Future Value of Coal Carbon Abatement Technologies to UK Industry

Future Value of Coal Carbon
Abatement Technologies to
UK Industry

URN 09/738


Final report to the Department of Energy and
Climate Change


ED02733478
Version 1
December 2008

---

URN 09/738
Future Value of CAT to UK Industry
AEA/ ED02733478/Version 1

---

URN 09/738
Future Value of CAT to UK Industry
AEA/ ED02733478/Version 1



Executive summary
This report by AEA provides projections of the possible value to UK business of coal-related carbon
abatement technologies (CATs) to 2030 under different scenarios. This project has been undertaken
under the Emerging Energy Technologies programme.

A spreadsheet model has been developed to estimate the value to the UK of new coal generation
plant to be built worldwide, including carbon capture and storage (CCS) technologies, and of CCS
retrofits. The model uses existing projections of new coal generation to come on line between now
and 2030, estimates of the proportion of this new plant that represents different technologies,
estimates of new plant costs and the breakdown between main plant items, estimates of the
breakdown of these investment costs between different types of business (design, construction etc.)
and finally estimates of the share that UK industry might attain of these future markets. The
technologies addressed in this way were:
•
Advanced pulverised fuel combustion (PF) plant, with and without CCS
•
Integrated Gasification Combined Cycle (IGCC), with and without CCS
•
Oxy-fuel with CCS
•
CCS retrofit

There are clearly many uncertainties in this sort of analysis, and much of the benefit of such a study
comes from exploring scenarios and sensitivities rather than from the numbers generated by the base
case run of the model. We have also used the assumptions and early results from our modelling to
discuss future scenarios with key stakeholders from industry, which has provided a better
understanding of the complexities of issues such as likely technology choices and timing, the extent to
which a plant can be considered “capture ready” and how the operations of a multi-national Original
Equipment Manufacturer (OEM) cut across geographical borders.

There are a number of other possible sources of value to the UK from CATs, including the
manufacture of biomass co-firing plant, engineering consultancy associated with pre-feasibility and
feasibility studies on new coal plant, financial and legal services, and environmental consultancy. This
report provides some quantitative information on the future value of these markets to the UK, which
again are very uncertain at this time.

We have not considered the possible value associated with advanced power generation technologies
and/or CCS for gas-fired generation plant, maintaining or replacing equipment for existing coal
generation plant or financial markets trading in emissions savings or green investment portfolios.
Neither have we tried to quantify the possible value of carbon credits from cleaner coal projects, the
disbenefits from efficiency losses associated with CCS or the wider environmental and social benefits
associated with reducing greenhouse gas emissions.

The figures below show the base case results from the modelling of future value of CATs to the UK,
split by technology type and geographical region, respectively.

Because the base case assumptions for technology choice were taken from the IEA’s modelling
scenarios, there is a high proportion of IGCC technology in the generating mix. This has the effect of
reducing the estimated value to the UK, as the main plant items for IGCC plant are more likely to be
manufactured overseas. The geographical split suggests that only about 5% of the total value is
expected to come from new UK plant or CCS retrofits over the period to 2030, even accounting for the
higher UK share of such markets. By 2030 the greatest value is expected to come from markets in
China and North America. This re-inforces the message from industry stakeholders about the
importance of early and decisive action on a UK demonstrator to establish the UK as global leaders in
these technologies and thereby improve the UK’s chances of getting a bigger share of future overseas
growth.



AEA
iii

---

URN 09/738
Future Value of CAT to UK Industry
AEA/ ED02733478/Version 1






3.5
3.0
r 2.5
/
y
n
b
CCS retrofitting

£
A
Oxyfuel + CCS
2.0
V
,

G
IGCC + CCS
K
IGCC

U 1.5

t
o
Adv PF + CCS
e
l
u
a
Advanced PF
V 1.0
0.5
0.0
2010
2015
2020
2025
2030

Baseline projection of future value to the UK from CATs by technology


3.5
3.0
r 2.5
/
y
n
b
UK

£
A
Other EU25
V 2.0
,

G
North Am erica
K
China

U 1.5

t
o
India
e
l
u
a
ROW
V 1.0
0.5
0.0
2010
2015
2020
2025
2030


Baseline projection of future value to the UK from CATs by geographical region


The table below shows how the total estimated value to the UK is expected to break down by type of
business/activity for 2010, 2020 and 2030. These figures are based on modelling results using an
assumed split of value by type of business, coupled with estimates of how current markets for biomass
co-firing and project feasibility studies might develop.
iv
AEA

