Impact of Climate Change Policies

1
Impact of Climate Change Policies CCS
Technologies on Australias Black Coal Industry

• Bart Lucarelli
• LP Power Consultants, Ltd.

2
Topics

• Status of Australias Renewable Energy Law and
  Carbon Pollution Reduction Scheme (CPRS)
• Potential Impacts of CPRS on Australias Black
  Coal Industry
• Review of CO2 Capture and Storage (CCS)
  Technology Option
• Summary and Conclusions

3
Australias Renewable Energy (RE) Law and
Acomplishments

• Achievements

• Renewable Energy (Electricity) Act

• Implementation of Amended RE Act started in Jan
  2010 still to early to tell
• Wind
• Excellent potential for wind energy farms in
  coastal areas
• In 2009, installed wind capacity was only 1.5 GW
  but up to 15 GW of new capacity may be added as a
  result of the Amended RE Law
• Solar
• Solar Flagships Program (May 2009) will subsidize
  1/3 of costs of 4 solar projects (1GW capacity)
• 2 solar PV projects
• 2 solar thermal projects
• Total commitment A1.35 billion

• Came into effect in 2001 with RE target of 9.5
  TWh/yr.
• RE Law amended in 2009 with RE target increased
  to 45 TWh/yr
• RE now expected to contribute 20 of Australias
  2020 electricity supply.
• Other details of Amended RE Act
• State and territorial schemes subsumed into
  national renewable energy scheme
• Duration of scheme extended from 2020 to 2030
• Shortfall Charges increased from A40/MWh to
  A65/MWh
• Includes Waste Coal Mine Gas as an eligible
  source for generating RECs .

4
Australias CPRS

• Cap and trade scheme with liable companies given
  a choice
• Reduce your CO2 emissions to mandated levels
• or
• Buy offsetting CO2 credits from either government
  agency or companies that have banked excess
  carbon credits
• Three years in the making but unlikely to be
  passed into law anytime soon.
• Has failed in Australian Senate twice, which may
  lead to early election
• The failed COP 15 Climate Change Conference in
  Copenhagen has not helped the odds for CPRS
  becoming a law during 2010.

5
Evolution of CPRS (cont.)

• White paper (issued in 2008)

• Current Legislation (as of Jan 2010)

• Base year for targets 2000
• Start date for CPRS July 2010
• Sectors exempted Agriculture
• Affected entities 1000 (accounting for 75 of
  CO2 emissions)
• 2020 Reduction Targets
• 5 unconditional commitment
• 15 conditional on all developed countries
  entering into a binding agreement to
  substantially reduce CO2 emissions.
• 2050 Reduction Target 60 of 2000 CO2 emissions
• 2010 CO2 Permit Price A40/tonne w/300 mt of CO2
  permits free.

• Start Date delayed until 1 July 2011
  Application of emission caps delayed until FY
  2012/13
• 2020 Reduction Targets
• Unconditional Target unchanged
• Conditional Target Increased to 25 from 15
• Unchanged
• 2012 CO2 Permit Price A10/t w/85 of required
  permits free

6
CPRS (cont.) Objections of Australias Coal
Industry

• General objection
• Why should Australia take any action at all when
  the rest of the World , except for the EU,
  appears to be sitting on the sidelines?
• Australia should only act when a legally binding
  and verifiable international agreement on GHG
  reduction targets has been agreed among all
  developed countries.
• Specific concerns
• Ineligible for Emissions Intensive Trade Exposed
  Sectors (EITES) program, which was established to
  provide transition support to those export
  industries most severely impacted by the CPRS
• Liable under CPRS for fugitive methane emissions
  from U/G mines
• LNG perceived within the coal industry as
  receiving more favorable treatment than coal.

7
Impacts on Australias Black Coal Industry if
CPRS becomes a LawDomestic Market Impacts

• In 2009, power market accounted for 95 of
  domestic sales of black coal.
• If CPRS becomes a law, domestic power supply will
  transition over time from high reliance on coal
  to much greater reliance on gas and renewables
• Short run Expect more black coal to be consumed
  domestically as brown coal plants are shut down
  or run at lower capacity factors while plants
  running on black coal are dispatched at higher
  levels.
• Long run Expect many coal plants to be replaced
  by gas-fired CCGT plants running off of LNG or
  CBM with wind and solar plants playing a
  supplemental role.
• Timing and details of this shift in domestic fuel
  usage will be determined by three factors
• The 2020 GHG emission reduction target
• The price set for CO2 permits
• The share of permits that will be given for
  free to polluters.

