The Capture-Committed Power Plant

Deck: 

Moving coal forward requires a clear path to CCS.

Fortnightly Magazine - December 2008

Researchers are developing carbon capture and storage (CCS) technology as a means of reducing CO2 emissions from coal-fired power plants and other large stationary sources. CCS isn’t yet commercially viable for coal-fired power plants, but some coal-plant developers claim their plants are capture ready; that is, these plants can be retrofitted to implement CCS at a later date when it’s commercially viable. This claim has created a controversy about what it means to be capture ready and whether being capture ready is an adequate approach to mitigating CO2 emissions. The capture-committed power plant is an alternative to the capture-ready concept that should resolve some of the controversy.

CCS Viability

CCS is a system with three basic components: capture from the source, transport of the CO2 from the source to a geologic reservoir and storage in that reservoir. Each component of CCS has been used commercially for decades, usually independently, for purposes other than CCS. CO2 is captured, for example, from various high-purity sources (such as chemical plants) for sale and reuse in the food industry, in oil production and in greenhouses. Pipeline networks for long-distance transport of the CO2 are in commercial operation in several countries and CO2 is injected deep underground into depleting oil fields for enhanced oil recovery (EOR).

Widespread use of CCS for power generation requires combining the three components of CCS into an integrated system; cost-effectively capturing CO2 from low-purity, low pressure, power-plant sources; injecting CO2 into new types of geologic reservoirs, notably deep saline formations; and vastly increasing the scale of use of CCS, both in individual facilities and in total. These technical issues require work to resolve, but no insurmountable technical barriers exist and many paths to their solution are being explored. The expectation is that these issues will be resolved over the coming decade.

Coal-fired power plants with CCS could be built today. Indeed, several pilot projects are already in operation and full- scale demonstration projects are under construction or planned around the world (see Sidebar, “CCS In the Works.”) CCS, however, is not yet an economic option for most commercial power- generation facilities for three reasons.

First, CCS needs further development to address technical issues, to identify and refine the best technologies, to reduce costs (especially of capture), and to demonstrate storage under diverse geological conditions. Second, the legal-regulatory framework for CCS is not yet in place, particularly as it relates to CO2 injection and undefined long-term liability for CO2 storage. And third, the economic value placed on reducing CO2 emissions (for example, in CO2 emissions-trading systems) is too low for plant developers to earn an adequate return without a higher-value market for the CO2 such as EOR or industrial reuse.

A developer building a power plant with CCS today would be faced with a plant that would be uneconomic due to capital and operating costs higher than competitors, as well as an uncertain permitting path and undefined long-term liabilities. Moreover, the capture portion of the plant could well be rendered obsolete by technical progress by the time CCS is more broadly commercial.

All these barriers are expected to fall as CCS advances, applicable regulations are promulgated, and CO2 emissions limitations are imposed or tightened. Over the last decade, considerable progress has been made on the technical front. Extensive and growing research, development and demonstration efforts are being devoted to CCS throughout the world and legal-regulatory frameworks are being defined.

A consensus is emerging among experts that, provided adequate resources are put into its development, CCS will become commercially viable for power generation by about 2020.1

Capture-Ready Power

The United States and many other countries face a dilemma: New coal-fired baseload capacity is needed now, but CCS is not yet commercially viable to reduce the CO2 emissions that capacity would produce. If these plants were to be built without CCS—even with the higher efficiencies of ultra-supercritical power plants or integrated gasification combined cycle (IGCC)—their CO2 emissions could continue for the life of the plant, typically 40 or more years, a situation called “carbon lock-in.” The concept of the capture-ready power plant was formulated to overcome this dilemma. The idea is to build the plant initially without CCS, but to make provisions to retrofit the plant with CCS at a later date, when doing so becomes economically viable.

