Baseload Coal Investment Decisions Under Uncertain Carbon Legislation

Transcription

1 Baseload Coal Investment Decisions Under Uncertain Carbon Legislation Joule Bergerson and Lester Lave 26 th USAEE/IAEE North American Conference September 27, 2006

2 Purpose of Work 1. To show how an engineering-economic analysis should be done for a utility that needs new capacity now. 2. To give insight to utility management on what should be their choice for the technology of a new coal plant, given their expectations about carbon regulation. 3. Give insight to DOE and society about the public vs. private decisions on a new coal plant. Insofar as the private decision differs from the public preference, what policy instruments would serve to get the private party to choose the optimal public decision? 2

3 If we are going to build a new coal plant should it be PC or IGCC? 1. Does increased stringency on pollutants (PM, SO 2, NOx, Hg) justify the higher costs of IGCC over PC? 2. How does potential future carbon legislation affect the investment decision? 3. Can the impact of uncertain carbon legislation be minimized? 3

4 IECM Software 4

5 Input to Model Coal Type: Illinois Coal no. 6 (3.25% Sulfur, 10,900 btu/lb) Cost of Capital: 10% Amortization Period: 30 years 5

6 Output From Model Private Cost ($/kwh) Total Capital O&M Cost Efficiency (% - HHV) PC Uncontrolled % PC Controlled % PC Controlled + CCS % IGCC Baseline % IGCC Controlled % IGCC Controlled + CCS % 6

7 1. Can Increased Stringency of Regulations for SO 2, PM, NOx, Hg Justify the Use of IGCC? 7

8 Sulfur Dioxide Emissions 0.05 SO2 Emissions (lb/kwh) PC Uncontrolled PC Controlled IGCC Baseline IGCC Fully Controlled 8

9 PM Emissions PM Emissions (lb/kwh) PC Uncontrolled PC Controlled IGCC Baseline IGCC Fully Controlled 9

10 NOx Emissions NOx Emissions (lb/kwh) PC Uncontrolled PC Controlled IGCC Baseline IGCC Fully Controlled 10

11 Pollutant Cost Index Emission Costs Pollution Cost Index SO 2 ($/ton) NOx ($/ton) PM ($/ton) Hg ($/lb) * 880 * 2600 ** 2800 *** * Current Price of Emission Credits ** Median Value of Social Cost Estimates *** Estimates of Control Costs 11

12 Cost of Electricty ($/kwh) Pollution Cost Index PC Controlled PC Uncontrolled IGCC Fully Controlled IGCC Baseline 12

13 2. How does this comparison change if a carbon tax is introduced? 13

14 Carbon Tax Introduced 0.12 Cost of Electricty ($/kwh) PC IGCC Carbon Tax ($/ton of CO 2 emitted) 14

15 Carbon Tax Introduced Cost of Electricty ($/kwh) PC PC w / 90% CCS IGCC IGCC w / 90% CCS Carbon Tax ($/ton of CO 2 emitted) 15

16 Timing of Carbon Tax 7 Thousands 6 5 IGCC w /CCS IGCC Discounted Total Plant Cost ($/kw-net) Discount Rate = 10% Carbon Tax = $50/ton of CO Year of Introduction of Carbon Tax (year from today i.e. 0 = present) 16

17 Timing of Carbon Tax 9 IGCC ($0/ton) IGCC w /CCS ($0/ton) Thousands Discounted Total Plant Cost ($/kw-net) IGCC ($29/ton) IGCC ($50/ton) IGCC ($100/ton) Discount Rate = 10% Carbon Tax = $/ton of CO Year of Introduction of Carbon Tax (year from today i.e. 0 = present) 17

18 2. How does this comparison change if a carbon tax is introduced? A carbon tax does not change the decision if CCS is not considered, i.e., PC controlled is cheaper than IGCC controlled for a pollution index up to 500 PC without CCS is cheapest for CO 2 tax <$29, IGCC with CCS is cheapest for higher priced CO 2. The earlier you believe the carbon tax will be imposed, the more likely you will build IGCC w/ccs (e.g. less than 10 years at $50/ton). If you expect a stringent CO 2 tax in the next decade, you should build the IGCC with CCS. 18

19 3. Can the impact of uncertain carbon legislation be minimized? 19

20 Capture Ready This can mean many things: Identification of sequestration site Allocate space for equipment at various levels Install and run Shift Reactors (partially or fully) Size for IGCC w/ccs Capture CO 2 but do not sequester Some combination of these activities 20

21 Other Options Considered IGCC IGCC w/ CCS IGCC w/ CCS retrofit IGCC w/ CCS retrofit and Pre-investment PC PC w/ CCS PC w/ CCS retrofit PC w/ CCS retrofit and Pre-investment 21

22 Thousands Discounted Total Plant Cost ($/kw-net) Private Costs IGCC Controlled IGCC w/ccs IGCC w/ccs Retrofit IGCC w/ccs Retrofit and Pre-investment PC Controlled PC w/ccs PC w/ccs Retrofit PC w/ccs Retrofit and Pre-investment 2 Carbon Tax = $100/ton of CO 2 Discount Rate = 10% Retrofit Penalty = 20% Year of Introduction of Carbon Tax (year from today i.e. 0 = present) 22

23 Private Costs 23

24 Increased Retrofit Penalty (50%) Thousands Discounted Cost of Electricity Capacity ($/kw-net) Carbon Tax = $100/ton of CO 2 Discount Rate = 10% Retrofit Penalty = 50% IGCC IGCC w/ccs IGCC w/ccs Retrofit IGCC w/ccs Retrofit and Pre-investment PC PC w/ccs PC w/retrofit PC w/retrofit and preinvestment Year of Introduction of Carbon Tax (year from today i.e. 0 = present) 24

25 Social Costs Thousands Discounted Total Plant Cost ($/kw-net) Carbon Tax = $100/ton of CO 2 Discount Rate = 3% Retrofit Penalty = 20% IGCC Controlled IGCC w/ccs IGCC w/ccs Retrofit IGCC w/ccs Retrofit and Pre-investment PC Controlled PC w/ccs PC w/ccs Retrofit PC w/ccs Retrofit and Pre-investment Year of Introduction of Carbon Tax (year from today i.e. 0 = present) 25

26 Regret 26

27 Conclusions Strict SO 2, NOx, PM, and Hg emission standards and/or high emissions prices do not justify the increased costs of the IGCC system The earlier and more strict you believe the carbon tax will be imposed, the more likely you will build IGCC w/ccs Higher discount rates make you less likely to build IGCC w/ccs The option to retrofit becomes more important with higher carbon tax Current assessment of capture ready makes only small difference and requires further analysis 27

28 Thank you Joule Bergerson Funding Statement 28