Economics of Carbon Capture and Storage (CCS) for coal plants: Impact of investment costs and efficiency on market diffusion in Europe

http://dx.doi.org/10.1016/j.eneco.2011.07.030

Abstract:In this paper, we analyze how the development of the carbon capture and storage (CCS) technology used in coal-fired power plants affects its market diffusion. Specifically, we (1) show the significant variance in expectations about the economics of commercial-grade CCS hard coal power plants observed in the literature; (2) analyze the impact of CCS economics on electricity generation costs; and (3) investigate the expected deployment of CCS in the European power sector, depending on the variance of two main factors, efficiency and investment cost, using the bottom-up electricity sector model HECTOR. Simulation results show that investment costs strongly influence the market deployment of coal-fired CCS power plants, leading to a share of 16% in European generation capacity by 2025 with the lowest observed investment costs of 1400 €/kW, but only 2% with the highest of 3000 €/kW. A variation of conversion efficiency between 37% and 44%, the minimum and maximum observed values, only leads to a 13–15% share variation of CCS-equipped power plants. These findings are robust for the Base Case with a CO₂ price of 43 €/t and also for sensitivities with 30 and 20 €/t CO₂, but with a lower effect, as the overall share of CCS is significantly reduced at these prices.

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Highlights

► Model-based study of prospects of CCS for coal power plants in 19 European countries.
► Investment cost strongly affect deployment, while efficiency only has a modest impact.
► Lowest (highest) investment cost observed lead to total CCS share of 16% (2%) by 2025.
► Highest (lowest) conversion efficiency observed results in CCS share of 15% (13%).
► Findings are robust for various CO2 price and fuel price developments.

Fig. 2. Installed total generation capacity development across all model regions, Base Case.

Fig. 3. Share of European CCS capacity in 2025 (in %) as a function of specific investment costs.

by Richard Lohwasser and Reinhard Madlener both of the Institute for Future Energy Consumer Needs and Behavior (FCN), School of Business and Economics/E.ON Energy Research Center, RWTH Aachen University, Mathieustrasse 6, 52074 Aachen, Germany; Tel.: + 49 89 5594 3190; fax: + 49 89 5594 3191.

Energy Economics

Volume 34, Issue 3; May, 2012; Pages 850–863 

Keywords: Electricity market;Simulation model; CCS; Power generation; Technology adoption