---

URN 09/738
Future Value of CAT to UK Industry
AEA/ ED02733478/Version 1



Category
Business/activity
UK GVA (£bn/yr)
2010
2020
2030
New coal generation plant
Project management
0.13
0.16
0.25
(including CCS where
Engineering (e.g. design)
0.29
0.35
0.52
fitted)
Manufacturing/procurement
0.46
0.55
0.82
Construction
0.07
0.11
0.18
Commissioning
0.07
0.10
0.17
Financial & legal services
0.05
0.07
0.18
Total new plant
1.08
1.34
2.12
CCS retrofits to existing
Project management
0.00
0.01
0.12
generating plant
Engineering (e.g. design)
0.00
0.01
0.18
Manufacturing/procurement
0.00
0.02
0.33
Construction
0.00
0.00
0.09
Commissioning
0.00
0.00
0.06
Financial & legal services
0.00
0.01
0.11
Total CCS retrofitting
0.00
0.05
0.90
Consultancy
Feasibility projects
0.01
0.01
0.01
CO2 storage
Management of storage sites1
0.00
<0.01
0.01
Biomass co-firing

0.03
0.02
<0.01
Total GVA (£bn/yr)

1.12
1.42
3.05
CCS related jobs

0
2,097
25,003
Total CAT related jobs 2

18,410
23,689
50,825

The largest market is new coal generation plant, followed by CCS retrofitting, with related services and
biomass co-firing making a much lower contribution to the total. The total value to the UK is expected
to increase from about £1.1bn to over £3.0bn between 2010 and 2030, an increase of 170%, largely
because of the uptake in CCS technology (both new build and retrofit).

Scenario and sensitivity analyses have been carried out to explore the effects of different assumptions
about new plant build rate (UK and globally), technology choice including CCS uptake, and UK market
share. The results are shown in the table below, each compared to the base case for new coal plant
build and CCS retrofitting.


GVA in 2030
Difference
Difference
£bn3
from base
from base
case £bn
case %
Base case
3.02
-
-
Scenario A: Higher new coal plant build
3.92
+0.89
+29%
Scenario B: Slower CCS uptake
1.91
-1.12
-37%
Scenario C: Slower IGCC uptake
2.91
-0.12
-4%
Scenario D: Lower UK share of global markets
1.78
-1.25
-41%
Sensitivity 1: No UK manufacture
1.87
-1.15
-38%

This shows, as might be expected, that our results are relatively sensitive to assumptions about the
capacity of new coal plant built, the rate at which CCS (and CCS retrofit) is introduced, and the UK
share of global markets. There appears to be a low sensitivity to the rate of IGCC uptake, which is
somewhat surprising. This can be partially explained by the relatively high cost of IGCC, so that the
lower UK share is compensated by the higher overall value per GW installed.

The main conclusions from this study are:

•
The value to the UK from global markets for new advanced coal-fired power generation plant,
including that fitted or retrofitted with CCS, is estimated at £1-2 bn/yr by 2020 and £2-4 bn/yr
by 2030. This equates to £20-40 bn in total between 2010 and 2030. These ranges reflect
the uncertainties explored by scenario analyses and also the different interpretations that

1 Estimated from IPCC report – other sources suggest this may be underestimated.
2 Estimated from values of sectoral GVA per employee as detailed in Section 4.
3 Excludes consultancy and biomass co-firing from the GVA values given in the previous table.
AEA
v

---

URN 09/738
Future Value of CAT to UK Industry
AEA/ ED02733478/Version 1


could be placed on stakeholder estimates of value to the UK. We also note that the value
could be many times greater than this if expressed in terms of total potential contracts value
(turnover) for UK companies and subsidaries, including those who manufacture overseas.

•
This level of activity will sustain a total of about 30,000-60,000 jobs in the UK in 2030. Of this
total about 50% will be jobs associated with existing CAT businesses activities (e.g. boiler and
steam turbines design and manufacture), which are expected be sustained through the
capability to offer CCS, and 50% will be jobs associated with CCS services (e.g. design and
manufacture of capture, transport and storage facilities).

