Defining CCS Ready: An Approach to An International Definition

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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
Appendix C: Policy Considerations and Assessments of CCS Ready EconomicsExhibit C-1: Illustrations of Economic Analysis Frameworks(for a new pulverized coal power plant)Framework #1: Undiscounted Capital Cost Gains/Losses ($/MW original plant capacity)A B C=A+B DInitial Capital CostCapital Cost forRetrofit to CCSTotal Capital CostGains (Loss) in CapitalCosts vs Not CCS ReadyNot CCS Ready 1,575,000 1,088,200 2,663,2001: Throttle Valve Case 1,604,609 1,057,313 2,661,922 1,2782: Clutch Case 1,664,269 1,067,751 2,732,020 (68,820)3: Oversized Boiler Case 2,062,636 831,431 2,894,067 (230,867)Note: Initial capital costs for CCS Ready options include capital costs for a Capture Ready Plant and storage site selectionand characterisation.Framework #2: Undiscounted Capital and Operating Gains/Losses ($/MW original plant capacity)D E F G=Fx25 H=D+GGains (Loss) inCapital Costs vs NotCCS ReadyAnnual NetOperating Revenueafter RetrofitGain (Loss) in Annual NetOper. Rev. vs Not CCSReadyAll Years of Gainin OperatingRevenueGain (Loss) in Capitaland Net Op. Rev. vsNot CCS ReadyNot CCS Ready 90,1391: Throttle Valve Case 1,278 113,551 23,412 585,311 586,5892: Clutch Case (68,820) 132,678 42,539 1,063,479 994,6593: Oversized Boiler Case (230,867) 168,555 78,416 1,960,401 1,729,534Notes: Assumes 25 years of operation with CCS. Annual utilization rate is 0.85 in all instances.Net operating revenues account for fact that net plant output is reduced after retrofit to CCS.Framework #3: Discounted Capital and Operating Gains/Losses ($/MW original plant capacity)A I=B discounted J=A+I KInitial CapitalCostDiscountedCapital Cost forRetrofit to CCSTotalDiscountedCapital CostNot CCS Ready 1,575,000 325,640 1,900,640Gains (Losses) inDiscounted Capitalvs Not CCS ReadyL=GdiscountedDiscounted AllYears of Gains inNet Op. Rev.M=K+LNet Present Valueof Gains (Losses)1: Throttle Valve Case 1,604,609 316,397 1,921,006 (20,366) 60,558 40,1922: Clutch Case 1,664,269 319,521 1,983,789 (83,149) 110,031 26,8823: Oversized Boiler Case 2,062,636 248,803 2,311,439 (410,799) 202,830 (207,969)Notes: Assumes 25 years of operation with CCS. Annual utilization rate is 0.85 in all instances.Net operating revenues account for fact that net plant output is reduced after retrofit to CCS.Discount factor is 9 % per annum.Uncertainty can be included in any of these frameworks by varying CCS capital costs,operating cost and performance characteristics into alternative scenarios or through MonteCarlo analysis. Likewise uncertainty in expectations for fuel, electricity and carbon pricescan be dealt with within a single most likely scenario, several alternative scenarios orthrough Monte Carlo analysis.Under these frameworks it is also possible to evaluate uncertainty in CCS technology byanalysing potential future CCS technologies and how they alter the economics of CCSReady. A new CCS technology might reduce the value of CCS Ready by lowering the costsavings that come when CCS retrofit takes place.23 February 2010 105
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Defining CCS Ready: AnApproach to A
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PrefacePrefaceThe Global CCS Instit
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Acknowledgements and CitationsThe c
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Executive SummaryThe components spe
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Executive SummaryExhibit ES-3: Illu
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Chapter 1: IntroductionDevelopers o
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Chapter 1: Introductionor more, lic
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Chapter 1: Introductionrelatively n
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Chapter 1: IntroductionExhibit 1-3:
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Chapter 1: IntroductionJustificatio
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CO2 Transport Ready PlantExhibit 1-
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Chapter 2: Capture Ready Plant Defi
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Chapter 3: Transport Ready Plant De
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3.3.2 Environmental, Safety, and Ot
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Chapter 4: Storage Ready Plant Defi
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• Site DesignChapter 4: Storage R
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Defining CCS Ready: An Approach to An International Definition

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