Getting Ready for Carbon Capture and Storage in China 2 000 4 000 6 000 8 000 10 000 2005 2010 2015...

Getting Ready for Carbon Capture and Getting Ready for Carbon Capture and Storage in ChinaStorage in China

David Reiner, Xi LiangDavid Reiner, Xi LiangEPRG, University of CambridgeEPRG, University of Cambridgehttp://www.electricitypolicy.org.ukhttp://www.electricitypolicy.org.uk

Electricity Markets WorkshopElectricity Markets WorkshopEDF Tower, La EDF Tower, La Défense Paris 3rd-4th July 2008

ContentContent

•• Chinese key stakeholdersChinese key stakeholders’’ views on CCS views on CCS •• Value and financial issues of Capture Ready investment in ChinaValue and financial issues of Capture Ready investment in China•• Overview of current CCS activities in ChinaOverview of current CCS activities in China

Nobuo TanakaExecutive DirectorInternational Energy AgencyBeijing, 9 November 2007

0

2 000

4 000

6 000

8 000

10 000

2005 2010 2015 2020 2025 2030

TWh

Other renewablesHydroNuclearGasOilCoal

Source: IEA, 2007

The Forecast of Electricity Generation in ChinaThe Forecast of Electricity Generation in China

Source: Reiner et al, 2007

Analysis of Key Stakeholder Opinions on CCS in ChinaAnalysis of Key Stakeholder Opinions on CCS in China

• Collaborate with Chinese institutions (CASS, CCII, SCUT) with minimal prior involvement with CCS issues

• Design Chinese-language questionnaire using mixed questionnaire (both open-ended and close-ended questions)

• Focus on Beijing (both national and regional), Wuhan and Pearl River Delta Regions

• Interview over 130 pre-selected key stakeholders in autumn 2006


CASS (Beijing, Wuhan)

Cambridge, CCII (National)

SCUT (Pearl River Delta)

Perceptions on Climate Change, Policies, TechnologiesPerceptions on Climate Change, Policies, Technologies

77% identified Climate Change as a serious problem for China

47% perceived current policies could lower emissions in 20 years

91% believed technologies were important in reducing emissions


0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Very necessary

Probably necessary

Necessary only if others cannotachieve

Probably unnecessary

Not necessary at all

Necessity of CCS for Large GHG Emissions ReductionsNecessity of CCS for Large GHG Emissions Reductions


0% 10% 20% 30% 40% 50% 60% 70%

All technologies are mature

Most of technologies are mature

Small part of technologies are mature

Not mature at all

Not Sure

Views on Status of CCS TechnologiesViews on Status of CCS Technologies


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Large-scale leakage

Ecological hazard

Investment environment downgrade

Health hazard

Geological disaster

Soil degradation

Water pollution

Primary Serious Medium Minor No risk Unsure Lack Info

Perceptions of Potential Risk FactorsPerceptions of Potential Risk Factors


110% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Capture cost

CCS demonstration plants

Availability of geological storage

CCS R&D

US climate policies

Post-Kyoto obligations allocations

Concerns on energy security

CER prices

Opportunites of EOR

National Kyoto Protocol obligations

China and India climate policies

Involvement of CCS in CDM/JI

Availability of coal supply

CCS legal and regulatory framew ork

Public perceptions of CCS

Need to replace older plants

Venture capital availability

Hydrogen economics

Other low carbon energy sources

very important important less important not important at all not sure

Importance of issues to the Development of CCS

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Support CCS R&D and demonstration plants

Guarantee premium tarif f for electricity generatedw ith CCS

Provide subsidy for CCS plant construction

Mandate pow er plants supply a proportion ofelectricity through all low carbon sources

Mandate pow er plants supply a proportion ofelectricity through CCS

Carbon tax

Strong support Support Fair Oppose Strongly Oppose Unsure

Views on Potential Mechanisms to Promote CCSViews on Potential Mechanisms to Promote CCS


Comparisons of Key Stakeholders Opinions Comparisons of Key Stakeholders Opinions –– EU and ChinaEU and China

#Source: Reiner et al, 2007

Overwhelmingly reducing

Mostly increasingViews of CCS upon Energy Security

81% strong support or

support

89%like it a lot or somewhat

Support for R&D and demonstration

66%necessary or

probably

82%necessary or

probablyNeeds of CCS for CO2 Deep Cut Globally

China#EU*

*Source: Shackley et al, 2007

Attractiveness of CCS vs. Alternatives Attractiveness of CCS vs. Alternatives ––2007 survey of 62 Chinese stakeholders2007 survey of 62 Chinese stakeholders