•
The UK is expected to take a much bigger share (30-35%) of the market for UK plant, and
only about 2-3% of global markets. However because the UK market is relatively small on a
global scale, UK sales are only expected to account for 17% of total UK value by 2030.

•
The UK has particular strengths in project management, engineering and financial & legal
services, and is expected to capture a greater share of these markets, both in the UK and
overseas. There is considerable uncertainty over the share that the UK might attain of
manufacturing, as much of the actual manufacture is expected to be done outside the UK
under licensing agreements.

•
The results are sensitive to assumptions about the share of coal in new electricity generation
capacity worldwide, the rate of uptake of CCS and the market share that might be achieved by
UK companies. We have tried to make assumptions based on reputable literature and expert
stakeholder views but we recognise that the uncertainties are still substantial.

•
The other markets for CAT and associated services are relatively small, totalling perhaps £2bn
between 2010 and 2030. The biggest component of this is the anticipated market for biomass
co-firing equipment in the period to 2015.

Based on the relative projected uptake of CCS in coal and gas-fired plant to 2050 from the IEA Energy
Technology Perspectives 2008 report, one might expect the inclusion of gas-fired CAT to increase the
total value to the UK by perhaps 40%. However this implicitly assumes that the UK share of gas-
related technology investment is the same as that estimated for coal-related technology investment,
which has not been tested in this project.
vi
AEA

---

URN 09/738
Future Value of CAT to UK Industry
AEA/ ED02733478/Version 1


Table of contents
1
Introduction
1
1.1
Objectives
1
1.2
Scope and Approach
1
2
Methodology
2
2.1
Overall approach
2
2.2
Electricity generation from coal to 2030
4
2.3
Estimation of value to the UK
7
3
Global Markets for CATs
16
4
Value to the UK (base case)
18
4.1
New coal generation plant and CCS retrofitting
19
4.2
Management of CO2 storage facilities
20
4.3
Biomass co-firing
20
5
Value to the UK (scenarios and sensitivities)
21
6
Conclusions
22
7
References
23

Appendices
Appendix 1
Stakeholder questionnaire



AEA
vii

---

URN 09/738
Future Value of CAT to UK Industry
AEA/ ED02733478/Version 1


Glossary

ACT
ACT Scenario – one of the future scenarios used by the IEA
APS
Alternative Policies Scenario – one of the future scenarios used by the IEA
ASU
Air Separation Unit
BERR
Department for Business, Enterprise and Regulatory Reform
CAT
Carbon Abatement Technology
CCS
Carbon Capture and Storage
CO2
Carbon Dioxide
CO2eq
Carbon Dioxide equivalent
DECC
Department of Energy and Climate Change
Defra
Department for Environment, Food and Rural Affairs
DTI
Department of Trade and Industry
ETP
Energy Technology Perspectives (an IEA publication)
FEED
Front-End Engineering Design
GVA
Gross Value Added
IEA
International Energy Agency
IGCC
Integrated Gasification Combined Cycle
IPCC
Intergovernmental Panel on Climate Change
MMV
Measurement, monitoring and verification
MtCO2
Million tonnes of CO2
NETL
National Energy Technology Laboratory (US)
OEM
Original Equipment Manufacturer
OSPAR
Oslo Treaty and Paris Treaty regarding prevention of marine pollution
P&ID
Process and Instrumentation Diagram
PF
Pulverised Fuel combustion
R&D
Research and Development
RD&D
Research, Development and Demonstration
USDOE
United States Department of Energy
WEO
World Energy Outlook (an IEA publication)
viii
AEA

---

URN 09/738
Future Value of CAT to UK Industry
AEA/ ED02733478/Version 1


1
Introduction
This report by AEA provides projections of the possible value to the UK of coal-related carbon
abatement technologies (CATs) to 2030 under different scenarios. This project has been undertaken
under the Cleaner Fossil Fuels Programme.
1.1
Objectives
The main purpose of this work was to provide a forecast of the potential future value of coal-related
CATs to UK business to advise DECC (previously BERR) on strategy development in this area.
Through the use of scenarios it has also been possible to explore how this value might differ if
different assumptions are made about technology choice, the uptake of carbon capture and storage
(CCS) and the UK share of overseas markets.
1.2
Scope and Approach
This study has used a spreadsheet model to estimate the potential future value to the UK accruing
from sales worldwide of:
•
New advanced pulverised fuel combustion (PC) plant, with and without CCS
•
New Integrated Gasification Combined Cycle (IGCC), with and without CCS
•
New Oxy-fuel plant with CCS
•
CCS retrofit

