Last week, the owners of the Petra Nova carbon capture facility, a 1.6 Mt/y facility on Unit 8 of the W.A. Parish coal plant in Fort Bend, TX, announced they would be putting the facility back in service after shutting it down in early 2020. Previously, the facility was shut down due to the economics of carbon capture at the time, including a lower 45Q tax credit and depressed oil prices that resulted in lower CO2 prices for enhanced oil recovery (EOR). Since the time the facility was shut down, however, the IRA passed and increased the credit for CO2 sold for utilization, including EOR, from around $12/t to $60/t. Additionally, oil prices are up from around $40/bbl around the time Petra Nova shut down in 2020 to $80/bbl now, resulting in higher prices fetched for the CO2, which are typically linked to oil pricing. These changes are likely providing enough support to restart the facility, especially when considering the sunk capital costs. However, are these changes, and the news of Petra Nova, good news for other coal power plant CCS projects?
Since Petra Nova suspended operations in 2020, both the 45Q tax credit and oil prices have increased significantly. The new tax credit alone likely gets Petra Nova close to or past the breakeven point of capturing and selling the carbon, without factoring in capital costs, and the price of oil has nearly doubled since the plant first closed, including a period of sitting above $100/bbl in 2022. Estimates of CO2 selling for around 40% of WTI add another $30/t to the $60/t tax credit for an estimated $90/t of incentives and sales revenue. Based on DOE National Energy Technology Lab (NETL) models, the operating expenses of coal CCS projects, including transportation and storage, hover anywhere around $30–50/t CO2. However, factoring capital costs into the equation bumps the costs up to a range of $80–100/t CO2. With the capital cost factored in, the margins on the project become a lot thinner; and declines in oil prices could quickly eat into those margins. Additionally, the initial results of the Petra Nova project, which were submitted to the DOE in 2020, show that operational risk is high in these projects, with several spots along the operational chain being potential points of failure, which would in turn cause downtime in the capture capability and a decline in revenue and tax credits from the CCS project.
So, does this picture spell good news for the current slate of proposed CCS projects at coal power plants in the U.S.? In short, it’s complicated; and based on this case study, there are still significant challenges. Petra Nova has the distinct advantage of already being built. The capital cost for Petra Nova has already been spent, and at this point, is a sunk cost. This means Petra Nova is likely going to be able to recover some costs due to the high price of oil and the increased 45Q covering operational costs. However, once you factor in capital costs for new projects, high operational risk, and potentially lower coal capacity factors as a result of low natural gas prices and increased wind and solar generation, it is unlikely that many other CCS projects on coal power plants will follow Petra Nova’s path to coming online. In fact, none of the projects BTU Analytics currently tracks are past a Front-End Engineering Design (FEED) study, a relatively early phase in a project’s journey to being online, with the exception of a relatively small (10MW) pilot project in Illinois that has already broken ground. Despite Petra Nova’s recent announcement, retrofitting coal plants with CCS will still face significant financial hurdles in the U.S.
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