Defining CCS Ready: An Approach to An International Definition

Appendix C: Policy Considerations and Assessments of CCS Ready EconomicsThe results of the Accelerated GHG Restrictions sensitivity case show that the powerplants without CCS retrofits have 4.4 year shorter expected lives: 33.4 years versus 37.8years in the Base Case. As would be expected, the retrofits to CCS occur more quickly forall plant design options. The Not CCS Ready option goes to CCS an average of 1.0 yearssooner, CCS Ready 1 option retrofits 1.5 years sooner, CCS Ready option 2 retrofits 2.2years sooner, and the CCS Ready 3 option goes to CCS 4.9 years earlier. Also, the percentof scenarios in which the plants convert to CCS is higher with 93 percent retrofitting ofeven in the No CCS Ready option.The relative economic attractiveness of the more intense CCS Ready options increases inthe Accelerate GHG Restrictions sensitivity case. The net present values of the plantsdecline by about $89,000 per MW in the Not CCS Ready option to $53,000 in the CCSReady 3 option. The decline in value stems from the higher allowances prices, which are notfully compensated by higher electricity prices. The more intense CCS Ready options declineless in value because they are more economic to convert to CCS and thus retrofit soonerand operate at higher utilization rates. The order of preference among the four optionsdoes not change in Accelerate GHG Restrictions sensitivity case, as the Not CCS Readyoption still has the highest private sector NPV.C.4.9 Sensitivity Case: Pricing of Natural Gas and ElectricityThe second sensitivity case assumes that natural gas prices are $1.00 to $1.25 per MMBtuless expensive than in the in the Base Case. Such a sensitivity case might be justified by moreoptimistic views for the prospects for gas shales and other kinds of non-conventional gasesin the US, Canada and possibly other countries. This assumption of lower natural gas priceshas the effect of dropping electricity prices from about $9.00 to $2.00 per MWhr. The keyinputs to this case are shown in Exhibit C-12 and the summary outputs are shown in ExhibitC-13 and Exhibit C-14.The most important impact of these changes is to make the NPV of all four coal powerplant options negative, even with the option to retrofit. This means that the desired returnon investment of 9 percent real after taxes, on average, would not be achieved and thepower plant would not be built by developers if this price environment were anticipated.The lower electricity prices cause the CCS retrofits to occur a little (0.6 to 1.1 years)sooner than in the Base Case. The order of preference among the four options does notchange in Lower Natural Gas sensitivity case, as the Not CCS Ready option still has thehighest private sector NPV and the CCS Ready 3 has the lowest.23 February 2010 119