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Impact of CCS on the Economics of Coal-Fired Power Plants: Why Investment Costs Do and Efficiency Doesn’t Matter

FCN Working Paper No. 7/2009

33 Pages Posted: 4 Jun 2010 Last revised: 28 Mar 2015

Richard Lohwasser

RWTH Aachen University

Reinhard Madlener

RWTH Aachen University

Date Written: November 1, 2009

Abstract

In this paper we analyze how development of the economics related to CCS technology in coal-fired power plants affects market diffusion. Specifically, we (1) show the (significant) variance in economic expectations for commercial-grade CCS hard coal power plants observed in selected recent scientific publications; (2) analyze the impact of economic factors related to CCS on electricity generation costs; and (3) study possible deployment of CCS technology in Europe 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 share of CCS-equipped power plants between 13 and 15%. 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.

Keywords: Electricity Market, Simulation, Model, CCS, Power Plant Economics, Technology Adoption

JEL Classification: O33, Q47

Suggested Citation

Lohwasser, Richard and Madlener, Reinhard, Impact of CCS on the Economics of Coal-Fired Power Plants: Why Investment Costs Do and Efficiency Doesn’t Matter (November 1, 2009). FCN Working Paper No. 7/2009. Available at SSRN: https://ssrn.com/abstract=1620493 or http://dx.doi.org/10.2139/ssrn.1620493

Richard Lohwasser

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

Reinhard Madlener (Contact Author)

RWTH Aachen University ( email )

School of Business and Economics / E.ON ERC
Mathieustraße 10
Aachen, 52074
Germany
+49 241 80 49 820 (Phone)
+49 241 80 49 829 (Fax)

HOME PAGE: http://www.eonerc.rwth-aachen.de/fcn

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