In his most recent article about Boundary Dam ('Boundary carbon capture scandal deepens'. The Star Phoenix: 17-Dec-2014), Paul Hanley referenced an informative page on Wikipedia with details of the cash flows associated with the project. That page was almost immediately removed from Wikipedia. 

Given the importance of an impartial financial analysis of the merits of Boundary Dam, we have included below an infographic which summarises the Boundary Dam cash flows and, following that, we have reproduced all the original Wikipedia information in full. 

 

 

1.0 Boundary Dam Enhanced Oil Recovery Project

1.1 Background

1.2 Capital Cost

1.3 Carbon Capture

1.4 Annual Electricity Generation

1.5 Operations

1.5.1 Revenue

1.5.1.1 Carbon Dioxide

1.5.1.2 Sulphuric Acid

1.5.1.3 Fly Ash

1.6.1 Expenses

1.6.1.1 Parasitic Load

1.6.1.2 Operations and Maintenance

1.7 Controversy

1.7.1 Negative Earnings before Interest, Tax, Depreciation and Amortization

1.7.2 Cheaper Alternatives

1.7.3 Profitable; but not for its original investors

 

 

Boundary Dam Enhanced Oil Recovery Project

Background

The Boundary Dam Integrated Carbon Capture and Storage Demonstration is a project to retrofit the lignite-fired Unit #3 with carbon capture and an enhanced oil recovery system. It consists of two distinct parts: Repowering of the existing Unit #3 and the installation of the Carbon Dioxide, Sulphur Dioxide and Nitrogen oxides (NOx) capture facility.

Its primary purpose is to provide a low-cost source of carbon dioxide, to the mature Weyburn Oil Field, for Enhanced Oil Recovery. It is the world's first commercial-scale, lignite-fired power plant equipped with carbon capture and storage technology and was officially opened in October 2014.

Capital Cost

In February 2008 the Saskatchewan government announced that it would proceed with a 7-year reconstruction and re-powering of Boundary Dam's Unit #3. The initial project cost was $1.24-billion out of which $240-million was from the federal government

In October 2013 SaskPower announced that the project was $115-million over budget leading to a project cost of $1.355-billion.

$501-million (37 percent) of this total amount will be for the re-powering of Unit #3 and $854-million (63 percent) will be for the carbon dioxide, sulphur dioxide and nitrogen oxides capture facility (See Page 18 of this SaskPower presentation for an expenditure breakdown).

Carbon Capture

The facility will capture 90 percent of total carbon dioxide emissions from Unit #3 or 1 million tonnes annually. The one million tonnes will then be sold to Cenovus Energy and injected into the mature Weyburn Oil Field in order to increase crude oil production. Approximately 30 percent (See Fig. 4 of this ICO2N report) of the total injected carbon dioxide will be lost to the atmosphere during the subsequent recovery and separation, of the crude oil/carbon dioxide emulsion. Consequently the project will permanently sequester only 700,000 tonnes of the 1 million tonnes of carbon dioxide it captures each year.

Annual Electricity Generation

Since, as noted, the plant will capture 1 million tonnes of carbon dioxide annually with an efficiency of 90 percent this implies total plant emissions of 1/0.9 = 1.11 million tonnes. Given that a typical lignite-fired power station will emit 1.1 tonnes of carbon dioxide per megawatt hour of generation, it follows that gross annual electricity generation will be 1,010 gigawatt hours (1.11 million tonnes of carbon dioxide / 1.1 tonnes of carbon dioxide per megawatt hour = 1,010 gigawatt hours). Given the 160 megawatt installed capacity of the new Unit #3, this implies a capacity factor of 72 percent (1,010,000 megawatt hours / 160 megawatts * 8,760 hours per year).

