Defining CCS Ready: An Approach to An International Definition

C.3 Frameworks for Economic AnalysesAppendix C: Policy Considerations and Assessments of CCS Ready EconomicsThe framework for an economic analysis is the method used to combine costs and benefitsinto indicators of relative economic value. Some of the options for frameworks that can beused by policymakers or developers for economic analysis of CCS Ready plants include (inincreasing order of complexity and accuracy):1) A very simple comparison of the added capital costs for the new CCS Ready plantversus the future capital cost savings if a “Not CCS Ready” (i.e., BAU) plant was laterconverted to CCS. This technique can serve as a simple and easy-to-use screening toolto show a) how much higher the CCS Ready plant’s initial capital costs are versus theBAU plant and b) how much the savings will be in capital for a future retrofit. Thiscomparison would ignore any operating cost savings, the time value of money, andwhether future retrofit to CCS will be economical. See top part of Exhibit C-1 for anillustration using the same assumptions as will be described later in this chapter for theMonte Carlo example.2) A comparison of the added capital costs for the new CCS Ready plant versus the futurecapital cost and gains in net operating revenue if a BAU plant were later converted toCCS. This comparison could assume, for example, that there are 25 years of operatingcost savings, but it still ignores the time value of money or whether a CCS retrofit willbe economic. This too can be used as an initial screening tool.3) Same as #2 but taking into account the time value of money by discounting the financialcosts and gains based on how many years into the future they occur. This is the mostsophisticated of the simple screening tools but is the minimum that should be employedfor decision making since it is critical that the time value of money be taken intoconsideration. This framework is illustrated in the bottom part of Exhibit C-1, whichshows that CCS Ready designs 1 and 2 appear to be economics under the assumptionsused for the illustration, but that CCS Ready design 3 is not economic.4) Same as #3, but instead of assuming when retrofits to CCS take place and the number ofyears of operation of CCS, looks at each year of operation and determines theeconomics of a decision to convert to CCS given a projection of GHG allowance costor other value of reduced emissions and assumptions for energy prices. If appropriatefor the market conditions in a jurisdiction, this framework would also take into accounthow the dispatch of the plant would change. If conversion to CCS seems to be far fromever being economic (or not be otherwise incentivised or mandated), there will be littlejustification for CCS Ready. The Monte Carlo example to be shown later in this chapteremploys a variant of Framework 4.23 February 2010 104