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Economics of CCS for coal plants: Impact of investment costs and efficiency on market diffusion in Europe

Richard Lohwasser and Reinhard Madlener ()

Energy Economics, 2012, vol. 34, issue 3, 850-863

Abstract: In this paper, we analyze how the development of the carbon capture and storage (CCS) technology used in coal-fired power plants affects its market diffusion. Specifically, we (1) show the significant variance in expectations about the economics of commercial-grade CCS hard coal power plants observed in the literature; (2) analyze the impact of CCS economics on electricity generation costs; and (3) investigate the expected deployment of CCS in the European power sector, depending on the variance of two main factors, efficiency and investment cost, using the bottom-up electricity sector model HECTOR. Simulation results show that investment costs strongly influence the market deployment of coal-fired CCS power plants, leading to a share of 16% in European generation capacity by 2025 with the lowest observed investment costs of 1400€/kW, but only 2% with the highest of 3000€/kW. A variation of conversion efficiency between 37% and 44%, the minimum and maximum observed values, only leads to a 13–15% share variation of CCS-equipped power plants. These findings are robust for the Base Case with a CO2 price of 43€/t and also for sensitivities with 30 and 20€/t CO2, but with a lower effect, as the overall share of CCS is significantly reduced at these prices.

Keywords: Electricity market; Simulation model; CCS; Power generation; Technology adoption (search for similar items in EconPapers)
JEL-codes: O33 Q47 (search for similar items in EconPapers)
Date: 2012
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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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