The winter of 2013-14 offered up a perfect storm of natural gas price spikes and threats to electric reliability. Expect more of the same.
The Capture-Committed Power Plant
Moving coal forward requires a clear path to CCS.
substantial portion of the capital cost of the CCS facilities. These payments, however, could not be so high as to endanger the plant’s financial viability. Returns on funds invested in the CITF would be reinvested. The CITF also would hold title to other contractual and physical assets as described below.
The CITF approach certainly would cost less and be less risky to the plant developer than immediate CCS implementation. The cost of CCS likely will decrease: The cost of a series of payments over a period of years would be lower on a present-value basis, and the CITF would earn a return. Whether the CITF would be less expensive than financing CCS at the time of its installation would depend on the return on CITF assets and the plant developer’s discount rate. In any event, the CITF would give assurance that CCS will be implemented, which would be its value to the public.
Investments by others in the CITF also could be allowed and would reduce the financial obligations of the plant developer. In return, these other investors would receive an equity share in the total plant commensurate with their investment and would earn returns proportionate to their investment. The plant owner would buy back the equity share in the plant at its prevailing market value at a specified date after CCS is implemented. Given the creation of a market for CO 2 allowances and a sufficiently tight cap, the market value of plants with CCS would be expected to be above that of the comparable conventional coal plants with which they would be competing. 10
As capture technology evolves during the period that the funds in the CITF accumulate, the initial funding estimate might be refined and the periodic payments adjusted. If CITF assets were less than the total required to implement CCS at the capture date, more capital could be raised through revenue bonds, a tax-advantaged financing technique often used for similar projects. If more funds than needed to implement CCS were to become available through the CITF, the excess would be returned to the plant developer.
Other trust funds for CCS have been proposed, but those have been for the purpose of funding a portfolio of demonstration projects, not individual commercial plants that would be capture committed. 11 Such a fund actually has been implemented by the Australian Coal Association, which will raise AU$1 billion for low-emission coal demonstration projects focusing on CCS over a 10-year period. 12
As part of the CITF structure, a date would be set by which time capture would be implemented at the CCS-committed plant. Penalties for breaking this commitment should be significant. At a minimum, all assets held in the CITF, including funds, permits and access rights, would be forfeited. Surrendered funds then would be used to make other investments in reducing greenhouse-gas emissions and the rights and physical assets held in the CITF would be sold to others contingent on a commitment by the others to utilize them.
A Clear Path
The plant developer would need to demonstrate a clear technical path