUR/kW 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 13

14 Results: The sensitivity of CCS plants is fairly consistent across all 14 considered model regions 2025 INVESTMENT COST SENSITIVITY Installed GW of ins talled capacity capacity [GW] Min Capex s cenario (1400 EUR/k W) Avg. Capex s cenario (1864 EUR/k W) Max Capex s cenario (3000 EUR/k W) Scenarioindependent CCS Coal* Gas/Oil CCS Coal Gas/Oil CCS Coal Gas/Oil Nuc RES** Belgium Czech Rep Denmark Finland/Norway/Sweden France Germany/A us tria/switzerland Greece Hungary Italy Netherlands Poland Slovakia Spain/Portugal UK * Coal capacity repres ents hard coal and lignite capacity not us ing CCS technology ** Renewable Energy Sources (RES): Wind, Biomas s, Hydro, Solar, Geothermal and other renewables Detailed in next pages 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 14

15 Results: Average and low investment costs cause early and steep CCS adoption until storage limitations are reached INVESTMENT COST SENSITIVITY CCS hard coal capacity in Germany, Austria and Switzerland [GW] Limited by CO 2 storage capacity EUR/t Inv. cost 1864 EUR/t Inv. cost 3000 EUR/t Inv. cost Sep 2009 FCN, E.ON ERC/RWTH Aachen University 15

16 Results: Large CCS hard coal deployment mainly displaces traditional hard coal plants in this region, but not gas plants Gas capacity in Germany, Austria and Switzerland [GW] EUR/t Inv. cost 1864 EUR/t Inv. cost 3000 EUR/t Inv. cost INVESTMENT COST SENSITIVITY 10 Traditional gas plants mainly unaffected by strong hard coal CCS deployment Regular hard coal capacity in Germany, Austria and Switzerland [GW] CCS mainly substitutes traditional coal capacity Sep 2009 FCN, E.ON ERC/RWTH Aachen University 16 Low investment cost case excluded as almost identical with avg. case

17 Results: CCS lowers utilization of traditional fossil plants; Gas plants are less affected as their costs are mainly variable 2025 BASE CASE Variable costs EUR/MWh Lignite Nuclear Gas/Oil Hard Coal CCS hard coal CCS is positioned ahead of traditional coal and gas plants and pushes them from base load towards mid merrit Renewables* * Hydro, Wind, Biomass, Solar, Tidal at average production capacity 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 17 Net available capacity GW

18 Results: Average investment costs reduce the wholesale electricity price by 13 EUR/MWh in 2025 INVESTMENT COST SENSITIVITY Average annual electricity price for the Germany/Austria/Switzerland region EUR/MWh Avg. Capex Invest. Max Capex Invest Sep 2009 FCN, E.ON ERC/RWTH Aachen University 18 Low investment cost case excluded as almost identical with avg. case

19 Results: CCS Deployment does not react sensitive towards thermal efficiency EFFICIENCY SENSITIVITY Share Ratio of CCS in European generation capacity % 10% 8% 6% 4% 2% 0% Base case Ø 37% 38% 39% 40% 41% 42% 43% 44% Efficiency (net, thermal) of CCS hard coal plants 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 19

20 Results: This is again consistent across all 14 considered model regions 2025 EFFICIENCY SENSITIVITY Installed GW of ins capacity talled capacity [GW] Min Eff. s cenario (37% Efficiency) Avg. Eff. s cenario (40% Efficiency) Max Eff. s cenario (44% Efficiency) Scenarioindependent CCS Coal* Gas/Oil CCS Coal Gas/Oil CCS Coal Gas/Oil Nuc RES** Belgium Czech Rep Denmark Finland/Norway/Sweden France Germany/A us tria/switzerland Greece Hungary Italy Netherlands Poland Slovakia Spain/Portugal UK * Coal capacity repres ents hard coal and lignite capacity not us ing CCS technology ** Renewable Energy Sources (RES): Wind, Biomas s, Hydro, Solar, Geothermal and other renewables 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 20

21 The first reason for the low sensitivity towards efficiency lies in the smaller cost portion addressed with CCS Costs of electricity generation (COE), base case assumptions* EUR/MWh 100% = EFFICIENCY SENSITIVITY Variable costs (affected by efficiency) Capital costs Fixed O&M Fuel costs CO2 allowance cost CO2 transport and storage 5 Variable O&M Sep 2009 FCN, E.ON ERC/RWTH Aachen University Traditional hard coal plant 77% * Except: Coal price 90 USD/t, 1.37 USD/EUR (historic averages at ARA), 40 EUR/t CO % CCS hard coal plant

22 The second reason is the robust position of CCS hard coal plants in the merit order curve 2025 BASE CASE Variable costs EUR/MWh Lignite Nuclear Gas/Oil Hard Coal CCS hard coal Large gap to next technology, therefore limited impact of efficiency changes Average electricity price in 2025: 54 EUR/MWh Renewables* * Hydro, Wind, Biomass, Solar, Tidal at average production capacity 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 22 Net available capacity GW CCS var. costs with 37% Eff. 40% Eff.

23 Agenda Background and research objectives Expectations for CCS plant economics Simulation model Results Conclusions 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 23

24 Conclusions Literature review shows commercial CCS plants expected to: cost about the same as current pilot technology with ~1800 EUR/kW have higher efficiency (from 33% to 40%) Model-based analysis shows CCS market success reacts very sensitive to investment costs: Whereas ~1800 EUR/kW lead to strong CCS adoption, 3000 EUR/kW practically forces CCS out of the market is fairly similar regardless of efficiency, as (1) the cost portion affected by efficiency is lower for CCS plants than traditional coal plants and (2) their robust position in the merit order curve CCS R&D should focus on reducing investment costs 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 24

25 Selected references Sources from CCS economics literature review: [1] Odenberger, M./Kjärstad, J./Johnsson, F (2008): Ramp-up of CO2 capture and storage within Europe, International Journal of Greenhouse Gas Control 2(4): [2] Martinsen, D./Linssen, J./Markewitz, P./Vögele, S. (2007): CCS: A future CO2 mitigation option for Germany? A bottom-up approach, Energy Policy 35(4): [3] Wise, M./Dooley, J. (2009): The value of post-combustion carbon dioxide capture and storage technologies in a world with uncertain greenhouse gas emissions constraints, International Journal of Greenhouse Gas Control 3(1): [4] Damen, K./Faaij, A./Turkenburg, W. (2009): Pathways towards large-scale implementation of CO2 capture and storage: A case study for the Netherlands, International Journal of Greenhouse Gas Control 3(2): [5] Johnson, T./Keith, D. (2004): Fossil electricity and CO2 sequestration: how natural gas prices, initial conditions and retrofits determine the cost of controlling CO2 emissions, Energy Policy 32(3): [6] IPCC (2005): Special Report on Carbon Dioxide Capture and Storage, IPCC, Bonn. [7] McKinsey (2008): Carbon Capture & Storage: Assessing the Economics, from: [8] MIT (2007): The Future of Coal, from: Sources related to the energy market model: [9] Lohwasser, R./Madlener, R. (2009): LHECCS electricity model, FCN working paper (forthcoming) [10] Grobbel, C. (1999): Competition in Electricity Generation in Germany and Neighboring Countries from a System Dynamics Perspective, Dissertation, TU Berlin [11] DG TREN, Directorate-General for Energy and Transport (2008): European energy and transport - Trends to 2030, Update European Communities, 1st Edition 9 Sep 2009 FCN, E.ON ERC/RWTH Aachen University 25