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A business perspective on CCCS - A Business Perspective on CCS.pdf


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									Booz & Company                             Copenhagen, 28 May 2009

A Business Perspective on CCS
Conference Presentation DTU Climate Change Technologies

Dr. Walter Wintersteller, Vice President and Partner

This document is confidential and is intended solely for
the use and information of the client to whom it is addressed.
From a business perspective, CCS faces a number of pertinent
                                          Key Issues facing CCS

                 What is the case for CCS?

                 How does it work?

                 What are the integrated economics?

                 What is its potential?

                 When is it coming available?

                 How green and safe will it be viewed?
                 What business model will be required?

                 What role is it ultimately going to play?

Booz & Company
Base load power generation with coal is responsible for significant
share of CO2 emissions, so clean coal is an attractive option
                                                       CO2 Emissions - Example Germany
                                                                     (2006 - Mio. t CO2)


                                    149                                                                                 10%


                                                                     63                             Lignite 52%
                                                                               64          332
                                                                                                                                35% Hard

           Total      Industry    Transport   House-   Agriculture   SME      Other   Electricity

Source: Booz & Company Analysis

Booz & Company
Renewables eventually face limitations and are intermittent ...

     Share of Renewables on Electricty Generation                       Availability wind power (%)
                                      (TWh)                                   (Statistical Values)
                                                         4158    Load
                                           3885                 100%
                                                  804    939
                               502          662
     Other       3316
 Renewables       184                                           80%
                  308          385          411   428    436


Conventional     2824         2847         2812   2795   2783



                 2006         2015         2020   2025   2030                 Time

Source: IEA WEO 2008; Booz & Company Analysis

Booz & Company
... requiring base load capacity in the merit order curve

                                                    Merit Order Curve

                                                    Base load                Demand Swing                  Comments

                            80                                                              Merit order curve system determines
   Variable Costs (€/MWh)

                                                                                            wholesale market prices and utilization of
                            70                                                              technologies
                                                                                            To achieve base load conditions with high
                                                                                            number load hours requires low variable
                                                                                            Generally mainly conventional thermal
                            40                                                              technologies available for base load power
                                                                                            – Nuclear
                            20                                                              – Coal (hard coal and lignite)
                                                                                            – Gas
                                                                                            Gas due to high variable costs rarely used
                             0                                                              as base load technology
                                  0         2.000          4.000     6.000          8.000

                                      Nuclear       Coal    CCGT   SCGT       Renewables

Booz & Company
CCS offers substantial promise in reducing the environmental
footprint while maintaining security of supply
                     Determinants of the Future Energy Market                                     CCS Characteristics

        GHG abatement
        with significantly varying costs
        Aim to reduce GHG emissions
        at lowest economic costs                                                         Clear environmental benefit due to reduction
                                                                                         of CO2 emissions by 80-90%

                                                                                         Supply of coal highly diversified and, thus,
                                                                                         stable including domestic coal and lignite
                        Environ-            Markets                                      Currently unfavorable economics with
                                                           Security                  3
                         mental                                                          uncertain outlook
                                                          of Supply

                 Rising concentrations of CO2           Accelerating depletion of
                 due to manmade emissions               reservoirs of conventional
                 Threat of fundamental impact           fuels
                 on climate and stability of            Aim to reduce
                 ecosystem                              dependency particularly
                 Aim to reduce GHG emissions            on oil and gas

Source: Booz & Company Analysis

Booz & Company
While several critical technologies are in early stage development,
CCS feasibility is not fundamentally in question
                                               Value Chain of CCS

                    Carbon Capture                    Transport                           Sequestration

                                                                                                            CO2 Sink

         Three different technologies       CO2 transportation via three different   CO2 storage possible in different
         – Post-combustion                  routes possible                          CO2 sinks
         – Pre-combustion                   – Pipeline (supercritical CO2            – Depleted oil and gas fields
                                               needed)                               – Coal seams
         – Oxyfuel
                                            – Ship (similar to LNG)                  – Saline acquifers
         All technologies under
         development, no clear winner yet   – Railway (Limited transport             Saline acquifers with by far largest
         observable                            capacity)                             expected potential
                                            Pipeline transport economically most
Source: Booz & Company Analysisc

Booz & Company
There are three different CCS capture technologies being pursued
in parallel
                                                            Carbon Capture Technologies