Figure 1

Capture-ready power plants first were proposed for developing countries where the financial and technical capabilities to implement CCS are less than in developed economies, but growth in coal-fired generation is greater.2,3 Early capture-ready concepts also focused on IGCC. More recently, the concept has been proposed for power plants in industrialized countries and has been expanded to include conventional coal and even natural gas plants. The European Commission, for example, has proposed a directive requiring that all new fossil- power plants be capture ready, that no fossil-power plant be authorized after January 1, 2015 unless 90 percent of its CO2 emissions are captured and stored, and that all fossil-power plants be retrofitted by 2025.4 The proposed regulatory framework in Canada mandates capture-ready plants in the coal and oil sands industries from 2012 and requires those plants to meet a CO2 emissions standard based on CCS by 2018.5 In the United States, developers of many of the recently-proposed coal plants have claimed their power plants are capture ready. State legislatures and utility regulators are considering various measures to enable needed coal-fired capacity to go forward while ensuring CCS is implemented. Solutions include financial incentives. In Virginia, for example, a legislative initiative provides that an enhanced rate of return be linked to a new clean- coal plant being “carbon-capture compatible.”

The design of a capture-ready power plant depends on the type and size of the plant being developed and the type of capture being considered (see Sidebar, “Carbon-Capture Options”). Capture readiness involves a range of technical options with varying costs. At a minimum, it means leaving space for the capture equipment and access to potential underground CO2 storage.

One issue for plant developers is pre-investment, that is, the amount of money that can be spent during the planning and construction of the original plant without capture. For the most part, this pre-investment involves over-sizing equipment and adding more stringent emission controls than originally needed. Analyses show that only relatively low levels of pre-investment financially are viable, but this depends upon the expectations of the cost of CO2 emissions (e.g., in an emissions-trading program) and how soon CCS would need to be implemented.6 Expectations for higher costs of CO2 emissions and nearer-term needs increase the value of pre-investment.

A number of studies have considered the modifications necessary to make a plant capture ready. Several definitions of “capture-ready” power plants have been proposed and these vary in specificity. Perhaps the best known definition is given in a study by the IEA Greenhouse Gas R&D Programme which, along with detailed design studies of several types of plants, developed a preliminary definition of capture readiness as a starting point for discussion:7

A CO2 capture-ready power plant is a plant which can include CO2 capture when the necessary regulatory or economic drivers are in place. The aim of building plants that are capture ready is to avoid the risk of “stranded assets” or “carbon lock in.”

Developers of capture-ready plants should take responsibility for ensuring that all known factors in their control that would prevent installation and operation of CO2 capture have been eliminated. These might include:

• A study of options for CO2 capture retrofit and potential pre-investments;
• Inclusion of sufficient space and access for the additional plant that would be required; and
• Identification of a reasonable route to CO2 storage.

Competent authorities involved in permitting power plants should be provided with sufficient information to judge whether the developer has met these criteria.

Figure 2

The questions of exactly what criteria should be met and what constitutes “sufficient information” remains open.

Readiness Isn’t Enough

Claims of the capture readiness of proposed new coal-fired power plants have met considerable skepticism. Many observers see capture readiness as a delaying tactic. They question whether the implied commitment to capture CO2 is real, or see capture- readiness proposals as evidence that CCS is not a viable option. In particular, they assert that plant developers make no clear commitment actually to install CCS at a specified later date, that financing of the CCS retrofit is not certain, and that what makes a plant capture ready may not be much at all.

Some argue that power plants should be required to implement storage immediately and that enough is already known to implement it.8 They argue that CCS is ready, but this argument is based primarily on an assessment of only the storage component of CCS.9 That argument, moreover, does nothing to address the very real technical, regulatory and financial hurdles currently facing power generators considering CCS.

The result of this skepticism is that proposed capture-ready coal plants face much the same opposition as other coal plants and many proposals for such plants have been abandoned. Given today’s concerns about climate change, claims that plants are capture ready might not be enough for many proposed plants to survive the permitting and regulatory process. In most cases, something more specific and certain is needed. Capture-committed power plants can fill that need by providing the additional assurance that regulators want.

