The impact of future carbon prices on CCS investment for power generation in China

Abstract

Carbon capture and storage (CCS) in China is currently discussed extensively but few in-depth analyses focusing on economics are observed. In this study, we answer two related questions about the development of CCS and power generation technologies in China: (1) what is the breakeven carbon-dioxide price to justify CCS installation investment for Integrated Gasification Combined Cycle (IGCC) and pulverized coal (PC) power plants, and, (2) what are the risks associated with investment for CCS. To answer these questions, we build a net present value model for IGCC and PC plants with capacity of 600MW, with assumptions best representing the current technologies in China. Then, we run a sensitivity analysis of capital costs and fuel costs to reveal their impact on the carbon price, and analyze the risk on investment return caused by the carbon price volatility. Our study shows that in China, a breakeven carbon price of $61/tonne is required to justify investment on CCS for PC plants, and $72/tonne for IGCC plants. In this analysis, we also advise investors on the impact of capital and fuel costs on the carbon price and suggest optimal timing for CCS investment.