2. Current situation for CCS in trading schemes

Transcription

1 The state of play of CCS 1. Brief Technology overview 2. Current situation for CCS in trading schemes 3. CCS in the marketplace Challenge CCS as a European silver bullet Interactions with the market some thoughts

2 CCS technology overview 3 methods of capture 3 types of store Pre-combustion Capture Oxy-combustion Capture Post-combustion Capture Non-potable salt water Unmineable coal Oil/gas fields

3 Carbon Capture The most expensive element of the chain Always involves separation of substances which are normally gaseous Three main classes of process use different separations but none are easy.

4 Conventional fossil fuel power plant Air Air Steam, CO 2 and depleted air Power plant Fuel

5 Pre-combustion Capture Air Air separation plant O 2 Gasification H 2 H2 burning CCGT Power plant Fuel Shift Reaction CO 2

6 IGCC plant Shell gasifier IGCC plant, Buggenum, Netherlands

7 Oxy-combustion Capture Air CO 2 from air 2 Air separation plant Fuel N 2 O 2 CO 2 recycle CO 2 Water Steam raising i boiler and power plant Or CCGT with CO2 recycle to turbine

8 Post-combustion Capture Air Conventional power plant CO2 removal from flue gas CO 2 Fuel

9 Transport and storage Significant additional costs:- Transport by large high pressure pipeline Significant economies of scale Booster compressors for longer distances Storage Set up and operational costs during injection Significant end of project costs for well abandonment and long term monitoring (would have to be recovered in pricing)

10 Commercial implications Cost of capture is about 1-3 USct/kWh, excluding storage $20-60/t CO 2 -avoided Add a few $/ton upwards for transport and storage Extra cost recovery is solely through value of GHG emission reduction credits (except where EOR is possible) Cost increase due to Larger capital charge (fixed cost) Up to 20% increase in fuel used (variable cost)

11 Power Generation Efficiency Efficiency, % LHV Postcomb IGCC slurry IGCC dry Oxyfuel Postcomb Oxyfuel Coal Natural gas Without capture With capture Source: IEA GHG studies

12 Efficiency Decrease due to for Capture Percentage points CO2 compression and purification 8 O2 production and power cycle impacts Shift conversion and related impacts Power for CO2 separation Steam for CO2 separation 0 Post- IGCC IGCC Oxyfuel Post- Oxyfuel comb slurry dry comb Coal Natural gas

13 US $/kw Capital Cost Post Fluor Post MHI IGCC slurry IGCC dry Oxyfuel Post Fluor Post MHI Oxyfuel Based on 1 US $/Euro Coal Without capture With capture Natural gas Source: IEA GHG studies

14 Status of Trading schemes Legality of storing CO 2 underground Acceptability (with respect to emissions trading)

15 International marine conventions These have presented the key legal issue to storage in offshore geological formations 2k key conventions London An international agreement OSPAR A regional agreement protecting The North Eastern Atlantic

16 Changes enabling CCS Both restricted subsea dumping of CO 2 Both have been amended in 2007 following negotiations However streams must consist overwhelmingly gy of CO 2 Nothing may be added for the purpose of disposal.

17 EU ETS CDM/JI Status off CCS in trading systems National emissions inventories Voluntary trading schemes

18 EU ETS Trading and CCS Directives in draft to enable CCS to be accepted for period Gradual shift from allocation to auction 20% of revenues from auction to promote emission reduction includes CCS For current period CCS has to be opted in (Article 24)

19 CCS under CDM/JI CCS not eligible ibl under CDM at present Significant opposition may stall further progress. A decision should be made at COP/MOP4 No sign yet of any realistic CCS/CDM projects to pioneer methodology development CCS does not yet appear to have been raised in the context t of JI Linking directive (2004/101/EC) would allow credits for CCS in CDM/JI to trade in the EU-ETSETS

20 National emissions inventories CCS is adequately covered in the 2006 IPCC guidelines on national emissions inventories Vol 2 chapter 5 These use of these revised guidelines is still technically open to further review based on experience accumulated with their use. I.e there is not yet any formal decision of the UNFCCC specifically accepting the revision.

21 Voluntary trading schemes Voluntary carbon standard (VCS) Does not either include or exclude CCS Does recognise the UNFCCC CDM (which currently excludes CCS) CDMGold standard d Sets a higher standard than the CDM Screens on project type, sustainability and additionality CCS would not be eligible.