                   Pre combustion                                        Post combustion                                                     Oxyfuel
    Physical absorption based on the                        Chemical absorption using amine-based                       Oxyfuel firing is a variant of post
    commercial Rectisol or Selexol process                  sorbents such as MEA or DEA is the                          combustion in which pure oxygen is used
    is the preferred technology                             preferred technology                                        instead of air for combustion
    Alternatives include cryogenic                          Alternatives include cryogenic                              This method reduces the volume of gas
    separation, pressure swing and                          separation, pressure swing and                              that must be processed during the
    temperature swing absorption, but are                   temperature swing absorption, but are                       capture step
    not as cost-effective as the preferred                  not as cost-effective as the preferred                      If commercialized, a coal alternative for
    technology                                              technology                                                  utilities with no interest in polygeneration
    Energy companies attracted to optionality               Potential for coal retrofits                                Least mature technology – full
    of polygeneration - electricity plus other                                                                          commercial deployment lags the other
    products such as liquid fuels                                                                                       two CCS approaches

                  O2 or air          H2O                                   Air
  Fossil fuel Gasification/ Syngas    Shift    CO2 +H2     Fossil fuel     Power      Flue gas   Flue gas   Flue gas                                      flue gas
               Reformer              reactor                             generation              cleaning              Fossil
                                                                                                                       fuel    Fossil fuel     Power         Carbon       CO2
                                                                                                                              combustion     Generation      capture
                 Carbon       H2                CO2-free                  Carbon         De-carbonised
                 capture                         power                    capture        flue gas
                                                                                                                                               CO2 or H2O
                 CO2                                                     CO2

Source: Booz & Company Analysis

Booz & Company
Significant R&D is dedicated to carbon capture technologies,
however most developments are not beyond bench-scale stage yet
                                                            R&D in Carbon Capture Technology

                             Solvent Improvements                                           Membrane Improvements
          Amine enriched solvents                                               Novel membrane for CO2 removal
          Bauxite residue                                                       Thermally optimized membrane
          Dry regenerable sorbent                                               Silica membrane
          Absorption with potassium carbonate                                   Dual functional membrane
          Solid sorbents
          Microporous metal organic frameworks

                            Process Improvements                                               Other Improvements
          Simteche CO2 hydrate production                                       Electrical swing absorption
          Direct fuel cells                                                     Enzyme based carbon capture
          Chemical looping                                                      Bio scrubbing with algae
          Oxygen fired circulating fluidized bed                                AZEP – Advanced Zero Emissions
                                                                                Power Plant
          In situ CO2 capture technology for solid
                                                                                Vortex tube contactors
          fuel gasification
                                                                                Oxygen transfer membrane
          Oxygen fired CO2 recycle
                                                                                Solid Storage (Skyonic)
Source: DOE, EU, Press Releases, IEA, Booz & Company Analysis                              R&D            Commercial

Booz & Company
Investment costs of IGCCs are expected to be comparable to PC
power plants, but efficiency improvements not likely before 2030
           Investment Costs in Coal Technologies                                                IGCC Technology Improvements

                                                                                Technology         Description       Impact             Comments
                                                                                Ion transport    High pressure      1% efficiency    Status: pilot testing
                                                                                membrane air     membrane system    improvement      underway
                                                                                separation       to replace         5% capex         Membrane-based
                                                                                (ITM)            cryogenic air      reduction        oxygen separation will
                                                                                                 separation                          also benefit oxy-fire
                                                                                                                                     Potential to be adapted
                                                                                                                                     for improved CO2
                                                                                Warm gas         Replaces gas       1% efficiency    Status: pilot scale
                                                                                clean-up         cooling & COS      improvement      testing completed at
                                                                                                 hydrolysis         4% capex         Eastman CTC plant
                                                                                                 equipment          reduction
                                                                    Hard Coal
                               IGCC w/o
                 w/o Capture

                                                                                Solid oxide fuel Replace gas        13% efficiency   Status: pilot issues

                                                                    Oxy Fuel
                  Hard Coal

                                           Hard Coal

                                                        Hard Coal

                                                                                cell             turbine as prime   improvement      around cost and


                                                                                                 mover              TBD              syngas purity issues
                                                                                                                                     Not likely to replace
                                                                                                                                     gas turbine technology
                                                                                                                                     before 2030

Source: MIT, DOE, Booz & Company Analysis

Booz & Company
Carbon Capture reduces CO2 emissions, but increases cost of
power production substantially
                                                      CCS Effect on Costs and Efficiencies
                                                CO2   H2O                                H2O
                                                       CO2                                      H2O


