WORK UNDERTAKEN on ECONOMICS of CO2 CAPTURE, TRANSPORTATION, EOR, AND SEQUESTRATION in UK/UKCS Professor Alex Kemp, Dr. Sola Kasim, Linda Stephen and Professor Joe Swierzbinski - PowerPoint PPT Presentation

1 / 25
About This Presentation
Title:

WORK UNDERTAKEN on ECONOMICS of CO2 CAPTURE, TRANSPORTATION, EOR, AND SEQUESTRATION in UK/UKCS Professor Alex Kemp, Dr. Sola Kasim, Linda Stephen and Professor Joe Swierzbinski

Description:

bit = unit CAPEX of the CO2 capture equipment of plant type i at time t ... only as long as they avoid incurring heavy emission penalty charges. ... – PowerPoint PPT presentation

Number of Views:92
Avg rating:3.0/5.0
Slides: 26
Provided by: pec
Category:

less

Transcript and Presenter's Notes

Title: WORK UNDERTAKEN on ECONOMICS of CO2 CAPTURE, TRANSPORTATION, EOR, AND SEQUESTRATION in UK/UKCS Professor Alex Kemp, Dr. Sola Kasim, Linda Stephen and Professor Joe Swierzbinski


1
WORK UNDERTAKEN on ECONOMICS of CO2 CAPTURE,
TRANSPORTATION, EOR, AND SEQUESTRATION in
UK/UKCSProfessor Alex Kemp, Dr. Sola Kasim,
Linda Stephen and Professor Joe Swierzbinski
2
Summary
  1. Projections of possible availability of fields in
    UKCS for EOR/storage to 2030. Need to estimate
    windows of opportunity.
  2. Possible incentives for CO2 Capture. Innovatory
    proposal of long term put option contracts to
    deal with CO2 market risks.
  3. Development of dynamic linear programming
    least-cost optimisation model and application to
    range of power stations in UK, variety of
    transportation routes in UKCS to range of fields
    for EOR/Storage.

3
Window of Opportunity in UKCS
  1. Detailed financial simulation modelling of future
    prospects for fields in UKCS with emphasis on
    timing of cessation of production and
    decommissioning.
  2. Modelling undertaken for range of long term
    oil/gas prices.
  3. Modelling updated to incorporate new information
    and to see trends.
  4. Modelling shows when main pipelines become
    non-viable.

4
(No Transcript)
5
(No Transcript)
6
(No Transcript)
7
Incentives for CO2 Capture, EOR, Storage
  • Widespread agreement on need to reduce CO2
    emissions. Many sources of emissions reductions
    including CO2 Capture and EOR/Storage.
  • Several different economic incentives have been
    proposed to promote CO2 reductions, including
    both carrots and sticks as follows
  • (a) Capital grants for relevant investments
  • (b) Ongoing relevant income-related support
  • (e.g. for electricity produced
    from greener sources)
  • (c) Special tax reliefs for relevant investments
  • (d) CO2 tax (e.g. Norway offshore)
  • (e) CO2 emissions trading scheme (e.g. EU ETS)

8
Nature of CO2 Capture/EOR/Storage Investment
CO2 Capture and EOR/Storage investments are (a)
long-term, and (b) very expensive.
Substantial risks surrounding (i) costs
of capture, transportation, injection and
storage. (ii) market uncertainties
regarding prices of (a) electricity
(where relevant), (b) gas and coal
(as likely inputs), (c) oil (from
EOR), (d) value of carbon allowances.
9
  • C. Long-Term Put Option Contracts
  • Government (or agent) negotiates the sale of
    long-term put option contracts for CO2 emissions
    with investors. Government would be committed to
    buy a specified amount of CO2 allowances at a
    fixed price at a future date. Government receives
    option value when contract agreed.

10
  • Key features of the scheme are
  • The option contract provides a mechanism for the
    Government to credibly commit to a minimum future
    price for the emissions covered by the contract.
  • The ownership of the options provides investors
    with a hedge against future price risks.
  • The Government raises revenue in the present from
    the sale of the option contracts.

