ETS IS THE PROBLEM - NOT THE ANSWER

This post was first published as a  guest post   in Larvatus Prodeo (June 23 2010).  It discusses the problems of systems for driving climate action that depend on a carbon price as well as the additional problems that arise as a result of the carbon price being set by a market that can change the value of emission credits very rapidly.  This more recent post based on a letter to MPs  (15 Jan 2011) looks at how staying with the carbon price approach will make it difficult for Labor to have anything tangible to show when it goes into the next election.  It also points out that the carbon price approach results in a much higher price increase per tonne emission reduction than some alternatives that do not depend on using a carbon price to artificially increase the price of dirty :




I first met John Davidson, a process engineer who has worked in the construction and mining industries around Australia, at the Brisbane hearings of the Senate Select Committee on Climate Policy last year. Soon afterwards I suggested he might do a post on the possible conversion of coal-fired power stations to gas. Here is the result. As context, about half Australia’s emissions come from stationary energy. Further, the transport sector accounts for another 15%, where the potential for electrification is considerable. (Pie chart courtesy of the Royal Automobile Association of South Australia.) So the potential for savings in CO2 emissions is considerable.  Brian


We will need to convert our electricity generation to all green power at some point in the next 40 years if we are to meet our 2050 emissions targets. (In the calculations for this post, “green power” means emissions of 57 g CO2/kWh (5% of the current black coal power figure.)) One approach would be to use a “pure green option”. This means installing green power only until there is no further need for coal fired power.
However, it may be smarter to use a “transition option”. This would involve starting the process by replacing some or all of the coal fired power with “cleaner” power that doesn’t meet the long term emission target. This cleaner power would then eventually be replaced by green power in time to meet 2050 targets. The general arguments in favor of the transition option are, firstly, that it allows time for various green power options to be developed to the point where more informed decisions can be made before committing to green power and, secondly, that it may be more cost/price effective, particularly in the politically important short term.

The most commonly suggested transition process is CCGT (combined cycle gas turbine) power generation. CCGT emissions per kWh would be about 40% of those for black coal power, i.e., not low enough to allow us to meet the green power criteria (unless geosequestration ends up proving to be viable.) CCGT combines gas and steam turbines with the steam turbine being used to extract from the gas turbine exhaust. The salt water cooled Tallawara CCGT power station obtains 38% of its power from the steam turbine.
Conventional CCGTs with fixed compressor turbine blades lose some efficiency on turndown. However it is possible to avoid this drop in efficiency by using adjustable compressor blades. For example, the first three rows of compressor blades in the Aghada CCGT in Ireland results in a design that is suitable for “base, peak and shoulder power as well as daily startup applications as required.” This flexibility means that this CCGT could fit easily into power supply systems as well as helping other power sources with less flexibility and/or consistency. This will help defer the extra costs of energy storage or extra capacity if green power sources such as wind and solar that have variable outputs are to be used.
In addition, CCGT has a smaller footprint than coal fired. This means that CCGT can be easily fitted on to existing coal fired power generation sites. This reduces the need for environmental studies and allows CCGT to take advantage of equipment from the coal fired installation such as cooling systems, switchyards and possibly existing steam turbines. It also means that CCGT can be set up to produce more power from an existing site than the current installation.
In terms of CCGT costs, Richard McIndoe (MD of TRUenergy, owner of Yallourn power station) said on the ABC’s Inside Business that he would only require a 20% increase in the Yallourn price to justify an investment of up to $2.5 billion to convert Yallourn from brown coal to CCGT. These figures correspond to a price premium of about 1.54 cents /kWh compared with the current wholesale price. This figure would rise if artificial limits are placed on power station life.
By contrast, the MRET scheme has had trouble maintaining investment when the price of credits drops below $40/tonne CO2. (Equivalent to a price increase of 4.32 ¢/kWh) This price would need to be higher once a point is reached where extra capacity and/or energy storage would be needed to compensate for variable output.
From a greenhouse emissions point of view, the most important figure for comparing options is the amount of CO2 emitted over the next 40 years compared with what would happen if emission remained unchanged. As an indication, electricity related emissions over the next 40 years would drop by 43% if emissions were ramped down to pure green starting yr 5 and ending yr 40. The reduction would rise to 66.5% if the cleanup was finished at the end of yr 20, 72.4% for a yr 15 finish and 84.3% for a yr 5 finish.
Politically, price increase and cleanup achieved by year 10 are more important. Of less importance is the extra cost per tonne of emission reduction over the forty years.
The simple model outlined at the end of this post was used to compare the options. On the basis of these calculations it was concluded that, for a given set of targets, the CCGT transition option would result in lower power costs. (Provided that an appropriate investment schedule is used and the 40 year emission reduction target was not much above 72.4%.) From a strictly emissions point of view there was no difference. Either option could meet quite challenging emission reduction targets.
It was also found that the investment schedule and targets had a much stronger effect on prices for the transition option. The reason for this sensitivity is that the life of CCGTs would have to be artificially restricted in order for emission reduction targets to be met. According to the model used, cost per tonne emission reduction for the transition option could be driven down by:

1. Installing CCGT only (no green power) until all the planned CCGT capacity has been installed. 2. Bringing all the CCGT plants on line as quickly as possible. 3. Increasing the percentage of coal power replaced by CCGT 4. Accepting higher emissions over the next 40 years 5. Choosing the optimum investment schedule for the stages

where green power was replacing coal or CCGT power.
A few figures for a 66.5% 40 yr emissions reduction:

1. 60 % emission reduction by yr 10 with the complete replacement of coal fired with CCGT by the end of year 5 and no further reduction of emissions till after year 10:
i. 10 yr price increase = 1.5 cents/kWh vs 2.73 for pure green. ii. Average price increase per tonne/CO2 reduction = $32 CCGT vs $40 for pure green
2. As for 1. except the complete replacement of coal fired occurs during yrs 5 to 10:
i. 10 yr price increase = 1.9 cents/kWh vs 2.73 for pure green. ii. Average price increase per mt/CO2 reduction =$36 CCGT vs $40 for pure green
3. 35 % emission reduction by yr 10 with the 58% replacement of coal fired with CCGT by the end of year 5 and no further reduction of emissions till after year 10:
i. 10 yr price increase = 0.9 cents/kWh vs 1.6 for pure green.. ii. Average price increase per mt/CO2 reduction =$35 CCGT vs $40 for pure green
For 72.5% 40 yr emissions reduction and 35 % emission reduction by yr 10 with the 58% replacement of coal fired with CCGT by the end of year 5 and no further reduction of emissions till after year 10:
iii. 10 yr price increase = 1.3 cents/kWh vs 1.6 for pure green.. iv. Average price increase per mt/CO2 reduction =$39 CCGT vs $40 for pure green

The prices quoted above should be treated with caution. The interview transcript suggests that Richard McIndoe was extrapolating from costs for TRUenergy’s new salt water cooled Tallawara CCGT power station (rather than a detailed study of the Yallourn case) and did not state what returns on capital the 20% price increase was based on. In addition, the model used makes a number of simplifications and assumptions. The model did not take account energy storage and surplus power requirements for green power or the benefits of the flexibility of CCGT so the case for CCGT will probably be stronger than the calculations suggest.
The figures above do highlight the importance of the investment schedule for the transition option prices and the benefits of completing CCGT installation ASAP. Tender documents for the supply of clean electricity that include the possibility of the transition option need to deal with these issues.
A government that desperately needs to reestablish its environmental credentials could do worse than seeking to set up contracts for the full replacement of coal fired with CCGT as soon as it can be done. The 60% reduction in electricity emissions is equivalent to a 30% reduction in total emissions before 2010.
MODEL DETAILS:
Except where stated the following applies to both options:

1. Investment would be driven by the setting up of contracts for the supply of clean electricity. 2. Four year delay between decision to start the process of setting up contracts and new generators coming on line. 3. Price premium required for green power=4.32 cents/kWh. (No account taken of needs for energy storage or excess capacity to take account of variability in output.) 4. Emissions per kWh would be 5% of coal power for green power. 5. Effects of technical progress, changes in the demand for power and inflation ignored. 6. No attempt made to convert future cash flows to present worth.

For the transition option it was assumed that:

1. CCGT generators would begin coming on line at the end of yr 4, green power would begin coming on line no sooner than the end of yr 10 and the full conversion to green power would be completed before the end of year 40. 2. The price of CCGT power would be calculated by assuming that a premium of 1.54 cents/kWh would be required for a CCGT life of 20 years. 3. The premium required for other CCGT lives was calculated on the basis of a capital cost of 21.5 cents per annual kWh and an expected return on capital of 15% before tax. 4. CCGT life was calculated as years of full output + 0.5*(years CCGT was coming on line + years being replaced by green power.)

[Note: The asterisk in 4 above is used to signify "times". The calculation can be stated as:

4. CCGT life was calculated as: (years CCGT coming on line)/2 + (years at full output) + (years being replaced by green power.)/2

For example consider a case where:

- It takes 4 years for gas power to come on line. (Time from first power into grid till running at full capacity) - CCGT then runs at full capacity for 15 years. - Then output ramped down for 10 years until gas completely replaced by green

For this case CCGT life= (4/2 + 15 + 10/2) =22 years.]