                   Investment Costs                     50%-80%
                   (€ per installed capacity)

                   Operating Costs                      80%-120%
                   (€ per generated power)                                          Increase of generation
                                                                                        costs between
                   Efficiency                            7%-11%

                   CO2 Emissions                          90%

Source: Booz & Company Analysis

Booz & Company
The cost of CCS demonstration projects is going to be high and
substantial effort is required to achieve more favorable economics
                                                CO2 Abatement Costs of CCS

                                                                                                           Cost items
                         Capture Technology
                                                                                                     Capture: 50-60%
                                                                   Co                                Transport: 20-30%
                              Reduction of                                 Re                        Storage:   10-25%
                            Additional Capex                                 du
                             Requirements                                        io

                         Reduction of Loss in
                          Thermal Efficiency

                        Substantiation of CO2
                          Storage Potential
                                                     Demo                               Commercial
                                                    Projects                             Maturity

Source: Booz & Company Analysis

Booz & Company
Cost reduction opportunities present themselves across the CCS
value chain with most potential in the capture stage
                                                Challenges of CCS Process

                                                H2O               Efficient capture process still to be developed
                                                      H2O         Large loss in thermal efficiency
                                  CO2 Capture                     Substantial additional costs


                                                                  CO2 transport via pipeline cost efficient today
                                                                  Concessions and operating licenses of CO2
                              CO2 Transport                       pipelines in Europe not yet in place -
                                                                  regulatory framework highly uncertain

                                                                  Theoretical as well as economic storage
                                                                  potential unknown
                                  CO2 Storage                     Cost of CO2 storage at large scale to be dis-
                                                                  Safety and long term sustainability of under-
                                                                  ground CO2 storage unclear

Source: Booz & Company Analysis

Booz & Company
Capex is likely to remain a major concern as the learning curve is
expected to be rather flat
                                Post Combustion CCS CAPEX
                                         (Learning Curve Impact)

                  4.500                                                     $300                                                    Learning Curve
                  4.000                                                                                               The rate of learning (decrease in capital cost

                                                                                   Cumulative Investment (Billions)
                             Capex                                                                                    with increase in installed capacity) is more
                             Reduction                                                                                rapid for new technologies like CCS
                                                                                                                      Historically, the decreases correlate well with
                  3.000                                                     $200
   CAPEX ($/kw)

                                                                                                                      every doubling of capacity with the first
                                                                                                                      doublings of capacity showing significant
                  2.500                                                                                               reductions with the rate slowing subsequent
                                                                                                                      A brand new technology like CCS might show
                                                                                                                      decreases of 20% over the first several
                  1.500                                                     $100                                      doubling with reductions of 10% thereafter for
                                  Investment                                                                          up to 5 additional doublings of capacity
                                                                                                                      This rapid rate of cost reduction only applies to
                                                                                                                      the CCS portion of the capex; the PC
                                                                          ~ $30                                       generation plant capex continues to decline at
                                                                                                                      a moderate 1% per doubling
                     0                                                      $0
                      1 GW         3 GW          10 GW         32 GW   100 GW

                                     Installed Capacity (Log Scale)

Source: EIA, Booz & Company Analysis

Booz & Company
The cost of transport and storage is unlikely to show large
decreases beyond productivity gains in the upstream
                                               Cost of CO2 Storage - Example Gas Reservoir
                       Process Structure to Store CO2                                          Estimation of CO2 Storage Costs

                                                                                  Compressor                                      40 Mio. $
                                                                                                         1 x 40 Mio. $
       CO2                                                  10 Inch               & Cooler
                                                                                  Pipeline         $ 55 x 10 Inch x 65.000 m    35.8 Mio. $

                  Compressor                                           Pump       Well                   1 x 2.5 Mio $           2.5 Mio. $

  Overall pipeline length: 65 km                                                  Pump                  1 x 1.5 Mio. $           1.5 Mio. $

                                                                                  Measuring             8 x 1.5 Mio. $            12 Mio. $
       Measuring            Measuring              Measuring          Measuring
                                                                                  Pump                  3 x 1.5 Mio. $           4.5 Mio. $
           Pump                   Pump               Pump               Pump

                                                                                  Well                  12 x 10 Mio. $          120 Mio. $

                                                                                  Capex                                        216.3 Mio. $

                                                                                  Opex              5% x Capex x 30 years      324.5 Mio. $

        Field I               Field II             Field III           Field IV   Costs over 30 years                          540.8 Mio $