11
  • The future maximum cost to the Government of the
    scheme can readily be calculated. If the price of
    the allowance becomes sufficiently high the cost
    becomes zero.
  • The liability of the Government is not open-ended
    because it can decide how many contracts to sell.
    This would be based on perceptions of how many
    projects are felt desirable to incentivise.

12
  • A well-developed put option market is not
    necessary to enable the scheme to function.
    Bilateral negotiations between the two parties
    suffice. The properties of the options (e.g.
    exercise date and price) can be tailored to the
    needs of specific projects.
  • The scheme is a market-related one, consistent
    with the philosophy of the EU ETS.

13
  • The UK Government has had much experience in
    negotiating emission-reducing agreements (CCAs),
    and has had involvement in the bond market for a
    very long time.
  • It is noteworthy that in the European Climate
    Exchange (ECX/ICE) there is provision for option
    contracts in CO2 allowances, though they are of
    relatively short term duration.
  • Carbon-reducing investments are long-term and the
    option contracts would also have to be long term
    (though not as long as the life of a typical
    investment project). Currently financial options
    can have a duration of 2-3 years (LEAPS).

14
  • k) A Government which wants to minimise the
    timing risk relating to its commitments may
    prefer the European option where the exercise
    price is only at a specified expiration date. (An
    American option allows the owner to exercise his
    option at any time up to the expiration date).
  • l) Note that CFD gives similar protection to
    investor but gives away option value.

15
Economics of CO2 Capture, Transportation, EOR,
and Storage in UKCS
  1. Development of dynamic linear programming
    least-cost optimisation model of capture,
    transportation, injection, EOR, storage
    processes, including different market structures
    (vertically-integrated participants and
    non-integrated participants).
  2. Application of model to CO2 Capture in 8 power
    stations in UK for period 2008-2032.
  3. Current work is on least-cost optimisation
    modelling of transportation, EOR and storage in
    fields in UKCS.

16
Summary of study objective and approach
  • The global objective To add relative realism to
    discussions on CO2 capture costs and early
    deployment of carbon capture technology in the
    UK.
  • The study proposes a methodology for determining
    the least-cost options for introducing carbon
    capture technology under the overarching
    assumption of increasingly stringent emission
    caps on fossil-fuelled power plants, which are
    universally recognised as large point sources of
    carbon emission.
  • The approach entails formulating and solving an
    optimisation model with clearly stated goals,
    and, explicit provisions for the various
    regulatory, technological and market conditions
    which offer opportunities and/or restrict
    corporate decision-making and action-taking,
    while using public-domain data on selected power
    plants proposed CO2 capture investment
    programmes combined with relevant data available
    in the literature.
  • More specifically, the objective of the study is
    to minimize the cost of CO2 capture, using the
    well-tested optimizing techniques of linear
    programming (GAMS model) to scan through all the
    possible cost-output combinations before
    selecting one as being the optimal. The model is
    applied to the UK but has a wider applicability.

17
Summary of results and future plans
  • Determination of the nature of the CO2 capture
    cost curve.
  • Establishment of a dynamism in the cost
    relativities of alternative carbon capture
    technologies.
  • Establishment of the importance of Government
    incentives.
  • Demonstration of the need for increasingly
    stringent emission allocation rights, to enhance
    and sustain the profitability of CO2 capture
    operations.
  • Current work is formulating and solving a
    transportation problem that would determine the
    least-cost option of matching the supply of the
    captured CO2 at the power plants with the
    potential demand for CO2 at the fields, for
    value-added (EOR, ECBM) and non-value added
    (permanent storage) uses.