Operations

Estimated annual revenues and expenses (excluding interest charges and debt repayment) are summarised in the following chart;

SaskPower has advised that the project has a 30-year life. The following table therefore takes the 1-year revenues and expenses, from the previous table, and multiplies them by 30 to arrive at an estimate of operating profit/(loss) over the 30-year life. It also adds the initial capital cost, the amount of which is explained earlier in this article, to arrive at an estimate of the 'Net Profit'. This 'Net Profit' is simplified since it does not discount the cash flows but nonetheless and since it does not include interest charges or inflation, is believed to provide a reasonable approximation of the project economics;

Revenue

There are three main revenue streams;

Carbon Dioxide

Substantially all of the total annual carbon dioxide capture volume of 1-million tonnes, at least for the first ten years of the project, is being sold to Alberta-based Cenovus Energy  - the operator of the Weyburn Oil Field. SaskPower has not publicly disclosed the sale price but MinisterBoyd  has stated that it is "in the range of" $25 per tonne." (Page 5836: Hansard minutes. Minister Boyd responds to a question in the Saskatchewan legislature).  In other words annual revenue from carbon dioxide sales is estimated at $25-million (1 million tonnes * $25 per tonne).

Sulphuric Acid

Substantially all of the sulphur emissions from the power station (most of which will be as sulphur dioxide) will be captured, converted to sulphuric acid and sold.

SaskPower sulphur dioxide emissions are approximately 5 tonnes per gigawatt hour of system generation.(data from SaskPower Sustainability Report 2011 which is no longer available on SaskPower site). Since, in 2011, SaskPower generated approximately 50 percent of its electricity by burning coal and given the atomic mass of sulphur (32) and oxygen (16), this implies sulphur emissions of 5 tonnes per gigawatt hour of generation from Unit #3.

Given annual electricity generation of 1,010 gigawatt hours, it follows that total annual sulphur capture will be 5,050 tonnes. Given the atomic mass of sulphur (32) and the molar mass of sulphuric acid (98.1 g/mol) and assuming that 100% of all captured sulphur can be converted to sulphuric acid, it follows that 15,446 tonnes of sulphuric acid will be manufactured annually.

There is no public information on revenue expected from sales however reference to on-line offers, from sellers of sulphuric acid, implies net revenues of $100 per tonne or $1.5 million annually.

Fly Ash

Fly ash, also known as Flue Ash, is one of the residues generated following the combustion of coal and lignite. In the past it was simply released into the atmosphere through the smoke stack but pollution control requirements have put an end to that practice. It is now captured by electrostatic precipitators and stored at the point of generation, placed in landfills or recycled - where it will typically replace Portland Cement in concrete production. Typical fly ash recovery rates, for Saskatchewan lignite-fired power stations, are 31 kilograms per megawatt hour (reference withheld at author request). 

Fly ash, depending on its use, can attract a range of prices. The best arises from concrete-quality ash which fetches $22–$49 per tonne.  Assuming the midpoint (i.e. $35) implies annual fly ash revenues of $1.1-million (1,010,000 megawatt hours * 0.031 tonnes per megawatt hour * $35 per tonne).

Expenses

There are two main expense items;

Parasitic Load

Carbon and sulphur dioxide amine-based capture units, such as the one at Boundary Dam, consume significant amounts of electricity and heat in operation and the largest single component is associated with solvent regeneration. Significant electrical load is also used to run additional emission control components (e.g. Nitrogen oxides and Mercury capture) as well as associated pumps and other equipment. The amount of this load is not public but may be estimated as follows..

The net capacity (i.e. after subtracting parasitic load) of the facility will be 110 megawatts. By definition this 110 megawatts must operate with the same capacity factor as was previously noted (i.e. 72%). This implies annual net generation of 694 gigawatt hours (110 megawatts * 0.72 * 8,760 hours per year). In other words, parasitic load = 1,010 - 694 = 316 gigawatt hours. This implies a parasitic load of 31 percent of gross generation (316 gigawatt hours / 1,010 gigawatt hours) which is at the midpoint of estimates for the energy penalty of post-combustion CCS systems.