A capture-committed power plant would be a new power plant that adequately has been demonstrated to be technically capable of, and financially committed to, implementing CCS at a specified later date. In order for proposed power plants to be considered capture committed, plant developers would be required to meet five criteria:

Make a substantial but affordable financial commitment to CCS from an early date;
Make a binding, legal commitment to implement capture by a date certain;
Demonstrate a clear technical path for each of the components of CCS;
Acquire all the necessary permits and rights to implement CCS; and
In states with integrated-resource planning, show how any reductions in net generation capacity or energy due to CCS would be made up for.

Meeting these criteria can provide confidence that CCS can and will be put into operation. Making the concept of capture-committed power plants a reality will require actions by state regulators and perhaps legislation at both the state and federal level, including mitigating some of the risks taken by the plant owner.

Capture-committed plants also would expedite the development of CCS because they would facilitate the development of designs, planning techniques and regulations for CCS. Such plants would be ideal platforms for future pilot and demonstration plants.

CCS Trust Fund

Assurance of CCS implementation requires a financially significant commitment by the plant developer. One way to obtain such a commitment would be for the plant developer to make a series of ongoing payments into a capture investment trust fund (CITF). (To the extent that legislation imposes costs on CO2 emissions prior to the capture date—for example, the need to purchase CO2 emissions allowances—the plant owner also would have to pay those costs.) The proceeds from the CITF only could be used by the plant developer for investments in CCS at the plant. The CITF would have an independent trustee and its governance would be subject to public regulation. Like any trust fund, the funds would be managed by a fiduciary third party, typically a commercial bank. The CITF would create a strong financial incentive to implement CCS because these monies would be forfeited if they were not invested as promised in CCS.

The plant owner would be required to make periodic (perhaps annual) payments into the CITF starting at an early date—final approval of the plant, the start of construction, or the start of plant operation without CCS. Payments into the CITF would be set such that, given the expected return on CITF investments, the money available would be adequate to fund a 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 CO2 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 to CCS. That technical path should address each of the components of CCS—capture, transport and storage.

Capture: At least one capture method that could be used for the plant should be identified and a preliminary design developed for capture using that method. At the most basic level for a pulverized coal plant, this means choosing between post-combustion and oxyfiring or, if possible, allowing for both. Given the uncertainties of technical development, flexible designs would be most useful. The design of the original as-built plant should include all necessary modifications to the original plant to ensure that the capture design can be implemented. In addition, a work plan for implementation that minimizes the plant’s down time for modifications should be developed.

Transport: Ideally, the plant would be sited directly above a useable storage formation. Where this would not be possible, the route from the plant to the storage site should be identified. In the vast majority of projects, CO2 is likely to need to be transported by pipeline. All permits and rights for this pipeline transport should be acquired.

Storage: For the storage component, a site should be identified with capacity adequate for the operational life of the facility. The storage site should also be proven to have effective trapping mechanisms with very low risk of leakage. This would require an up-front investment in geologic and geological engineering work including: review of available geologic information; seismic studies of the potential reservoir; and possibly, the drilling of test wells to verify seismic information.

Methods for estimating storage capacity and evaluating storage integrity have been developed and are being refined.13 They have reached a state of the art adequate to develop regulatory requirements for capture-committed plants. To the extent test wells are drilled, it might sometimes be most cost-effective if these could be designed in such a way that they could be used later as either injection or monitoring wells.

It’s important that the project developer not actually be required to implement CCS as originally designed, but rather meet a CCS performance standard at least equal to the commitment that was made. The technology and options for CCS likely will improve considerably between the time the plant is built and the time CCS actually is implemented. That, after all, is one of the reasons for having the capture-committed concept. In particular, the best capture option for the plant may well change due, for example, to an unforeseen breakthrough in one of the capture technologies under development. A better storage opportunity also may be found.

In addition to specifying a clear technical path to CCS, the capture-committed plant would acquire the necessary permits to operate the original plant without CCS, as well as the permits and rights for CO2 transport, injection and storage. This means acquiring at least options for the right to store CO2 from the owner of the subsurface rights involved, as well as options on the rights-of-way of any pipelines. If required, this provision should be drafted in such a way that it does not lead to speculators acquiring the rights of way in order to extract payments from plant owners, which potentially could increase the cost of CCS.