                                                                                  Specific costs   540.8 Mio $/41 Mio. t CO2   13.2 $/t CO2

Source: Booz & Company Analysis

Booz & Company
Even after anticipated improvements, the CO2 abatement costs are
rather high compared to other technologies
                                                  CO2 Abatement in Power Generation (2030)

                 Extension        Modern    Gas      New Builds   Wind      CCS     Wind       Bio-   Geothermal   Photo-
                  Nuclear          fossil             Nuclear   (onshore)         (offshore)   mass                voltaic

Source: Booz & Company Analysis

Booz & Company
Saline acquifers offer the most storage potential, but have been
largely unexplored
                                                        Underground Storage of CO2
                                                                                                            Expected   Know-
                                                          Description                                        Volume    ledge

                                    CO2 is already used to increase production of oil from
                        EOR         formations; it now offers a partial financial incentive for injection
                                    and storage

                 Depleted Oil and   As production declines and formation pressures drop, space is
                   Gas Fields       created for the underground storage of fluids, including CO2

                                    Unminable coal seams can be used for storage due to the
                   Coal Seams
                                    natural affinity between the coal and CO2

                                    Permeable formations without economic resources such as
                 Saline Aquifers
                                    potable water or oil and gas can be used for CO2 storage

Source: Booz & Company Analysis

Booz & Company
Estimates for gross CO2 storage potential vary considerably and
the ultimate potential remains largely unknown

                                         Storage Potential1)
                                             (in Years)
            Canada                                                 >3.000
            Aus/NZ                                        >2.000
                  USA                          >1.000                       Storage potential
             Russia                            >1.000                         CO2 storage potential mainly expected in aquifers –
                                                                              aquifers large unexplored
       Middle East                      >600
                                                                              First estimations of theoretical storage potential vary
   Eastern Europe                 ~400
             Europe               50-700                                      No profound estimation of economic storage
                 Africa           ~350                                        potential available yet
     Latin America               ~300                                         Margin for error rather thin in several important
                  India      ~250
                                                                              markets like Germany, China and India
  South East Asia            ~250
                                                                            Cost of CO2 storage
                 China     ~150
                                                                              Cost of CO2 storage dependent on character of
                 Japan     ~100                                               sinks (depth, size, geological formation)
                 Korea     100                                                Behavior of aquifers when injecting CO2 and
          Germany         30-60                                               resulting costs today largely unknown

1) Base: Estimated CO2-Emissions 1990-2095
Source: Deutsche Bank

Booz & Company
The CCS technology is projected to come commercially available
only after 2030, so is hardly part of the solution today
                                         CCS Roadmap

      2010            2015             2020         2025          2030
                                                                                                    Long Term Development
        Development of
          Regulatory                                                                       CCS needs significant Capex reduction to be
                                                                                           economically viable

                     Demo Projects                                                         For a Capex reduction of 25% around 30 GW of
                                                                                           CCS capacity would need to be build

                                              First Full Scale Power Plants                Learning curve effects only kick-in when focusing
                                                                                           on one technology

                 Start of industrial                                     Power Plants      Commercial availability of CCS unlikely before
                  learning curve                                       with Target Costs   2025/2030

                                                                                           Hence, substantial build-out of CCS capacity
                                          Potential Achievement
                                             of Target Costs
                                                                                           unlikely before 2035/40

Source: Booz & Company Analysis

Booz & Company
The green credentials as well as its perceived safety are likely to be
a matter of great debate ...
                                   CO2 Storage Options


                                                         Two primary pathways by which CO2 could leak
                                                         from a storage formation:
                                                         – Boreholes – improperly sealed holes from
                                                             previous drilling or injection and monitoring wells
                                                         – Faults – fractures that intersect the storage
                                                             formation and cut the cap rock
                                                         – In both cases, the key is careful site selection and
                                                             rigorous monitoring, measurement, and
                                                         CO2 must generally injected at least 2400 m (~8000
                                                         ft) below ground in order to maintain the confining
                                                         pressure for supercritical CO2
                                                         Storage formations, typically sandstones, work more
                                                         like sponges than large caverns and must be
                                                         overlain by at least one impermeable layer, typically
                                                         salt or clay, to ensure long-term confinement