18
A summary of the model
  • Formally, the objective is to minimise the PV of
    a generalised environomic cost function
  • where
  • kt capital recovery factor of plant type i at
    time t
  • ait unit CAPEX of the core power generating
    plant type i at time t
  • xit effective electricity generating capacity
    of plant type i at time t
  • bit unit CAPEX of the CO2 capture equipment of
    plant type i at time t
  • uit installed CO2 capture capacity in plant
    type i at time t
  • fit unit fuel OPEX of plant type i at time t
  • yit the operating level (or output) of plant
    type i at time t
  • eit unit non-fuel OPEX of plant type i at time
    t
  • hit unit CO2 capture OPEX
  • qit amount of CO2 capture in plant type i at
    time t
  • mit unit emission penalty cost to plant type i
    at time t
  • vit excess CO2 emission in plant type i at
    time t
  • git unit Government intervention (tax or
    subsidy) rate in plant type i at time t
  • r discount rate

19
Model summary (continued)
  • The aforementioned objective function is
    minimized subject to the satisfaction of a number
    of constraints determined by demand, supply,
    technological and capacity factors. These can be
    summarized broadly into two sets of constraints
    namely
  • Supply and/or maximum capacity constraints
  • Demand and/or minimum capacity constraints

20
Application to the UK (continued)Key results
(1a) The total cost curve of CO2 capture has 3
distinct phases
21
Application to the UK (continued)Key results
(2) In terms of picking a winning technology,
no capture technology has a permanent relative
cost advantage or disadvantage.
22
Application to the UK (continued)Key results (2)
(contd)
  • The main driver of the switch in the cost
    relativities of different capture technologies is
    excess emission penalty charges.
  • The 2 PCSCFGD plants (Drax and Teesside) are less
    expensive than the higher efficiency, less CO2
    emitting plants (Peterhead and Killingholme) only
    as long as they avoid incurring heavy emission
    penalty charges.
  • However, once penalty charges have reached
    57/tCO2 (carbon price 29/tCO2) (from 2025
    onwards), the larger emitters incur high emission
    penalty charges, switching the cost relativities
    in favour of the CCGT and IGCC plants.
  • The least costly plant throughout is Ferrybridge,
    but it is likely that the projects capital
    investment cost was underestimated. The SSE seems
    to agree as much in its Preliminary Results for
    the Year to 31 March 2007

23
Analysis of alternative carbon abatement policies
  • Higher emission penalty charges vs
  • Deeper cuts in EUA ratios

24
3 scenarios distinguished as follows
  • (i) Baseline scenario The assumption is that
    the Government introduces a cost-sharing
    incentive scheme and the objective function and
    accompanying constraints in the original model
    hold.
  • (ii) Higher penalty scenario The same
    assumptions are maintained as in the baseline
    scenario, except that, consistent with EU-ETS
    Phase 2 there is a 2.5 times increase in the unit
    emission penalty from 40/tCO2 to 100/tCO2 and a
    corresponding increase in the carbon price from
    21 to 53/tCO2, rising at the same annual rate
    as in the baseline case.
  • (iii) Deeper EUA ratio cut scenario The same
    assumptions are maintained as in the baseline
    except that in this case there is a 2.5 times
    reduction in the individual plant emission
    allowance allocation ratios.
  • The performance criteria to use in assessing the
    relative efficacy of the alternative policies
    include (a) the amount of CO2 captured, (b) the
    capture cost, and (c) the level of Government
    support required.

25
Future Work
  1. Economics of CO2 Capture Systematic risk
    analysis, particularly on (1) plant costs, (2)
    primary fuel costs, and (3) EU ETS allowances
    (e.g. 100 power plant auction, price)
  2. Economics of CO2 Transportation, EOR and Storage
    Systematic risk analysis of investment costs of
    above, and EOR response of reservoirs.
  3. Incentives and Regulations for CO2 Capture,
    Transportation and EOR/Storage Systematic
    comparison of merits of long term put option
    contracts compared to other incentives such as
    CFDs, tax reliefs, feed-in tariffs etc.
    Legislative/regulatory changes required to
    facilitate the activities, including change of
    use of assets and liability in North Sea, and
    related taxation arrangements.
Write a Comment
User Comments (0)
About PowerShow.com