Levelised Costs of Electricity with CCS

Lawrence Irlam

Levelised Costs of Electricity with CCS

The Global CCS Institute has recently released analysis of low emissions technologies compared on the basis of emissions reduction potential and levelised cost of electricity (LCOE). Coal with carbon capture and storage (CCS) falls in the mid-range of LCOE costs with high emissions reduction potential. The report's author is Lawrence Irlam, Senior Advisor Policy and Economics, Asia Pacific region for the Global CCS Institute. In this Insight Lawrence discusses the results of the LCOE analysis and some of the underlying factors.

Coal with CCS is a mid-range technology in terms of cost when compared against a range of low-emissions technologies. Source: Global CCS Institute

CCS projects in the power sector involve large price tags, in the order of hundreds of millions of dollars or euros. While this certainly warrants attention, particularly as projects tend to involve significant amounts of government support, the business case for CCS (and indeed all low emission technologies) is about value for money, which is more than just the cost side of the equation.

The Global CCS Institute has recently completed analysis of power sector costs in the United States, which represents an update to similar analysis conducted in 2011. This analysis draws on cost and performance data from a variety of published sources and compares these in a common methodological framework based on the levelised cost of electricity (LCOE). It also combines outputs of the LCOE framework with estimates of CO2 emissions from various plant to compare technologies in terms of the cost of CO2 avoided. Comparisons of this type are important when considering policies that lead to a least-cost emissions reduction pathway.

Overall our analysis demonstrates that CCS is a mid-range technology in terms of cost and value for money in emissions reduction potential.

The key cost advantage of CCS-equipped power generators, relative to some renewables like wind and solar, derives from the fact that they are typically used to provide baseload or controllable output, and thus have higher rates of capacity utilisation. For this reason, while CCS currently has a higher investment cost than other low emission technologies, this is spread over a larger amount of clean electricity output. Technologies like hydro, nuclear and geothermal generation also have high rates of capacity utilisation and therefore may also provide better value for money in terms of costs per megawatt-hours (MWh) generated and per tonne of CO2 avoided.

These are general conclusions however, and reflect a range of plant types and costs that are specific to the United States, including natural gas prices. They also reflect the state of each technology at present and do not include assumptions of expected cost and performance improvements that are likely to arise for many of the technologies considered.

These results also should not be interpreted to mean that technologies with the lowest cost should be favoured, while those with relatively higher costs should be excluded. Decarbonising the world’s energy supply is a significant task, with around two-thirds of all power generation currently coming from fossil fuel sources. All low emission technologies will have a role to play in addressing power sector emissions. The particular least-cost power generation mix consistent with achieving climate goals will depend on a variety of locational specific considerations, including local fuel costs and access to suitable wind, solar, hydro and CO2 storage resources. Policies designed to encourage a transformation of the power sector should allow for investment that reflects local commercial and technical conditions, rather than block or favour particular technologies.