22 CCX and affiliates Cap and trade CCS projects not yet tested in this market Offsets - CFI contract t rules available for Agricultural methane, Coal mine methane,landfill methane Agricultural soil carbon, Rangeland soil carbon management Forestry, Renewable energy, Ozone depleting substance destruction Other project types, to be approved on a project-by-project basis, may include: Energy efficiency and fuel switching Clean Development Mechanism (CDM) eligible projects

23 Is CCS a European silver bullet? Can an analogy be used to explore CCS in the marketplace? But first is CCS really like a silver bullet?

24 Large Reflect on alternatives for GHG emission reduction CCS Electricity from one 1GW power plant with 90 % capture saves emission equiv to = 900,000,000 watts Low energy light bulb Saving 30 watts Equivalent to replacing 30 million bulbs Small

25 CCS The European Silver Bullet? OR BIG GUN?

26 Comparisons with overall targets 1GW coal plant with CCS 7 million tpa CO 2 EU 27 plans 20% reduction by ,176 (2005) 4,496 (2020) 680 tpa Or 45 million tpa per year linear reduction rate Thus 1 plant a year would already give 15% of planned reductions

27 Comparison with EU-ETS ETS targets Current EU ETS allocation 2,038.6 million tpa. Recent prediction for ,850 million tons i.e a 9.25% reduction or 188 million tpa for 12 years or 15.6 million tpa each year Thus 2 one GW plants per year could give most of fthis reduction However growth of as much as 25% in fossil fuel energy production is predicted d.

28 Electricity generation growth But growth in production also has to be taken into account

29 81.4 million tons in total (Note this is EU-15 not EU-27)

30 Comparisons with EU country targets Compared to country allocations 1 GW coal CCS plant is of much greater significance allocations:- Mtpa 1GW CCS D % UK 246 3% NL % DK %

31 CCS Carbon capture and storage Conclusion CCS will be a big gun in the marketplace But faces stiff competition on price It is NOT a silver bullet It is an interim measure

32 Will CCS plants disrupt the market? Effects on carbon price? Effects on early CCS cash flows? Knock on effects on other reduction technologies? Renewables Energy efficiency Nuclear

33 Interactions with the market Decisions affected by the market A) Whether to build a CCS plant B) How to phase infrastructure C) How to operate in the real marketplace To capture or not to capture? Long term Short term

34 Whether to build Primarily a decision based on long term price of CO 2 emission certificates, power and projected demand. CO 2 certificate price tips balance between CCS or not. Once decision made difficult to stop once significant capital is spent.

35 Balance between: How to phase infrastructure Economies of scale Effects of upfront investment on cash flow Effects of large scale market entry on early returns

36 Cash flow pattern IEAGHG standard economic evaluation Cash flow multiple projects with large infrastructure No depression of market price Slower capacity build Longer lead time Cash flow multiple projects with large infrastructure with depression of market price Accelerating capacity build may not improve cash flow Loss of revenue due to depression of market price

37 Operating in the real marketplace Longer term CO 2 market Variable costs NOT overall costs determine optimum revenue once capital is invested. Marginal cost of CO 2 reduction much lower than economic decision i to build cost Provides good margin of assurance that once built operation in CCS mode will continue Continued CCS operation might be a target for legislative l protection. ti

38 Responses in the real marketplace Short term power market Power price varies hour to hour CCS has unlocked potential to deliver some peak power by turning capture off or down There may be a case for rapid CCS switch on capability

39 Power purchase prices UK 2007 Prices higher than 100/MWh Price /MWh Day S1 S9 S17 S25 S33 S Period (1-48)

40 Questions to consider Is it worth stopping capture during price peaks? Analysis required. Expected if COE premium is ~4 or more times the value of the CO 2 credits expressed as a reduction in cost of electricity. (eg for 1ct/kwh equivalent revenue >4ct/kwh premium required. Assumes 20% more power possible) Can capture be turned off for more power? Depends on chosen process. Pre- and Post- YES Oxy- YES with O2 storage However response speed may be an issue

41 CCS power plant interaction with peak prices What is the incentive to stop capture and deliver more power? Analysis of UK power prices since 2003 indicates small incentive to shutdown CCS at times of high price. Above 25Euro/ton there is almost no gain. Entry of CCS unlikely below this level of price Thus no competition foreseen with peak power providers unless CO2 price subsequently collapses

42 Effect of stopping CCS above threshold power price on gross revenues in % Loss Based on UK 2006 half hourly power prices Break even line % gain 1% gain CO2 price Euro/ton 4% gain 3% gain Power price threshold per MWh Assumes CO2 revenue during CCS is 700g/Kwh

43 Conclusions CCS will have a major impact in the market place Legal and regulatory obstacles particularly in the EU are being or have been removed It is up to the market to deliver the right price for CCS to happen Equally it is difficult to see how targets can be met in the short term without CCS