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Carbon Capture: Investors Need Deep Pockets

Posted on: Monday, 4 December 2006, 12:01 CST

A group of international companies, including Norsk Hydro, have joined forces to build a coal power plant with carbon capture technology in Norway by 2011. This project will require not only suitable underground reservoirs but also substantial capital investment. Nevertheless, despite the hurdles building and operating the plant will entail, the investment may pay off for the companies involved.

The challenges presented by carbon capture and storage (CCS) are largely economic. Many, if not all, of the technical processes that will be needed are already available at smaller scales or within other industries, but considerable investment will be required to meld them together at scales at which they would be commercially viable for power plants.

This is visible in the group's estimate of the cost of the power plant, which is $1,750/kW, much greater than the typical $1,000 to $1,200/kW range for a coal power plant without carbon capture.

After construction, many operating challenges will remain. The operating costs of a coal power plant with CCS will be significantly higher as there are more components to maintain. In addition, fuel consumption will be higher. According to the Intergovernmental Panel on Climate Change, coal plants with CCS will require between 20% and 30% more energy input to run the additional equipment, raising their fuel costs for the same level of power output.

Despite all of these hurdles, the investment may yet pay off for the firms involved as the issue of climate change continues to top national and international political agendas. In the absence of any meaningful price for carbon, there would be no benefit at all for companies to own a virtually carbon-free power plant as they would take on these additional costs for no financial benefit. However, if the market for carbon within the EU can deliver a long-term signal of high future prices, having the experience to both construct and operate a large-scale CCS plant could generate significant returns.

Power plants last for decades, and having some security over long-term carbon prices will be critical to stimulate the investments in clean technology that will be needed to mitigate, or at least slow, the pace of climate change.

Source: Datamonitor

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