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Petra Nova: De-risking Carbon Capture Business Models with Saline Storage

August 7, 2020 Work Area: Carbon Capture

The carbon capture facility Petra Nova has made headlines recently when it stopped capturing CO₂. “Earlier this spring when oil prices fell, we ceased operations at Petra Nova and the delivery of CO₂ to the West Ranch Oil Field,” Chris Rimel, a spokesman of NRG, the company that runs the plant, said in a statement to E&E News. “The carbon capture facility has been placed in a mothball status to allow it to be brought back online when economics improve.”

So far, Petra Nova has provided an important lesson for carbon capture deployment – and this includes the shut-down. While it is unfortunate, Petra Nova’s experience highlights the need to create a CO₂ decarbonization market with multiple buyers and storage options, enabled by a large-scale carbon management infrastructure system decoupling carbon capture from oil price risks.

Petra Nova has successfully demonstrated post-combustion carbon capture on a large-scale coal-fired power plant. The facility was built on schedule and on budget, and has captured more than 3.9 million short tons of CO₂. Since 2017, Petra Nova has provided important learning-by-doing as a commercial demonstration of carbon capture at a power plant. In fact, MHI, the capture technology vendor, has stated that the next plant is expected to cost 30% less than Petra Nova because of the lessons learned so far.

Petra Nova’s economics depended on offsetting the cost of carbon capture by providing the CO₂ for enhanced oil recovery, a process that uses carbon dioxide to produce oil. The price of CO₂ for EOR is linked to the price of oil. EOR is also a more expensive way to produce oil than drilling. Depressed global oil markets have thus negatively impacted EOR operators. Hence, with a drop in oil prices this spring, continued CO₂ capture at Petra Nova became uneconomic, as NRG told the media.

This begs the question: How can we de-risk the operations of carbon capture, and decouple them from oil market volatility?

There are two options, and they depend on two different types of geologic carbon storage: CO₂-EOR and CO₂ storage in saline formations.

The first option would be to claim the 45Q tax credit for geologic storage via CO₂-EOR. To date, 45Q is widely considered the most significant carbon capture-specific incentive globally. The credit ramps up to provide $35 per metric ton of CO₂ geologically stored via eligible CO₂-EOR operations. Companies can claim the 45Q credit only if they comply with the rules. Sticking to the rules involves having a monitoring, reporting and verification (MRV) plan approved by the U.S. Environmental Protection Agency (EPA). MRV plans ensure that the CO₂ is permanently sequestered and accurately accounted for.

For Petra Nova, this route could improve the economics and offer a hedge against the impacts of oil price volatility. Equally important, the MRV process would provide transparent accounting of CO₂ storage. Petra Nova appears not to have claimed the 45Q tax credit to date. In 2019, NRG stated that they were evaluating and optimizing for tax incentives. So far, NRG has not submitted an MRV plan.

The second option is to geologically store CO₂ in saline reservoirs. The advantage: Saline storage does not involve fossil production – and the associated greenhouse gas emissions from the produced oil – and oil price volatility has no impact on a facility’s economics. In addition, 45Q offers up to $50 per metric ton of CO₂ stored via saline storage. From an energy system decarbonization perspective, saline formations also offer the largest resource for geologic CO2 storage. With vast amounts of CO₂ expected to be captured and removed in the future, development of saline storage formations is essential for combating climate change and achieving net-zero emissions.

From a scale perspective, there are serious differences between these two geologic storage options. Indeed, CO₂-EOR can kick-start the development of carbon capture and storage. However, it will never scale to the level needed to achieve net-zero emissions. In other words, geologic storage of CO₂ in saline formations represents the long-term future of carbon storage – but it needs to be supported by policy for companies to invest. In fact, Texas CO₂ sources like Petra Nova can take advantage of many high-quality saline storage sites in the region.

What does Petra Nova’s experience mean for carbon capture’s future?

The current shut-down offers lessons for improving carbon capture business models and policies. In general, it highlights the complexities of matching technology to markets. In particular, it emphasizes the need for a functioning carbon management market, enabled by interconnected systems of CO₂ transportation and multiple geologic carbon storage options. A carbon management market will also catalyze further carbon capture and storage deployment. For example, companies will find it easier to capture their carbon if they can just tap an already existing CO₂ transport and storage infrastructure network to dispose of it. Therefore, establishing such a carbon management ecosystem through policy is key.

While a variety of policies are needed to build a robust carbon management industry, Congress needs to expand current policies to address more of the barriers carbon capture developers face. For example, Congress should invest in further characterizing geologic sites and basins for storage potential and facilitate initial commercial saline storage clusters. Ultimately, it should address regional storage needs by facilitating the development of geologic storage utilities that manage very large-scale storage of CO₂. Furthermore, a federal program of loans and grants should be developed to help catalyze a carbon dioxide transportation system.

The good news is that half of the 32 publicly-disclosed projects highlighted in a new 45Q project tracker (and map) developed by Clean Air Task Force are saline storage projects. These projects will certainly help kick-start saline storage scale-up.

It is regrettable that the Petra Nova project has ceased capturing its carbon for now and the CO₂ is being vented to the atmosphere. The shut-down also interrupts an on-going learning from this first-of-a-kind project. Policymakers should act to optimize our carbon management systems to enable continuous capture and storage of CO₂.

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