Algae Business by Riggs Eckelberry The Economics of Power Plant CO2 Capture

The Economics of Power Plant CO2 Capture

July 4, 2011

In assessing strategies, some power plants will find algae the best long-range option.In April, I wrote that CO2 capture is algae’s “killer app”—the deployment that addresses four environmental problems at once. Now the killer app can look forward to its first large-scale customers. It’s a killer app because algae feed on CO2, the biggest contributor to greenhouse gas emissions. Algae’s CO2 appetite is prodigious. It takes two parts CO2 to produce one part algae and one part oxygen, making algae a cheap, scalable emission reduction strategy.

Algae facilities can feasibly be located near electrical power plants, the largest single source of CO2 emissions. Today’s carbon capture process requires separating and condensing CO2, then transporting it in dedicated pipelines to distant locations where it can be stored. Processing CO2 close to power plants eliminates the capital and operating costs for transportation. It also eliminates the increasing opposition from localities opposed to pipelines.

Once transported, the gas is usually stored deep in rock formations in a process technically known as sequestration. Sequestration risks are not yet fully known, but its potential liability is ominous. The risk became catastrophically evident in the 1986 disaster in Lake Nyros, Cameroon, when escaped volcanic CO2 settled in a nearby valley and lethally poisoned one thousand seven hundred village residents.

Power plants  will have powerful incentives to consider long-range strategic partnerships to bring algae to scale.The alternative of burying CO2 in ocean water at least one thousand meters deep brings environmental costs that are better known. CO2 is heavier than water, and sinks to ocean bottoms. It kills marine life underneath it, and acidifies water, threatening habitation for many marine species.

By contrast, transforming algae into oil generates clean fuel and other bio-friendly products, substituting for petro fuels that contribute even more greenhouse gases and general air pollution. As environmental bonuses, even the CO2 generated in algae growth and oil extraction can be recycled back into the algae, and the water used can help treat wastewater.

Now, the algae’s killer app may have its first big customers. Emissions standards, with prescribed limits for CO2 emissions, are due to come on line in 2012. The centerpiece of most emissions controls is a market-based exchange system that sets CO2 “allowances”—the amounts of greenhouse gases power plants are permitted to emit. Companies that operate below their allowances can offer surplus allowances for sale. Companies that operate above their allowances can buy allowances at rates set by supply and demand on market exchanges. Companies that exceed their allowances, and fail to purchase sufficient allowances from others, are subject to penalties costly enough to make the allowance exchange market an industry mandate.

Now electric companies will have to look at their bottom lines in a whole new way.  Instead of comparing the control of greenhouse gas emissions with no controls, they have to compare the costs of various strategies to reduce emissions. In assessing strategies, some power plants will find algae the best long-range option.

Power plants located distant from sequestration locations will have to take into account the costs of constructing CO2 transportation pipelines. Compared to such costs, becoming partners with companies that use the gas to feed algae may be a more cost-effective capital investment.

Power plants at the extremes of efficiency may find algae their best option. Inefficient plants that emit especially high levels of greenhouse gases may face penalties so dire that they are forced to choose between major reconstruction, and finding a comprehensive solution for emissions. To stay within their allowances, they may be forced to depend on a process that eliminates, rather than sends and stores, CO2.

Newer, more efficient plants may see an opportunity to earn significant revenue not only from selling electricity, but also from selling emissions cap allowances. The allowance market may float high enough to make allowances a significant revenue source.

Emissions  standards, with prescribed limits for CO2 emissions, are due to come on line in 2012.How penalties are assessed will play a major role in cap-and-trade market prices. If regulators award extra allowances for transforming, as opposed to moving and storing, CO2, then algae will increase its appeal in allowance market cost trade-offs. If regulators impose additional penalties for insecure sequestration, the search for alternatives will become more valuable.

These considerations are now imminent. In January 2012, California’s precedent-setting 2006 cap-and-trade emissions control law, is scheduled to take effect. California’s ambitious goal is reducing greenhouse emissions to 1990 levels no later than 2020. Northeast and Mid-Atlantic states have established a similar plan, and British Columbia and Ontario also come on line in 2012. Thirty-six states now have climate action plans, many of which will likely add cap-and-trade as emissions control strategies.

Cap-and-trade remains controversial, but environmental rationales are now bolstered by economic stability and national security concerns. Most cap-and-trade programs are expected to start and expand by trial-and-error in coming years.

The bottom line for algae is that power plants will have powerful incentives to consider long-range strategic partnerships to bring algae to scale. Complemented by the income from products, algae may offer not only the best, but also the cheapest alternative for some plants in the immediate future. Strategic partnerships could open the door for algae growth and processing of unprecedented size, over long enough time to identify and address issues of large-scale production.

Somewhere in the mix of California, Northeast, and Mid-Atlantic electrical power plants, there are likely to be one, or a few, whose costs of pipeline construction, distance to feasible sequestration locations, shortage of construction capital, or infeasibility of penalties will trigger a need for comprehensive long-term solutions to their CO2 challenge. Other power plants may discover in the new cap-and-trade market a major source of revenue.

For these visionary electric power plants, partnerships with algae firms may prove sufficiently advantageous, even necessary, to warrant the kind of long-term capital investment and large-scale production that demonstrates algae’s unique contribution to address, simultaneously, CO2 emissions and the production of green fuel.

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