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Wind

Advanced SCPC

CHP

Biomass

Natural Gas

Nuclear

CBM Pow er

Large Hydro

Solar PV

Small Hydro

CCS

Wave

Geothermal

government industry

Financing Lower Carbon Electricity in China - Liang X, Reiner D, Neuhoff K, Cheng C

Opinions on Potential Capture Ready Support SchemeOpinions on Potential Capture Ready Support Scheme


Policy mandate Allow subsidiary but plants makes decision

No intervention by governments Should not encourage Capture ReadyNot sure

IEA Capture Ready RequirementsIEA Capture Ready Requirements

• A clearly identified strategy by which a credible capture

technology can be fitted to the plant

• Space available both within and around the plant to permit the

capture technology to be fitted

• A credible route for captured CO2 to be removed from site and

sent to storage

Source: IEA, 2007

Source: Gibbins 2008, quoted from Hotchkiss, 2007

TIlburyTIlbury 2x800 MW Capture Ready Photo Montage2x800 MW Capture Ready Photo Montage

Views on Capture Ready Investment by nine senior Views on Capture Ready Investment by nine senior financial officials in Chinese power companiesfinancial officials in Chinese power companies

• Policy Risk

• Uncertain about the technical impact of Capture Ready design

• Rising fuel cost impairs the value of Capture Ready

• High ability but low willingness to pay for Capture Ready


In China, Capture Ready was viewed as crucial but In China, Capture Ready was viewed as crucial but hampered by a lack of incentives and policy supporthampered by a lack of incentives and policy support

• No current mechanism for generating carbon credits – CCS not

currently allowed in CDM

• No domestic policy support to-date – focus restricted to R&D

• ‘snake-bike effect’ – industry reluctant based on experience with

FGD-ready in 1990s


If new plants have a low probability of If new plants have a low probability of retrofitting to CCS in future, selling the option retrofitting to CCS in future, selling the option of capturing COof capturing CO22 in the future to investors can in the future to investors can generate generate additional incomeadditional income and has and has potential potential environmental benefitenvironmental benefit. The option is called . The option is called Capture OptionCapture Option. .

Source: Liang et al, 2006

Capture Option RationalesCapture Option Rationales

• Financing Capture Ready Investment

• Optimizing Capture Ready Decisions

• Invest in CCS without Linking to Power Plant Investment

• Additional Cash Infusion to Power Firms

• Political Leverage

• Academic and Research benefit


Pricing Capture Ready and Capture Option Pricing Capture Ready and Capture Option

•• Construct a comprehensive cash flow modelConstruct a comprehensive cash flow model

•• Backward deduction methodologyBackward deduction methodology

•• Use MonteUse Monte--Carlo simulation to estimate outcomes in various scenariosCarlo simulation to estimate outcomes in various scenarios

•• Assume a plant built in 2010 and starting operation in 2012Assume a plant built in 2010 and starting operation in 2012

•• Consider inflation, tax, load factor, Chinese power despatch poConsider inflation, tax, load factor, Chinese power despatch policylicy

•• Performance and some cost data is obtained from Chinese firms aPerformance and some cost data is obtained from Chinese firms and nd public domain public domain

•• Estimate fuel and carbon (CER) price based on historical informEstimate fuel and carbon (CER) price based on historical information, ation, adjusted by current market opinionsadjusted by current market opinions


Financing Capture Ready Coal Fired Power Plants in China by Issuing Capture Options: Liang X, Reiner D, Gibbins J, Li J

LowHighLowHighCapture Ready Benefit8%4.5%4.5%8%Carbon Prices Growth

1.5%4.5%4.5%1.5%Basic Inflation16.30.616.30.6Transport, Monitor, Storage CostLowHighLowHighCapacity Load after CaptureLowHighHighLowCapacity Load before Capture

3 years2 years3 years3 yearsConstruction Cycle

LPHPLOHO

Scenarios Assumptions BriefingScenarios Assumptions Briefing

HO: High Option value scenario; LO: Low option value scenario;

HP: High project value scenario; LP: Low project value scenario;

Value of Capture Ready in a 600MW SCPC in China

831

630

311

711

713

327

758 31

816 3 2 100

100

200

300

400500

600

700

800

900

6% 8% 10% 12%

CNY

mill

ion

Scenar i o HOScenar i o LOScenar i o HPScenar i o LP


26

0

500

1000

1500

2000

2500

3000

mill

ion

CNY

Scenar i o HO_nCR 1625 627 153 22 Scenar i o HO_CR 2451 1255 471 97 Scenar i o LO_nCR 3 1 1 0 Scenar i o LO_CR 7 2 1 0 Scenar i o HP_nCR 10 2 2 0 Scenar i o HP_CR 25 7 5 2 Scenar i o LP_nCR 609 113 16 0 Scenar i o LP CR 1326 439 99 11

