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Carbon Capture Cost Problem Could Be Solved by China
  Australia, China

Friday, October 16, 2015

Coal's future as a fuel for power generation largely hinges on rapid progress on carbon capture and storage (CCS), but the sense of urgency required appears to be lacking.

Noises this week from new Federal Resources Minister Josh Frydenberg about co-operation within the Asia Pacific Economic Co-operation region on CCS were too vague to give hope for any renewed spending push. But they may point to closer ties with the one nation that could unlock the cost reductions that are needed: China.

With its heavily coal-based energy system, in chemicals as well as power generation, China has a keen interest in seeing CCS work effectively and economically, says Grattan Institute energy program director Tony Wood, who has drawn up a CCS "roadmap" for China through the Asian Development Bank.

China's success in dramatically driving down costs of solar power fuel hopes that something similar can be achieved for CCS.

But the scale of what is needed looks almost unachievable from where we are today. The International Energy Agency points to the need for the technology to have been successfully demonstrated in at least 30 projects by 2020 and for it to be "routinely" used in power generation by 2030 to put the world on a path to limiting warming to 2 degrees C.

An estimated 1.5 billion tonnes of CCS capacity would needed by that time, rising to about 6 billion tonnes in 2050, according to Citigroup.

As it is, the sole operational power station fitted with CCS remains SaskPower's 140-megawatt Boundary Dam plant in Canada, and capacity across all sectors worldwide is put at 40-50 million tonnes.

In the power sector, other projects are at best limping along. The 582-megawatt Kemper plant in the US, where capital costs have more than doubled and are now well past $US6 billion, lost the backing of South Mississippi Electric in June.

One of the UK's leading projects, White Rose, has started engineering but one of its major backers, the Drax Group, last month pulled out. The power giant blamed the financial and regulatory environment, saying "we must put interests of business and shareholders first".

VICTIM TO HIGH COSTS

The road is littered with other hopeful ventures that have fallen victim to high costs, including projects in Australia.

The Global CCS Institute puts the levelised cost of energy of coal plus CCS at $US115-$US160 per megawatt-hour, roughly double than for coal without CCS and well above solar PV, which is as low as $US60/MWh at some sites in world leader Chile.

Even these estimates could be optimistic, with Citi noting they probably exclude the costs of proving up storage. In any case, the bank puts Boundary Dam's equivalent cost higher, at about $US170/MWh.

Citigroup questions whether time is running out for the coal industry, suggesting the timeframe for commercial success "may be beyond the survival window" for many miners.

Without government policy to support the business case, cost reductions and much more investment, CCS looks on a path to failure. At the same time, Citi highlights the risks of ploughing funds into CCS given the potential for alternative solutions, whether solar, storage or even algae-based fuels.

But Grattan's Wood notes a marked change in the language around CCS used by the Australian resources industry in recent months that now recognises the vital role it plays in its future. BHP Billiton's recent link-up with Boundary Dam on sharing data to accelerate CCS also illustrate practical steps being taken, although details remain scant.

Wood also points to several projects in China, including the GreenGen venture in Tianjin City, that demonstrate China's work and says the powerful National Development and Reform Commission has expressed interest in taking CCS to the next stage. The ADB is set to hand over the CCS "roadmap" to the minister of the NDRC in Paris in early December. Adoption of that strategy could prove a turning point. (Australian Financial Review)

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