The study has also addressed other possible sources of value to the UK from CATs, including the
manufacture of biomass co-firing plant, engineering consultancy associated with pre-feasibility and
feasibility studies on new coal plant, the operation of CO2 storage facilities and financial and legal
services

We have not considered the possible value associated with advanced power generation technologies
and/or CCS for gas-fired generation plant, maintaining or replacing equipment for existing coal
generation plant or financial markets trading in emissions savings or green investment portfolios.
Neither have we tried to quantify the possible value of carbon credits from cleaner coal projects, the
disbenefits from efficiency losses associated with CCS or the wider environmental and social benefits
associated with reducing greenhouse gas emissions.

Based on the relative projected uptake of CCS in coal and gas-fired plant to 2050 from the IEA Energy
Technology Perspectives 2008 report, one might expect the inclusion of gas-fired CAT to increase the
total value to the UK by perhaps 40%4. However this implicitly assumes that the UK share of gas-
related technology investment is the same as that estimated for coal-related technology investment,
which has not been tested in this project.

Further details on the scope and approach adopted for the project are given in the next section.


4 Estimated from Table 2.5 in ETP2008, which gives global electricity generation by type in TWh/yr in 2050.
AEA
1

---

URN 09/738
Future Value of CAT to UK Industry
AEA/ ED02733478/Version 1


2
Methodology
This section comprises three parts: an overview of the study approach; a description of the
methodology used to determine projections of coal-fired electricity generation plant markets and CCS
retrofit markets; and a description of the methodology used to estimate the value to the UK of these
markets and other relevant markets.
2.1
Overall approach
2.1.1
Scope and definitions
Section 1.2 outlines the overall scope and approach of the study. Key points to note are:

•
The study only considers markets associated with coal-fired electricity generation and
biomass co-firing with coal; CCS for gas-fired plant and industrial CCS are not addressed.

•
The study only considers the value associated with new plant sales, CCS retrofit sales,
engineering consultancy associated with pre-feasibility and feasibility studies, the operation
of CO2 storage facilities, financial and legal services, and R&D5.

The two key definitions in the report are those of “Carbon Abatement Technologies” and “Future Value
to the UK”.

In defining “Carbon Abatement Technologies” (CAT) we have taken the view that all coal-fired plant
built from 2010 onwards will be advanced to some extent, and so should be considered CAT, along
with CCS and biomass co-firing].

Defining “Future Value to the UK” has proved somewhat challenging. There are two possible
definitions and they give quite different results. The first possible definition is the value to the UK in
terms of economic activity and employment; this is driven by how much work (manufacturing,
consultancy etc.) is done in the UK – this is the Gross Value Added or GVA. The second possible
definition is the turnover of UK industry, which may include the value of contracts headed by UK
companies or subsidiaries even when much of the work is delivered outside the UK. Under this
second possible definition, all or most of the value of a contract delivered by a UK-owned or perhaps
UK-based Original Equipment Manufacturer (OEM) would be included even if the bulk of the
manufacture were done in the Far East, and would therefore not reflect job or wealth creation for the
UK.

In deriving the results shown in Section 4, we have sought to use the first (GVA) definition of value to
the UK. However we recognise that some stakeholders answering the question “What market share
might UK industry expect to attain for new coal power plant projects?” may have interpreted the
question differently, even after verbal guidance from a member of the study team, and so in practice
our GVA estimates may be slightly over-estimated. This uncertainty is reflected in the range of future
value estimates given in the conclusions to this report.
2.1.2
Spreadsheet model
Figure 1 shows the basic structure of the spreadsheet model developed for this study. This model
estimates the value to the UK of new coal generation plant to be built worldwide, with and without
CCS, and of CCS retrofits. It uses existing projections of new coal generation to come on line
between now and 2030, estimates of the proportion of this new plant that represents different
technologies, estimates of new plant costs and the breakdown between main plant items, estimates of
the breakdown of these investment costs between different types of business (design, construction
etc.) and finally estimates of the share that the UK might attain of these future markets.


5 Current CAT-related R&D expenditure is considered in this report; future values of R&D expenditure are not included in the total estimates of the
future value of CAT technologies to the UK.
2
AEA

---