Retrofitting CCS will mean that a portion of the net electric capacity and generation that formerly was available to the grid from the plant no longer will be available because some of the thermal and electric output of the plant will need to be diverted to the capture process. With the further development of CCS, this lost capacity and generation is likely to be lessened, but it still will occur. The plant also might be offline for some period during retrofit, although this may be reduced with an initial design that minimizes the switchover time. In states with regulated wholesale power markets, regulated utilities will need to make this up. This means making a plan that can be implemented when necessary to replace lost energy and capacity. This plan, however, may be modified as capture technology evolves prior to implementation. It should be noted that the interests of both the plant developer and the public are aligned in minimizing this loss.

Finally, from the perspective of the power-plant developer, the capture commitment obviously creates the risks that, by the time CCS is to be implemented, the technology would not be commercially viable, the regulatory framework would not be in place, or the value of CO2 reductions would not be adequate. Adequate methods for mitigating these risks must be part of the legal-regulatory framework for capture-committed plants (see Figure 1). The objective isn’t to eliminate these risks, but rather to facilitate sharing them appropriately. Also, the plant developer will have the opportunity to earn a return on the power plant for at least several years prior to the implementation of capture. If the plant is project financed, that could be long enough to pay off a substantial portion of the project debt.

Making it Happen

Implementation of the capture-committed power-plant concept requires actions both to develop the basis for the capture-committed concept and to ensure broader progress on CCS.

Many of the actions necessary to develop the basis for capture-committed power plants lie within the authority of states, and others will be driven by the federal government.

First, policymakers must develop clear guidelines and requirements for capture-committed power plants. Potential plant developers need to know exactly what they need to demonstrate in order to have their plants be permitted and considered capture committed. This will, at a minimum, require action by state utility regulators and it also may require actions by environmental regulators and state legislatures depending on the state regulatory framework. All five of the criteria listed earlier for being capture committed should be addressed.

Second, the industry and its regulators will need to establish mechanisms to implement the CITF. A number of questions need to be answered. What is the total target funding to be reached? How much money should be put into the CITF each period? Who will manage the CITF? In what may it be invested? How should the proceeds from the CITF be spent? What if actual costs are different from estimates? What should be done with the funds if they are forfeited? How should non-financial assets be addressed? The answers may differ from state to state or even from plant to plant.

Third, industry and government researchers must conduct further work in the public domain to define the technical aspects of capture readiness in steam-cycle plants. It would be most helpful for plant designers to be able to create capture-committed designs with the flexibility to implement a wide range of the potential future capture options. Most of the work on capture readiness so far has focused on oxyfiring and amine post-combustion capture. Other post-combustion options must be explored, such as ammonia. Plants with cyclone systems are well suited for low-rank coals and may require somewhat different considerations for oxyfiring than pulverized coal plants. Some plant developers also might be considering fluidized bed combustion, which has the advantage of high fuel flexibility and the potential environmental benefit of being able to co-fire a high percentage of biomass. Yet, very little work has been done to address the retrofit of capture in either cyclone boiler or fluidized-bed combustion power plants. Cyclone boilers and fluidized-bed combustion are important where low-rank coals, biomass or waste fuels are to be used. Designs that minimize downtime during construction of the capture equipment also would be useful. Ideal designs would have connections to the prospective capture equipment already in place with all that is required being, in essence, to open the valves and test the system.

Fourth, lawmakers must ensure that plants with CCS receive financial benefits of any emissions-trading systems commensurate with their CO2 reductions. Emissions-trading systems have been designed by states and regions and have been proposed in the U.S. Congress. Plants that capture CO2 shouldn’t need to buy allowances for CO2 that is stored securely and verifiably.