8
Impacts on Australias Black Coal Industry if
CPRS becomes a LawExport Market Impacts

• CPRS impact on Australias black coal export
  markets
• ? in production and transport costs? an
  ?in export floor price.
• But this cost impact should be, at worst,
  moderate in its effect.
• The real risk to Australias black coal industry
  will occur if/when Japan, Korea, Taiwan , China
  and India impose their own CPRS programs .
• In 2009, Australias black coal producers
  exported 85 of their washed coal with 90 - 95
  of those exports going to Asian countries.
• Domestic sales of black coal represented only 15
  of total sales

9

New Technology to the Rescue? Maybe, but
definitely not if Carbon Capture and Storage
(CCS) is the most important new GHG reduction
technology.
10
CCS Defined

• CCS refers to a set of technologies that
• Remove CO2 from the gas streams of gases produced
  when either combusting coal (post combustion
  process) or transforming it into a gaseous fuel
  (pre-combustion process)
• Convert the CO2 into a liquid by compression
• Transport the liquid CO2 to a storage site most
  likely by pipeline
• Inject the liquid CO2 deep into impermeable
  geological formations where it will remain
  sequestered for thousands of years.
• International Energy Agency (IEA) provides
  excellent reviews of CCS
• Technology Road Map for Carbon Capture and
  Storage available for free from
  (http//www.iea.org/papers/2009/CCS_Roadmap.pdf).
• CO2 Capture and Storage A Key Carbon Abatement
  Option, 2009 which is available from the IEA for
  a fee.

11
CCS Hope vs. CCS Reality

• The Reality

• The Hope

• Cost of CCS can be defrayed by putting CO2 to
  productive use
• Enhanced oil recovery (EOR)
• Producing biomass (microalgae)
• Making cement
• New technologies will soon lower CCS costs and
  improve efficiency of carbon capture process.

• Markets that reuse CO2
• are limited in size (EOR)
• or
• rely on immature and unproven technologies (algae
  cement).
• 2a. New CCS systems are in either the test or
  early demo phase.
• 2b. 90 CO2 capture comes at a very high price
  even w/new technology
• Power plant output reduced by 12-30 and
  efficiency by 15 - 30
• Extra capex ranging from 1319/kW to 1649/kW
  (2006 )
• LCOE increases range from .03 - .07/kWh (based
  on 2006 EPC prices)

12
Carbon capture technology can capture 90 of CO2
emissions but will only achieve an 85 net
reduction (abatement) in CO2 emissions
Source NETL Carbon Dioxide Capture from
Existing Coal-fired Power Plants Final Report
Nov 2007
13
Impact of Retrofitted MEA Carbon Capture System
w/ 90 CO2 Capture on cost and technical
performance of Coal-fired Power Plant²
Performance Parameter 2001 Technology 2006 Technology Future Technology
Solvent Regeneration Energy (Btu/lbm-CO2) 2350 1550 1200
Net Plant Output (MW) 303 365 384
Net Plant Efficiency () 20.2 24.4 25.7
Incremental Capex (/kW) 2,748 - 3,435 1,319 1,649 1,279 - 1,600
Increase in LCOE due to CCS¹ (/kWh) 12.54 6.92 6.32
Cost of CO2 Abated 127 89 85
Cost of CO2 Capture 84 59 56

1. New coal fired power plant estimated to have LCOE
   of 6.4/kWh in 2006.
2. AEP Conesville 5 Unit used as case study, 434 MW
   capacity and 35 plant efficiency

Source NETL Carbon Dioxide Capture from
Existing Coal-fired Power Plants Final Report
Nov 2007
14
Retrofit Example (cont.)90 CO2 capture will
lead to a 30 loss in plant output 25 loss in
net plant efficiency
15
and will require additional capex of 1300 -
1650 per kW and for power cost to increase by
7/kWh
16
Table 7-3 Recent Cost Estimates for CO2 Abatement
Impacts on Price of Coal-fired Electricity
(Supercritical PC Plant)

• IEA ,CO2 Capture Storage A Key Carbon
  Abatement Option, 2008

• Harvard/McKinsey Studies

• Demo Plants (2010)
• 60-75/t CO2 abated
• ? in Electr. Price - 0.08 -0.10/kWh
• (2008 prices)
• Mature Commercial Scale Plants (2030)
• 55 -65/t CO2 abated
• ? in Electr. Price (2030-50/ Blue Map Scenario)
• Average ? 90
• Range ? 65 - 163

• Demo plants (2010-20)
• 80 - 120/t CO2 abated (McKinsey)
• 120 - 180/t CO2 abated (Harvard)
• ? in Electr. Price - 0.08 -0.10/kWh (Harvard,
  2008 prices)
• Mature Commercial Scale Plants (2020)
• 40 60/t CO2 abated (McKinsey)
• 35 70/t CO2 abated (Harvard)
• ? in Electr. Price - 0.02 -0.05/kWh (Harvard,
  2008 prices)

17
Reasons for Optimistic View on CCS Costs by
Harvard McKinsey

• Innovation and Technological Breakthroughs
• Economies of scale
• Optimization of Plant Performance through
  Improved Integration
• Replication economies
• Learning about individual components
• Learning about total plant

18
Hope vs. Reality (cont.)

• The Reality

• The Hope

• Distance of such reservoirs from power plant
  sites will limit applications.
• No definitive studies have been completed to
  confirm
• capacities of deep saline formations worldwide
• or
• liquid CO2 can be permanently sequestered at
  these sites.
• Private companies unlikely to take long-term
  sequestration risk without some form of
  government-backed indemnity.

