Clean Coal via CCS is Still a Terrible Investment

Originally posted on the Sierra Club’s Economics Blog http://blogs.sierraclub.org/gaa/2015/06/clean-coal-via-ccs-is-still-a-terrible-investment.html
By Garvin Jabusch

Back in February of 2011, we described why we Don’t Buy the Myth of “Clean Coal.” Our reasons were clear:

    • The engineering involved in separating and capturing just the CO2and noxious portions of a plant’s emissions would be extremely complicated and expensive.
    • The geology involved has to be just right. There have to be deep, porous and/or cavernous formations to contain all the liquid and/or gas pumped down there from a plant’s pipeline, and they have to be below at least one layer, preferably multiple layers, of impermeable rock to prevent leakage.  And they’re going to have to be huge. Really huge.  A difficult combination to find.
    • There’s no guarantee that sequestered carbon and toxins won’t leak, either into the atmosphere or into aquifers providing irrigation and drinking water.
    • Injecting all that mass far down into the Earth requires a lot of energy, meaning that we’d have to mine an equivalently greater amount of coal (between  30-40%) and pay an equal percentage more to get the same power output.

In short, we said that carbon capture and storage (CCS) can never be profitable because it is far too complicated and expensive, and because the geology probably won’t work for long, if at all. It makes no business sense, and from an asset management point of view is therefore uninteresting. Moreover, any sustainability benefits are thus far unproven.

Now it’s more than four years later. The clean coal folks are taking their shot at CCS. Is it beginning to work, or are CCS’s myriad problems proving too hard to overcome?

If clean coal’s flagship pilot project is any indication, our early misgivings were more than justified. Mississippi’s Kemper County Energy Facility is a massive (582 Megawatt), now five-year-old project designed to showcase coal as a source of cheap and clean energy. According to a recent article from Politico, “Billions over budget. Two years after deadline. What’s gone wrong for the ‘clean coal’ project that’s supposed to save an industry?” It is doing everything but providing a proof of concept.

Kemper

Mississippi’s Kemper County Energy Facility. Photo, U.S. Dept of Energy.

To summarize a few of the project’s difficulties:

    • Years of delay: meant to start generating power in 2013, “now Kemper managers say the plant won’t be online until the first half of next year [2016] at the earliest.”
    • Will capture just 65% of the carbon dioxide generated by the plant.
    • Originally had a $1.8 billion planned cost, now is costing $6.2 billion and counting, which ratepayers, stockholders and federal taxpayers (via a $270 million dollar DOE grant, $700 million including tax credits) are stuck with.
    • I don’t know what the plant’s PPA-driven cost per kilowatt hour will end up being, but I can’t imagine they will be anywhere near the $0.04 to $0.05 now routinely being signed between utilities and owners of wind and solar farms. If they are, then Kemper will surely be running at a loss. A recent article on power-technology.com cites estimates for CCS tech in general at alarmingly high rates: “…high capital costs driving estimates ranging from around $1,500/kW installed capacity to well over twice as much…”
    • The South Mississippi Electric Power Association (SMEPA), who was to be one of the plant’s largest customers, has pulled out of participation in the project, citing delays and cost overruns (it’s interesting to note that SMEPA has subsequently released a 250-megawatt proposal request for wind, which as about half of what they were planning to get from Kemper.) According to Reuters, Fitch Ratings “believes that finding another partner to replace SMEPA could be challenging for Mississippi Power” and has as a result issued a Negative Outlook for the company.
    • Indicating just how difficult and complicated a scale CCS facility must be, Mississippi told Utility Dive it started construction on the Kemper facility “with only 15-20% of the design completed.” One could scarcely have projected a total cost in that situation — it seems reckless that they even tried, especially given that the funding was via other people’s money: primarily stockholders and federal taxpayers.
    • The developers are hoping to earn additional revenue by selling recovered CO2 for oil recovery, and captured CO2 can in the right circumstances be used in oil drilling to force crude up via displacement. But this only adds further greenhouse gasses to the economy -– offsetting CSS’s benefits — and is in any case too expensive to help recover oil unless the price per barrel is close to $150.

Now, five years into the development of clean coal, Green Alpha Advisors is farther than ever from buying the myth. CCS is not going to save the coal industry. Renewables, led by solar, have now proven themselves cheap, effective, and clean, and with far fewer technological, engineering, geological, or just plain feasibility problems. From both sustainable-economy and investment-management points of view, the best of the solar and wind companies are now, more than ever, far more interesting and attractive than coal of any type, even the best attempts at clean coal.

Important disclosures http://greenalphaadvisors.com/legal-disclaimers/

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