Source: EUB, Booz & Company Analysis

Booz & Company
... as has been experienced in nuclear

                                 Volume of Heat Generating Nuclear Waste including Container
                                  (Example: All German Nuclear Power Plants 20 GW over 60 years lifetime)

                                                                                      35 m
                    Without Reprocessing                              42.000

                                                                                    35 m
                                                                       35 m

                                                                                     15 m
                    With Reprocessing                                     3.000
                                                                                   15 m
                                                                          15 m

Source: Booz & Company Analyse

Booz & Company
Investment decisions in generation today face unprecedented
uncertainties which will greatly affect CCS
                                            Drivers of Change in the Energy Industry

  Triggers                     Market                           Technology                          Government

  Motivators       Oil price run-up and collapse and    New technologies – development      GHG emission targets and CO2
                   pricing mechanisms (fuels, CO2)      of new, clean technologies          markets
                   Distribution of primary energy       Efficiency – increased efficiency   Promotion of renewable energy
                   supplies (oil, gas, coal, uranium,   of existing technologies            Security of supply – securing
                   tar sands, oil shale)                Manufacturing costs – scale         primary energy resources
                   Emerging fuel alternatives – bio-    effects and factor cost improve-    Public perceptions regarding
                   fuels, CTL, GTL                      ments                               nuclear power generation
                   Integration and globalization of     Adjacent industries – power train   Permitting of sites
                   energy markets (coal, gas, CO2)      developments, network design

                 Structurally jittery and connected     Substantially reinvigorated         Increasingly interventionist

                              Medium                                 Low                                High

Booz & Company
   Investments in CCS are likely to require certainty around CO2 and
   fuel prices
                                                   Base Load Power Generation
                                                   (New Build Decision w/o Nuclear 2030)

                                                                                                                  Investment decision in CCS strongly dependent on
                                                                                    CCS                           future gas as well as CO2 price
                                        $60                                                       Cost of
               CO2 Cost ($2007/tonne)

                                                                                                  Sequestration   Gas price drives relative merits compared to gas
                                                                                                                  fired power plants as well as positioning in the merit
                                                                                                                  order curve
                                                                                                                  Historically, the gas as well as the CO2 price have
                                        $40           Gas                                                         swung across the full relevant spectrum in the last 5
                                                                                                  $0/t            Time horizon for investment decision in the 30-40
of CO2 Price

                                                                                                                  year range
                                                                                                                  Stable prices above ~40 $/t of CO2 and above ~6
                                        $20                                        Coal                           $/mmbtu for gas required over lifespan
                                                                                                                  Investment proposition from a private sector
                                                                                                                  perspective doubtful without government subsidies
                                        $0                                                                        and guarantees
                                              $2      $4          $6          $8          $10   $12

                                                           Natural Gas Price ($2007/mmbtu)
                                                               Variation of Gas Price

   Source: Booz & Company Analysis

   Booz & Company
Hence, it appears doubtful that as expensive and complex an
industry is likely to emerge without government support
                                                             Business Challenges of CCS

                                  Carbon Capture                           Transport                 Sequestration

   Likely Players             Electricity Generators                   Pipeline Companies          Upstream Companies

                                     40 Years                               40 Years                     40 Years

   Requirements           CO2 price certainty (minimum            Regulatory system           Permitting of underground
                          level)                                  Guaranteed rate of return   storage as disposal sites
                          Long term gas and coal price            Rights of way               Regulatory regime to stipulate
                          certainty                                                           leakage rate limits, force
                                                                  Environmental permits for   majeure rules, etc.
                          Investment / Operating                  pipelines etc.
                          subsidies                                                           Limitation of liability for
                          CO2 permits to be transferred                                       leakage etc.
                          Must-run guarantee

        Contracts                                      40 Years
                                                                               40 Years

  Required Role
 of Government

Source: Booz & Company Analysis

Booz & Company
Given the set of issues it is facing the deployment of CCS is likely
to be confined to particularly suitable niches
                                          Key Issues for CCS and Outlook for CCS

                 What is the case for CCS?                     Although CCS is desirable...

                 How does it work?                             ... and likely workable,...

                 What are the integrated economics?            ... unfavorable economics and ...

                 What is its potential?                        ... relatively limited potential ...

                 When is it coming available?                  ... as only a distant promise ...

                 How green and safe will it be viewed?         ... with doubtful credentials and ...

                 What business model will be required?         ... a complex industry structure, ...

                 What role is it ultimately going to play?     ... are likely to confine its importance

Booz & Company

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