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

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  • Lohwasser, Richard
  • Madlener, Reinhard

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.

Suggested Citation

  • Lohwasser, Richard & Madlener, Reinhard, 2012. "Economics of CCS for coal plants: Impact of investment costs and efficiency on market diffusion in Europe," Energy Economics, Elsevier, vol. 34(3), pages 850-863.
    • Handle: RePEc:eee:eneeco:v:34:y:2012:i:3:p:850-863
    DOI: 10.1016/j.eneco.2011.07.030
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    References listed on IDEAS

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    1. Lohwasser, Richard & Madlener, Reinhard, 2013. "Relating R&D and investment policies to CCS market diffusion through two-factor learning," Energy Policy, Elsevier, vol. 52(C), pages 439-452.
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    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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