1. CO2 can be sequestered in deep saline aquifers
   (gt1500 m deep) and depleted oil wells
2. Transport injection technology well-understood
   and commercial

19
IEA Roadmap for CCS Deployment

• Despite these high costs and shortcomings, CCS is
  still seen by many, including the IEA, as the
  least cost option for GHG reduction.
• The IEA has prepared a series of roadmaps,
  which lay out the analytical basis for
  development and worldwide deployment of GHG
  reduction technologies
• Overall goal
• Reduce 2050 CO2 emissions to a level equal to 50
  of CO2 emission in 2005
• This level of CO2 reduction should limit global
  temp ? to 3 C.
• The IEA has adopted a specific technology
  deployment scenario titled BLUE Map Scenario
  as its analytical basis for achieving this level
  of CO2 reduction.
• This scenario was created using the IEAs
  in-house MARKAL model. It specifies the
  least-cost mix of GHG reduction technologies
  that will achieve a 50 GHG reduction by 2050.
• The Blue Map Scenario assumes a 200/t CO2
  abatement price.

20
IEA Roadmap for CCS Deployment (cont.)

• The CCS Roadmap that resulted from the Blue Map
  Scenario is an ambitious plan for deploying CCS
  worldwide. Key points
• Over 200 commercial scale CCS plants are needed
  by 2020 and over 3000 commercial scale CCS plants
  by 2050 if GHG reduction goal is to be achieved.
• By 2050, CCS plants will be capturing and storing
  10.4 GT/yr of CO2.
• Total required investment US 2.5 3 trillion
  over the period 2010 -50.
• Extensive collaboration required between
  governments and ample government grants for RD
  and grants concessionary funding for
  demonstration projects.
• CCS is important to the overall roadmap because,
  according to the IEA
• CCS is the only technology available to mitigate
  GHG emissions from large-scale fossil fuel
  usage.
• If CCS is not commercially available by 2030, the
  cost of achieving a 50 reduction in GHG
  emissions by 2050 will be 70 higher than
  projected under the BM Scenario.

21
Challenges to successful commercialization of
CCS by 2030(in IEAs Own Words)

• The next decade (2010-20) will be a key make or
  break period for CCS.
• CO2 capture technology is commercially available
  today but the associated costs need to be lowered
  and the technology still needs to be demonstrated
  at commercial scale.
• Urgent need to advance the state of global
  knowledge of CO2 storage prospectivity. Only a
  few regions have adequately mapped the storage
  potential of deep saline formations, which offer
  the highest potential for long term storage.
• Need to develop near-term regulatory approaches
  to facilitate
• CCS demonstration efforts
• large-scale deployment of CCS.
• To date only 4 fully integrated commercial-scale
  CCS projects are in operation. Nearly 100
  commercial-scale demo projects are needed by 2020
  and 3000 by 2050 in a number of countries and
  settings

22
Summary Conclusions

• CPRS was viewed as inevitable by the coal mining
  industry in 2008.
• Today, its eventual passage into law is in doubt
  due to
• Strong industry opposition on competitiveness
  grounds
• Failure of UN Copenhagen Climate Change
  Conference (COP 15) to achieve legally binding
  limits to CO2 emissions
• Debate has now shifted to finding alternatives
  and making political compromises that may gut
  the CPRS of its CO2 reduction potential.
• Renewable Energy Law, as amended in 2009, is
  likely to lead to a large increase in renewable
  energy projects- particularly wind projects
  between 2010 and 2030.

23
Summary Conclusions (cont.)

• The IEA along with many other energy agencies are
  placing a very high priority on the commercial
  development of CCS in order to achieve GHG
  reduction targets.
• But CCS is unlikely to prove the silver
  technology bullet that many proponents make it
  out to be.
• The best argument that has been offered for
  supporting CCS is that it is cheaper on paper -
  than many other GHG reduction options.
• But that claim is not supported by operating CCS
  plants. Instead proponents seem to be relying on
  speculative forecasts based on
• Large increases in CCS plant efficiency, on the
  assumption that new technologies still at the
  test stage of development are successfully
  commercialized
• Large decreases in CCS plant capital costs that
  may result from economies of scale and
  replication.
• As of 2010, these expected improvements are based
  on hope and not demonstrated results.

24
Summary Conclusions (cont.)

• The IEA CCS Roadmap, if fully implemented, may
  negatively impact renewable energy initiatives by
  reducing the level of subsidies and other
  resources that could have been used to support
  solar, wind, and other renewable technologies.
• But there may be one silver lining to the CCS
  cloud. It may benefit both the renewable energy
  industry by
• establishing a strong price floor for CO2 permits
• barring the discovery of huge, low cost oil and
  gas deposits, creating a much higher price for
  electricity that will strongly support the
  commercial development of renewables.