Natural Gas with CCS: Underlying Economics & Cost
Natural gas equipped with CCS is more expensive, the market needs to see that customers are willing to pay the premium
Details
Core information and root causes
Context
Natural gas equipped with CCS is inherently more expensive than unabated natural gas use. The exact costs will vary significantly; greenfield builds of new facilities will have a lower cost for carbon capture than retrofitted natural gas plants. Estimates range from an additional $20–35/MWh for Nth-of-a-kind, greenfield builds1 to a $40–80/MWh premium for retrofit projects today. Part of the cost comes from upfront capex costs for the carbon capture equipment itself, and there is an ongoing “energy penalty” where some percentage of the power plant’s output is consumed to run the equipment (estimates ranging from 15–30%)2. While the 45Q tax credit provides a key incentive for development it often does not cover the full cost of capture, transportation, and storage.
A Bottlenecks Institute industry survey heard respondents across the industry (ranging from practitioners, researchers, and policy experts) express the underlying economics and cost for natural gas with CCS as the main factor affecting the development of the sector. To that end, demand signals that customers are willing to pay a premium for clean firm power (assets that can be operated and scaled on-demand, independent of weather) are critical.
Industry Observations & Insights
CCS deployment, beyond very limited applications at the moment, just isn't economical. There's not really a robust and mature market to incentivize it and so investments are kind of stranded.
”The economics are important. CCS has a well-deserved reputation for overpromising and underdelivering and going way over budget. So from a perspective of credit risk, you would have to take that into account.” -Financial Industry Leader
“We are prepared to pay some green premium for cleaner electrons, but for those who have a willingness to pay a green premium, it's not endless, there's a cap to that. And then for a lot of other players in the market there might not even be that willingness to begin with. Fundamentally, capture and storage are costs; they're not required to generate the power. It's different in that respect from nuclear or geothermal where the cost is the cost of the system that allows you to produce the power, and you can't just lop off a chunk of that system and the cost and still get your nuclear electrons. There are 500 gigawatts of unbated gas in the U.S right now and they operate perfectly fine without carbon capture and they are cheaper. And so that is a barrier.” -Natural Gas Buyer (Hyperscaler)
“As far as natural gas, the CCUS cost is really the biggest challenge. The cost to capture is pretty high with natural gas (not as high as some things, but higher than a lot of things). So it's hard to start there, and unless you have massive investors to make this come to fruition, it's just not happening.”
“Large-scale demos are critical. Those are particularly supported by the federal government; federal funding for those large-scale demo projects will be really, really important. We've been seeing some headwinds with the DOE, some projects getting canceled, and so having that Federal support for large-scale demo projects is really important for unlocking technologies and bringing costs down” -Energy Policy Expert