6% 8% 10% 12%

Value of Capture Option under different scenarios

81%

34%

10%1%

98%

34%

8%

80%

0%

20%

40%

60%

80%

100%

120%

6% 8% 10% 12%

Scenar i o LP_nCR Scenar i o LP_CR

Cumulative Retrofitting Probabilities


0. 00%10. 00%20. 00%30. 00%40. 00%50. 00%60. 00%70. 00%80. 00%90. 00%

100. 00%

6% 8% 10% 12%Di scount Rat e

Clos

ure

Poss

ibil

ity

LP_nOpt i onLP_nCRLP CR

Probability of Closure in High Carbon Price and high fuel cost Scenario



The retrofitting option is a valuable ‘asset’, while

Capture Ready is an important investment opportunity.

Limitations and Scope for Future WorkLimitations and Scope for Future Work

•• Stakeholder Weighting & Bias Stakeholder Weighting & Bias –– impossible to assign a weight to impossible to assign a weight to each stakeholder or correct for missing stakeholder biaseach stakeholder or correct for missing stakeholder bias

•• Risk of Incorrect Input AssumptionsRisk of Incorrect Input Assumptions

•• Should fit the model with scenarios of climate policies, carbon Should fit the model with scenarios of climate policies, carbon prices prices and technology learning curvesand technology learning curves

•• Have not yet considered various scenarios of Chinese electricityHave not yet considered various scenarios of Chinese electricitymarket reform, which may have significant impact on the resultsmarket reform, which may have significant impact on the results

•• Should improve decision functions based on more realistic Should improve decision functions based on more realistic behavioural patterns and frameworksbehavioural patterns and frameworks

Overview of CCS Activities in ChinaOverview of CCS Activities in China

•• GREENGEN program led by China GREENGEN program led by China HuanengHuaneng Group (CHNG)Group (CHNG)•• A few enhanced oil recovery (EOR) and enhanced coal bed A few enhanced oil recovery (EOR) and enhanced coal bed

methane (ECBM) projectsmethane (ECBM) projects•• CCS was integrated into CCS was integrated into National Medium and Long Term Science National Medium and Long Term Science

and Technology Development Plan towards 2020and Technology Development Plan towards 2020•• ChinaChina--EUEU--UK Near Zero Emissions Coal (NZEC) Demonstration UK Near Zero Emissions Coal (NZEC) Demonstration

InitiativeInitiative•• COACH (CCS cooperation Action within ChinaCOACH (CCS cooperation Action within China--EU)EU)•• STRACO (EU FP7)STRACO (EU FP7)•• China China –– Australia Australia HuanengHuaneng CSIRO PostCSIRO Post--combustion Capture Demo combustion Capture Demo •• UKUK--China CAPPCCO project China CAPPCCO project –– Focus on Capture ReadyFocus on Capture Ready

Source: APEC, 2005

• Oil Fields including enhanced recovery• Enhanced Coal Bed Methane• Saline Aquifers

Capacities of oil and gas fields and coal beds are limited relative to emissions, so saline aquifers are the main prospect for large-scale CO2 storage in China.

CO2 storage prospectivity of selected sedimentary basins

in China and SE Asia

ConclusionsConclusions

•• Most Chinese key stakeholders believe CCS necessary to mitigate Most Chinese key stakeholders believe CCS necessary to mitigate greenhouse gas emissions but over two thirds perceive CCS greenhouse gas emissions but over two thirds perceive CCS technologies as fairly risky and only partially mature. Energy ptechnologies as fairly risky and only partially mature. Energy penalty and enalty and security is a main concern.security is a main concern.

•• Analysis suggests that in absence of subsidies or mandates, new Analysis suggests that in absence of subsidies or mandates, new plants plants that currently do not have retrofitting plans to CCS, issue Captthat currently do not have retrofitting plans to CCS, issue Capture ure Options to finance and optimize Capture ReadyOptions to finance and optimize Capture Ready

•• China is developing a number of its own CCS research (and potentChina is developing a number of its own CCS research (and potentially ially commercial) projects as well as being actively involved in intercommercial) projects as well as being actively involved in international national collaborationscollaborations

Comments and feedbacks welcomeComments and feedbacks welcome

David ReinerJudge Business SchoolUniversity of CambridgeEmail: [email protected]

Xi LiangJudge Business SchoolUniversity of CambridgeEmail: [email protected]

Getting Ready for Carbon Capture and Storage in China 2 000 4 000 6 000 8 000 10 000 2005 2010 2015...

Documents

Transcript of Getting Ready for Carbon Capture and Storage in China 2 000 4 000 6 000 8 000 10 000 2005 2010 2015...