The electricity used for carbon and sulphur capture is not free: if it was not being used to run the facility it could instead be sold by SaskPower to other consumers. Consequently the opportunity cost, to SaskPower, of that parasitic load is equal to the value of the best alternative which is foregone. The best alternative is a weighted average of SaskPower's wholesale power prices ('Oilfield', 'Power', 'Reseller' and 'Export') (SaskPower 2013 Annual Report. Page 126) and equates to $71.78 per megawatt hour.   

Consequently the total annual cost of the parasitic load is estimated to be $22.7-million (316,000 megawatt hours * $71.78 per megawatt hour).

Operations and Maintenance

SaskPower has not yet released any cost estimates for Operations and Maintenance (O&M). In the absence of such data the best available alternative is the U.S. Energy Information Administration which annually compiles levelised cost estimates for all of the major forms of generation. These data sets do not include specific CCS O&M costs however do include O&M estimates for Integrated Coal-Gasification Combined Cycle with and without, CCS. The difference between the two should, by definition, equate to the O&M costs associated with a CCS facility and equals $9.8 per megawatt hour.

Consequently annual O&M costs are estimated at $9.9-million ($9.8 per megawatt hour * 1,010,000 megawatt hours).

Controversy

The poor economics of the project have been noted by The Economist ('Nice try, shame about the price'. 3-Oct-2014); The Financial Times ('Carbon Capture Faces Viability Struggle'. 23-Nov-2014); The MIT Technology Review ('A coal plant that buries its greenhouse gases'. Dec-2014); The New York Times  ('Corralling Carbon Before It Belches From the Stack'. 21-July-2014); Bloomberg ('We now know how to save the plant. For $17.6 trillion'. 4-Dec-2014); National Geographic ('World's First Full-Scale 'Clean' Coal Plant Opens in Canada'. 2-Oct-2014); The Globe and Mail ('SaskPower unveils world's first carbon capture plant'. 2-Oct-2014); The Financial Post ('Jim Prentice says to wind down carbon capture fund in Alberta, new projects on hold'. 6-Oct-2014); and, within Saskatchewan, by The Leader Post ('CO2 project sequesters tax dollars'. 7-Oct-2014) and The Star Phoenix. ('Hanley: Questions remain over SaskPower project'.18-Nov-2014) and ('Boundary carbon capture scandal deepens'. 15-Dec-2014).

Concerns appear to fall into three main areas;

Negative Earnings Before Interest, Tax, Depreciation and Amortization

Proponents note that, because the project is the first of its kind in the world, it is bound to be costly. They expect the next such facility to be 30 percent less expensive.  However and because the project is loss making even before consideration of capital repayment and interest charges, critics note that it would lose money even if the initial capital cost was zero.

Cheaper Alternatives

Coal CCS retrofit is one of the most expensive ways to achieve greenhouse gas abatement. (McKinsey & Co. Exhibit 1. 'Global GHG abatement cost curve beyond business as usual - 2030'; page 7).  Some have questioned why SaskPower is pursuing such projects rather than significantly cheaper options: wind is one such option especially given Saskatchewan's world-class wind resource. (Letters - James Glennie. 'Push for CCS misguided policy.' The Star Phoenix. 28-Mar-2014).

Profitable; but not for its original investors

Cenovus Energy notes that it has paid 'competitive prices' for the Boundary Dam carbon dioxide. (Letters - David Mudie. 'Paying own way'. The Star Phoenix. 25-Oct-2014). 

Critics are nonetheless concerned that despite the fact that the project seems to result in considerable losses for the initial investors (Saskatchewan taxpayers and SaskPower ratepayers), it appears to be extremely profitable for Cenovus Energy ('CO2 project sequesters tax dollars'. The Leader Post: 7-Oct-2014) and ('Boundary CCS: taxpayers subsidize oil industry.' The Star Phoenix: 14-Oct-2014).