Credit to Author: POWER| Date: Tue, 01 Dec 2020 05:07:00 +0000
There is significant governmental support for the development of carbon capture, utilization, and storage technologies. Understanding options and taking advantage of opportunities could help maintain a plant’s economic viability and extend its usable life for years to come.
For owners and operators of coal- and gas-fired power plants, sustaining business as usual in the future will require facing the ever-changing landscape of regulations, taxes, and renewable energy requirements head-on. If such factors go unaddressed, systematic plant retirements become all but inevitable in the decades ahead. As environmental regulations shift and renewable energy becomes more cost-effective to generate and store, successful operation of these plants will require owners and operators to seek out new ways to comply—including reducing carbon dioxide (CO2) emissions by deploying carbon capture, utilization, and storage (CCUS) technology.
Bolstered by U.S. Department of Energy (DOE), state, and academic support—and spurred by federal legislation and state mandates—CCUS technologies are quickly becoming a prime option for preventing up to 90% of CO2 plant emissions from entering the atmosphere while concurrently turning a profit. Understanding how these systems work, as well as the economic challenges associated with the sequestration of CO2 can help plants comply with new regulations and, in turn, extend operations for years to come.
Robust Federal Backing
To jump-start the commercialization of CCUS technologies, in September 2019 the DOE awarded $110 million in federal funding for carbon capture research and development projects. Half of the recently awarded funding is earmarked for projects designed to accelerate the progression of existing carbon capture technologies, and the development and refinement of new innovations. By empowering a variety of large-scale carbon capture, utilization, and storage pilot and demonstration projects, the DOE expects to build the knowledge base needed to test and further prove these technologies at commercial scale (Figure 1).
1. The Petra Nova project (POWER’s Plant of the Year in 2017) successfully retrofit carbon capture technology onto a unit at the coal-fired W.A. Parish Generating Station located southwest of Houston, Texas. The U.S. Department of Energy (DOE) and National Energy Technology Laboratory provided financial and project management support for the Petra Nova project, which is owned and operated by NRG Energy Inc. and JX Nippon Oil and Gas Exploration Corp. Source: DOE
While DOE funding is limited to addressing solely front-end engineering expenses, carbon capture investors can recoup additional costs through a performance-based federal tax credit program. Originally enacted by Congress in 2010, Section 45Q of the U.S. tax code incentivizes the construction and deployment of carbon capture and sequestration projects. The credits are currently applicable to CO2 captured and stored for 12 years after the project is placed in service.
To help bridge cost gaps on inaugural projects and attract additional investment, Congress lowered the threshold for 45Q eligibility in 2018, while also increasing the value of the credits awarded. Today, utilities and their investors are eligible for tax credits of $35 per metric ton for enhanced oil recovery (EOR) and $50 per metric ton for geological sequestration.
The 45Q tax credits make implementation of CCUS technology a more economically attractive proposition for utilities, while not limiting the industry with a tax credit cap. The only catch: To be eligible for compensation, construction of these projects must commence by Jan. 1, 2024.
Setting CCUS Projects in Motion
When installing carbon capture systems, utilities must consider how they will dispose of and benefit from the large amounts of captured CO2. Location is the most salient factor to weigh when making these decisions. The cost to transport excess gas is substantial, power plants need to be relatively close to the end storage reservoir for CCUS deployment to make economic sense. Today, there are two predominant storage strategies.
EOR Supplementation. One option is to sell byproduct CO2 to the oil industry for enhanced oil recovery (EOR). Oil companies rely on natural CO2 sources found underground to extract additional crude oil from existing oil fields. Power plants that sell captured CO2 to an EOR off-taker have the potential to supplement their operations with 45Q revenue.
However, the potential supply of sellable CO2 greatly exceeds likely demand from EOR utilization. This option is also highly dependent on the plant’s proximity to CO2 pipelines with sufficient capacity to transport the captured gas. Plants located near oil fields are likely in a better position to market their captured carbon for EOR use than those that must transport it hundreds of miles or more for sale.
Geological Sequestration. Another alternative is geological sequestration, which entails injecting CO2 into vast underground geological formations for long-term storage. By disposing of CO2 as a waste product, sequestration necessitates costly infrastructure and permitting, along with overcoming likely public opposition. This option is also highly location dependent, requiring a plant to be near the target geological formation to remain cost-feasible.
Oil reservoirs and saline aquifers offer opportunities for storing CO2 underground, but geologic sequestration of CO2 in saline aquifers involves addressing technical and permitting issues, and there is currently little industry experience in doing so. Conversely, injection of CO2 for use in EOR is more readily understood and a long‑standing practice for which sequestered CO2 can be employed.
Capitalizing on Opportunities Ahead
Overall, the economics of CCUS implementation rely heavily on the balance of many factors. Some of these are the amount of CO2 captured, cost to capture, impact to host plant efficiency and output, cost-benefit of and ability to leverage tax credits, capital cost, and operations and maintenance costs.
Looking ahead, state regulators would be well-advised to consider incorporating carbon capture strategies in their states’ asset mix and comprehensive renewable energy plans. The prominence of CCUS technology at coal- and gas-fired power plants will be a function of the regulatory environment, and the future promises to bring new challenges to utilities—possibly in the form of more stringent environmental regulations and carbon taxes.
For utilities and power producers with CO2 off-take potential, CCUS offers an economically viable way to balance aggressive environmental mandates with reliable power generation. One thing is certain: The 45Q tax credit will not last forever. It is a temporary revenue incentive designed to facilitate investment in carbon capture technologies. Finding the sweet spot between cost and meeting business plans, and efficiency goals will make the implementation of CCUS technology more viable and effective.
A Mutually Beneficial Path Forward
Carbon capture has substantial utility, regulatory, and academic support, and will likely continue to be incentivized through federal legislation, DOE support, and state mandates. Utilities with CCUS potential can leverage these technologies to create a new revenue stream that enhances the economic performance of existing generation assets, while helping to meet clean energy mandates. Power plants retrofitted with these systems also continue supporting jobs in their communities and extend their operating lives by a decade or more.
In states with regulatory support for carbon capture, utilization, and sequestration, the clock is ticking. If the necessary permitting at nearby oil fields is not already in place—and decisions on CO2 sequestration versus sale are not made—swift action will be needed to meet the Jan. 1, 2024, construction start date needed to secure tax credit eligibility. ■
—Stephanie Villarreal, PE is a senior development engineer at Burns & McDonnell. With a background in mechanical engineering, she specializes in technical development and economic business analysis for the advancement of innovative carbon capture and decarbonization technologies in the energy industry.