(John Kemp is a Reuters market analyst. The views expressed are his own)
By John Kemp
LONDON, Oct 2 (Reuters) - In a milestone for the carbon capture and storage (CCS) movement, SaskPower's Boundary Dam power plant began making pipeline deliveries of liquid carbon dioxide (CO2) on Wednesday.
Boundary Dam Unit #3 is the first grid-scale coal-fired power plant in the world to be retrofitted with a CCS system. (www.saskpowerccs.com)
It marks an important step forward for a technology that policymakers have identified as essential to meeting climate change targets but which has so far remained mostly theoretical.
"CCS is the only known technology that will enable us to continue to use fossil fuels and also de-carbonise the energy sector," the chief of the International Energy Agency (IEA) said in a statement hailing the launch.
Capture systems have already been deployed at three industrial plants in the United States that produce hydrogen and fertiliser, as well as at the Great Plains Synfuels Plant, a lignite gasification facility just a few miles south of Boundary Dam in North Dakota. (www.dakotagas.com/)
But these projects produce relatively concentrated streams of carbon dioxide (CO2), which are easier and less expensive to capture.
By contrast, power plants such as Boundary Dam produce more diluted carbon dioxide emissions, which are correspondingly more expensive to process.
Carbon capture is also enormously energy-intensive. A significant share of the electricity generated is actually used within the plant to run the capture systems, which imposes a heavy penalty on its energy efficiency.
The central challenge is how to cut capture costs so that CCS can be deployed on a big enough scale to reduce global emissions.
Boundary Dam Unit #3 is a relatively small power plant, and retrofitting it with a CCS system has cost a lot of money.
SaskPower, which is owned by the Province of Saskatchewan, has invested almost C$1.3 billion ($1.2 billion) in the project since 2009. The capital investment includes a contribution of C$240 million from the government of Canada to help fund the demonstration project.
SaskPower was already committed to spending C$354 million to extend the life of the 45-year old generating unit for a further 30 years.
So the capital cost of the CCS retrofit and associated systems is therefore just under C$1 billion, which is expensive for a plant that will supply just 110 megawatts to the grid.
Boundary Dam Unit #3 has cost much more than the U.S. $350 million typical for an advanced coal-fired plant of its size, according to the U.S. Energy Information Administration.
First-of-a-kind (FOAK) systems are always expensive, but widespread commercial deployment will depend on getting CCS costs down by harnessing what is learned from such projects.
Policymakers and power industry executives will be watching Boundary Dam closely to see what lessons can be learned and how it can be done more cheaply in future.
"Experience from this plant will be critically important," the IEA observed. SaskPower claims its next carbon capture project will cost 30 percent less because of what it learned from Boundary Dam, but that remains an aspiration.
Saskatchewan has unique circumstances that make it favourable for CCS, which will not be easy to replicate elsewhere.
Boundary Dam is located in the city of Estevan, just 18 kilometres from the U.S. border, and lies in Williston Basin, which is also home to booming oil production from the Bakken shale and has always been an important source of lignite.
The province of Saskatchewan relies on coal to meet almost 50 percent of its power needs and has more than 300 years worth of lignite reserves.
Emissions regulations introduced by Canada's federal government in 2011 for new coal-fired power plants and those that have reached the end of their useful life would have made it impossible to continue using lignite at Boundary Dam Unit #3 following the retrofit.
"Replacing coal would be a challenge," SaskPower says. "The loss of coal would not only cripple our ability to supply the province with the power that our lives demand, but would also have a severe economic impact on Estevan and Coronach as the coal-fired plants in those communities would need to shut down."
Boundary Dam can offset some of its higher capital and operating costs by selling some of the captured CO2 for injection into depleted oil fields in southern Saskatchewan for enhanced oil recovery (EOR).
The North Dakota Gasification Company has been selling CO2 from its Great Plains Synfuels Plant to enhance oil recovery at Saskatchewan's Weyburn reservoir since 2000 and the nearby Midale reservoir since 2005. More than 22 million tonnes of CO2 have been successfully injected underground since the turn of the century.
In 2012, SaskPower concluded a long-term deal with Cenovus Energy, operators of the Weyburn field, to supply around 1 million tonnes of CO2 per year.
Other small quantities of CO2 will be injected nearly four kilometres underground at a site near Boundary Dam as part of a pilot programme called Aquistore to test CO2 storage in saline aquifers.
In the short and medium term, utilising CO2 for EOR is essential to improve the economics of any carbon capture and storage project.
In the longer term, however, the construction costs must come down substantially, and the CO2 must be captured using far less energy, if the CCS to fulfil the hopes that policymakers have placed in it. (1 US dollar = 1.1153 Canadian dollar)