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ANALYSIS-U.S. utilities balk at expanded carbon-capture subsidy

Thu 2nd August, 2018 12:00pm
By Timothy Gardner
    RICHMOND, Texas, Aug 2 (Reuters) - Few U.S. energy policies
can bring together coal miners, oil drillers, environmentalists,
Republicans and Democrats. 
    But tax credits for capturing and storing carbon dioxide
emissions have appeased all these camps, and Congress this year
tripled the subsidy’s value with broad bipartisan support.
    If only they could convince utilities - the biggest
industrial polluters - to get on board.
    A Reuters survey of the top 10 U.S. power companies showed
eight have no plans to purchase and install carbon capture and
storage (CCS) equipment, citing high costs and uncertain demand,
while the other two declined to comment. Another three utilities
that are well-placed to adopt the technology - because of their
proximity to existing carbon pipelines and coal reserves - also
said they have no plans to tap the newly enriched subsidy.
    The technology employs sophisticated equipment to pull
carbon dioxide from industrial plants and then inject it
underground so it never pollutes the atmosphere. 
    That could help fight climate change while giving coal and
natural gas plants a new commodity they can sell to oil
drillers. When carbon dioxide is injected into aging oil fields,
it helps drillers increase pressure and push more oil to the
surface.
    The potential of CCS is on display in Texas, where the
utility NRG  NRG.N  and joint venture partner JX Nippon, a
Japanese energy firm, built a $1 billion operation called Petra
Nova at the state’s largest coal-fired power plant.
    In the 19 months since NRG installed the shiny steel pipes
and towers, the project has kept nearly 1.7 million tons of
heat-trapping gas from the atmosphere and multiplied oil output
at the nearby West Ranch oil field by 15-fold.
     
    BIG UPFRONT COSTS
    Petra Nova had key financial advantages that are difficult
for other utilities to duplicate.
    The Japanese government provided a $250 million loan to the
project in hopes of finding better ways to use coal as an
alternative to nuclear energy after the Fukushima nuclear
disaster in 2011. 
    The effort also won a $190 million grant in 2010 from the
U.S. Department of Energy's Clean Coal Power Initiative, which
supports innovations that produce "clean, reliable, and
affordable" electricity from coal.
    David Knox, an NRG spokesman, said operating Petra Nova is
showing the firm ways to cut costs for the next generation of
the technology, such as using smaller towers with less steel.
    "We feel you can build a second one for maybe up to 20
percent cheaper," Knox said, although his company is focused on
perfecting Petra Nova rather than building a new CCS operation. 
    Other utilities that do not have access to the same
government and private funding worry that big-ticket investments
on CCS would not pay off - even with tax credits now worth $35
per tonne of carbon dioxide captured and reused, compared to $10
previously.
    Any new industrial facility that injects carbon dioxide into
an oil field before 2024 is eligible for the expanded tax
credit, but the program's success relies heavily on power
plants, which produce nearly 30 percent of U.S. carbon
emissions.
    "Although increased credits for CCS are positive, the amount
still does not address the significant capital and operating
costs," said Melissa McHenry, a spokeswoman for American
Electric Power  AEP.N , in a comment typical of responses from
other utilities.
    Duke Energy, Southern, Dominion, Exelon, Xcel, PG&E, and
Edison International also said they had no such plans, while
NextEra Energy Inc and PSEG did not comment. Three small
utilities that industry watchers say are among the best-suited
to adopt CCS technology - Rocky Mountain Power, Black Hills and
OG&E - also told Reuters they had no plans to do so.
    "Carbon capture is definitely interesting, it just hasn't
made economic sense just yet," said Spencer Hall, a spokesman
for Rocky Mountain Power.
    
    POLITICAL RISKS 
    Utilities say that it is unclear when or if revenues from
CCS would cover the required investment.
    Another concern is that President Donald Trump's successor
could reverse efforts to support the coal industry, accelerating
plant closures and making long-term CCS investments pointless.
    The hesitancy of utilities represents a setback for the coal
industry which had hoped carbon capture would help extend the
lives of coal-fired power plants. It also means that oil
companies that want access to greater supplies of carbon dioxide
may need to look beyond coal and gas plants. 
    Texas drillers have been revitalizing aging fields for 40
years using carbon dioxide from naturally occurring deposits and
from natural gas processing. But those supplies are not enough
to sustain the industry’s ambitions.
    Occidental Petroleum Corp  OXY.N , the top user of the
technique in the Permian Basin, wants to expand its use of
carbon injection from traditional oil fields to shale wells,
said Jody Elliott, the president of Occidental’s American
operations.
    The company believes the technique could boost oil output in
the largest U.S. oil field by 180,000 barrels per day from 3.2
million now.
    The Permian "has a large inventory of future CO2 projects
which could be developed over the next 20 years," Elliott said.
    But that would require carbon captured from power stations,
and plants that make ethanol, fertilizer and cement, along with
billions of dollars in new pipelines to take carbon to the
fields. 
    Julio Friedmann, who worked in the Energy Department under
President Barack Obama and earlier as a scientist for Exxon
Mobil, said he sees interest from ethanol plants and other
industrial facilities to add carbon capture to plants, but urged
utilities to join them.
    "I don't know what they imagine they are looking for," he
said. "But if they are just waiting for better policy treatment,
they may be disappointed."

 (Reporting by Timothy Gardner
Editing by Richard Valdmanis and Brian Thevenot)
 ((timothy.gardner@thomsonreuters.com; +1 202 898-8360 (Twitter
@timogard); Reuters Messaging:
timothy.gardner.thomsonreuters.com@reuters.net))
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