Fifth, the industry must continue its progress in developing commercial CCS technologies. This progress is the sine qua non of assuring that the full benefits of capture commitments are realized by both the public and the plant developer. Research, development and demonstration of CCS must continue and accelerate to improve the effectiveness, efficiency and cost of CCS. Most important is the implementation of a fleet of multiple full-scale integrated CCS demonstration power plants that demonstrate a range of capture technologies and storage in diverse geologic reservoirs.14

Finally, policymakers will need to develop a complete legal and regulatory framework for CCS. Many issues must be addressed, and to a large extent, these require state actions. The Interstate Oil and Gas Compact Commission has developed a set of model regulations for CCS that can serve as a starting point for state action.15 The most significant federal regulatory responsibility with regard to CCS is the Environmental Protection Agency’s (EPA) Underground Injection Control (UIC) program, which governs underground injection wells. EPA has proposed UIC regulations that would apply to CCS and these can be expected at some point to move into final status.16

Coal-fired power generation will continue, even in a carbon-constrained future. To ensure this power generation doesn’t contribute to climate change, a bridge must be built over the gap between the current plants built without CCS and future plants that will be built from the start with CCS. Capture-ready plants have been proposed as that bridge, but that approach gives assurance that many deem inadequate that CCS will actually be implemented. Capture-committed plants can provide that needed assurance, and get the coal-fired power industry moving toward sustainable future.

 

Endnotes

1. See, for example, Energy Technology Perspectives, 2008, International Energy Agency, OECD/IEA, Paris, France, June 2008.

2. Price J., “Sequestration Ready Power Plants,” presentation to IEA Asia-Pacific Zero Emissions Technologies Conference, Gold Coast, Australia, February 2004.

3. “Clean Power,” NRDC’s China Clean Energy Project, Natural Resources Defense Council, December 2004: http://www.nrdc.org/air/energy/china/cleanpower.asp.

4. http://ec.europa.eu/environment/climat/ccs/eccp1_en.htm.

5. http://www.ec.gc.ca/doc/virage-corner/2008-03/pdf/541_eng.pdf.

6. Ram C., Sekar R.C., Parsons J.E., and Jacoby H.D., Future Carbon Regulations and Current Investments in Alternative Coal-Fired Plant Designs, MIT Joint Program on the Science and Policy of Global Change, 2005.

7. CO2 Capture Ready Plants, Technical Study, Report Number 2007/4, IEA Greenhouse Gas Programme.

8. Hawkins D.G., “CCS: Let’s Just Do It,” Presentation to the Sixth Annual Conference on Carbon Capture & Sequestration, Pittsburgh, May 2007.

9. Hawkins D.G. and Bachu S., “Deployment of large-scale CO2 geological storage: Do we know enough to start now?” GHGT-7, June 2006.

10. This concept is similar to a proposal that has been made for “capture options” for coal-fired power plants in China, but has the advantage over that proposal of ensuring the availability of financing of CCS and its implementation by a specified date. See Xi Liang, Gibbons J., Reiner D., “Financing Capture Ready Coal-Fired Power Plants by issuing Capture Options,” EPRG 0728 & CWPE 0761, December 2007.

11. Pena N. and Rubin E.J., “A Trust Fund Approach to Accelerating Deployment of CCS: Options and Considerations,” Coal Initiative Reports, White Paper Series, Pew Center on Global Climate Change, January 2008.

12. See http://www.coal21.com.au/Media/COALFUND11May.pdf.

13. The Carbon Sequestration Leadership Forum (CSLF) Technical Group has developed procedures for estimating storage capacity. The CSLF is an international initiative focused on the development of CCS. The governments of 21 countries and the European Commission are members of the CSLF. Information about these capacity storage estimation procedures can be found on the CSLF website. See the documents of the Task Force for Review and Identification of Standards for CO2 Storage Capacity Estimation at http://www.cslforum.org/taskforces.htm.

14 . Several independent studies have confirmed the need for such demonstrations. These include, notably, the European Commission’s Zero Emissions Platform and the experts convened by the IEA and Carbon Sequestration Leadership Forum to make recommendations to the G8 and the IEA.

15. Storage of Carbon Dioxide in Geologic Structures, A Legal and Regulatory Guide for States and Provinces, Interstate Oil and Gas Compact Commission, September 2007.

16. See http://www.epa.gov/OGWDW/uic/wells_sequestration.html.