Capturing Investment: Policy Design to Finance CCUS Projects in the U.S. Power Sector

Lead PI: Julio Friedmann, Emeka Ochu, Jeffrey D. Brown

Unit Affiliation: Center on Global Energy Policy (CGEP)

April 2020 - Ongoing
Project Type: Research Outreach

DESCRIPTION: Carbon capture, use, and storage (CCUS) is a key pathway to rapidly and profoundly reduce greenhouse gas emissions from large point sources such as power plants in a cost-effective way. While other kinds of low-carbon power receive widespread policy support aligned with today’s capital markets, CCUS projects lack sufficient policy support to obtain conventional financing. This suggests additional policies are needed to bring CCUS forward in commercial power market deployment.

The authors undertook an analysis to help predict which policy configurations would incentivize widespread deployment of CCUS in the US electric generation industry. We examined a set of options and applied them to representative existing US power plant types—supercritical pulverized coal and natural gas combined cycle—with two ownership/revenue structures: traditionally regulated, vertically integrated investor owned utilities (IOUs) and independent power producers (IPPs) selling to IOUs under regulator-approved contracts. We used conventional models typical of a project finance assessment and determined which policies would be effective at attracting financing.

The government broadly has two options to make an energy project more economically feasible: It can lower the owners’ costs through capital incentives (such as an investment tax credit or accelerated depreciation) and provide revenue enhancements (such as production tax credits, contracts for differences, or guaranteed power contract requirements). We modeled the financial performance of policy designs on various power plants based on fuel, generation technology, and ownership type.