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1. Introduction
2. Methodology & Assumption
3. Simulation Results
4. Investment & Operational Flexibilities
What does an investor care?
• Return (i.e. NPV, IRR or payback)
• Risks (incl. market, credit, operational, legal and regulatory)
• Investment opportunities
• Availability of financial resource (incl. cost of capital)
• Technical capacity
• Social cost and benefits
Where is the position of CCS projects on energy companies’ project opportunities dash board?
Invest, only if the ‘risk adjusted return’ > ‘marginal cost of capital’
Proposed Electricity Market Reform Measures
• Carbon price support
• Feed-in tariffs
• Capacity payments
• Emissions performance standard
Key Research Questions
• What is the impact of EMR on the economics of CO2
capture retrofit in a NGCC base load power plant (NOAK)?
• What is the benefit of capture readiness investment to avoid carbon lock-in (i.e. the value of a retrofitting option)?
2. Methodology & Assumptions
• Retrofit investment decision criteria
• Scenarios
• Assumptions
Three Decision Criteria in CO2
Capture Retrofit Investment
Overall Economies
• The base power plant with CO2 capture will generate positive operating cash flow.
Return of CO2 Capture Investment
• Investing in CO2 capture facilities could generate a satisfied risk-adjusted return.
Retrofit Timing
• Whether it is an optimal timing to exercise the retrofitting option is assessed at each decision node.
Methodology Highlight
Scenarios
• Scenario 0: Business-as-usual
• Scenario 1: £1/tCO2e on top of EU ETS price from 2013, 2020 £20/tCO2e floor price; £70/tCO2e in 2030
• Scenario 2: £1/tCO2e on top of EU ETS price from 2013, 2020 £30/tCO2e floor price; £70/tCO2e in 2030
• Scenario 3: £1/tCO2e on top of EU ETS price from 2013, 2020 £40/tCO2e floor price; £70/tCO2e in 2030
• Scenario 4: 2020 £40/tCO2e floor price; £70/tCO2e in 2030; with £2p/KWh premium feed-in tariff
Business-as-usual Simulated Carbon Price
Simulated Graph: drift = 8%, variance = 4%, reverting ratio = 0.2, 50 Trials
Scenario 1: £1/tCO2e on top of EU ETS price from 2013, £20/tCO2e floor price; £70/tCO2e in
2030
Simulated Graph: drift = 8%, variance = 4%, reverting ratio = 0.2, 50 Trials
Scenario 2: £1/tCO2e on top of EU ETS price from 2013, 2020 £30/tCO2e floor price;
£70/tCO2e in 2030
Simulated Graph: drift = 8%, variance = 4%, reverting ratio = 0.2, 50 Trials
Scenario 3: £1/tCO2e on top of EU ETS price from 2013, 2020 £40/tCO2e floor price;
£70/tCO2e in 2030
Simulated Graph: drift = 8%, variance = 4%, reverting ratio = 0.2, 50 Trials
Key AssumptionsRisk Free Rate 3%Base Plant Discount Rate 8%CCS Plant Discount Rate 12%Plant Operating Period 30 yearsAverage efficiency 59%Net Output 830 MWe (a retrofitable NGCC power plant)Average Load factor 85% 65% in the first year Base plant fixed capital cost 718.3 GBP/kW
Fuel Cost in 2011 22 GBP/MWh therm - GBM + Mean Reverting
Carbon Price in 2011 12 GBP/tCO2e - GBM + Mean Reverting
Wholesale Electricity Price in 2011 62 GBP/MWh - GBM + Mean Reverting Base plant non-fuel O&M cost 36000 GBP/MW/yearInsurance cost 6000 GBP/MW/yearCO2 Emission 0.38 tCO2e/MWhCapture ratio 90%CO2 capture plant extra capital cost for retrofit 378 GBP/kWCO2 capture plant extra fixed O&M 82000 GBP/MW/yearCO2 TSM Cost 6 GBP/per tonneEfficiency penalty 9%Average efficiency with CO2 capture 50%Net Output with CO2 capture 703 MweCO2 Captured 2.11 mill tCO2 paCO2 Emission after capture 0.045 tCO2e/MWh
Reference: Mott-MacDonald, 2010; IPCC, 2005; IEA GHG, 2005
3. Simulation Result
• Potential retrofit schedule
• Probability
• Option value
Distribution of Retrofit Probability
Probability of Retrofit in Lifetime
Retrofit Option Value
4. Flexibilities to Improve Return
• Upgradability (benefit from technology improvement)
• Solvent storage at peak load (potentially combined with capacity mechanism)
- the naturally oversized steam turbine in the retrofit case could possibly be reserve capacity
They are NOT investigated in this study.
Reference: Lucquiaud et al, 2011; Chalmers and Gibbins, 2007
Final Remark• Carbon floor price alone has little impact on the retrofitting
investment decision of a base load NGCC power plant
• The combination of carbon floor price and premium feed-in-tariff (or other possible incentives) would be necessary to improve the retrofit prospect
• CO2 Capture ready investment to keep the retrofitting option open has significant economic value
• Other investment or operational flexibilities (such as upgradability and solvent storage) should be assessed in CO2
capture retrofit investment appraisal
• Investors should also evaluate the cost evolution of other generation technologies
