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Coal Replacement-Implied Carbon Cost

April 2008

The Ontario government would like largely to replace the province's coal generation by the end of 2011 and has put legislation in place so that all of it must be out of service by the end of 2014.

The Ontario Power Authority is charged with dealing with the gap that would otherwise exist when the 6,434 MW of coal generation disappears. The OPA's Integrated Power System Plan calls for conservation and demand management and gas-fired (primarily simple and combined cycle), nuclear and renewable generation to replace the coal.  These sources of electricity cost more than coal-fired generation, at least in dollars and cents terms, and so the reduction in CO2 comes at the cost of an increase in electricity costs.

It is becoming increasingly common for people to pay for carbon offsets to reduce their greenhouse gas footprint, for example, when they travel by air.  These offsets typically cost $25-$30 per tonne of CO2 offset.  We thought it would be interesting to calculate the implied cost of the carbon offset for each type of replacement generation described in the OPA's plan.

The first step is to consider emissions. For our analysis, we chose to exclude any upstream emissions related to fuel extraction or production. Using data from Ontario Power Generation's 2006 Sustainable Development Report, their calculated coal generation emission factor is 0.997 tonnes CO2 / MWh. For natural gas technologies, we assumed a heat rate of 9.5 MMBtu / MWh for simple cycle and 7.0 MMBtu / MWh for combined cycle.  This means that simple cycle gas generation would produce about 0.487 tonnes CO2 / MWh and combined cycle gas generation would produce about 0.359 tonnes CO2 / MWh.  For nuclear and renewables, we assumed the emissions are zero.

The result is a table of values of CO2 emissions avoided for each replacement generation type, ranging from 0.510tonnes CO2 avoided per MWh for a simple cycle gas turbine versus coal to 0.997 CO2 tonnes avoided per MWh for nuclear and renewables.

  heat rate CO2 emitted tonnes/MWh
MMBtu/MWh lb/MMBtu direct saved vs. coal
coal     0.997 0.000
SCGT* 9.5 113 0.487 0.510
CCGT** 7.0 113 0.359 0.638
hydro/Beck, nuclear, renewables 0.0   0.000 0.997

*simple cycle gas turbine
**combined cycle gas turbine
(note: 1 tonne = 2205 lb)

Next, consider prices.  We assumed electricity from coal-fired generation costs $ 48 / MWh, the average fossil-fired price stated in OPG’s 2006 Annual Report.  The OPA’s IPSP projects a cost of power from different forms of replacement generation ranging from about $ 75 to $ 200 / MWh (2007 $).  Looking at the added cost of power from these replacement generators, relative to the amount of CO2 emissions avoided, it is possible to calculate an implied cost of the carbon offsets. The result is a cost of carbon offsets ranging from about $30 to almost $300 per tonne of CO2.

  prices, $/MWh implied carbon cost, $/tonne
coal $48 premium SCGT CCGT hydro/Beck, nuclear renewables
replacement $75 $27 $53 $42 $27 $27
$100 $52 $102 $82 $52 $52
$125 $77 $151 $121 $77 $77
$150 $102 $200 $160 $102 $102
$175 $127 $249 $199 $127 $127
$200 $152 $298 $238 $152 $152

(note: bolded values show OPA IPSP near term prices in 2007 $)

It is also interesting to note that while the above table reflects prices from the OPA's IPSP cost of power estimates, under the Ontario Power Authority's Renewable Energy Standard Offer Program, the following contract prices are used:

Wind: $110/MWh
Water: $110/MWh
Biomass: $110/MWh
Solar/PV: $420/MWh

Electricity produced from new hydro facilities or nuclear facilities is expected to cost $75 per MWh. However, these sources displace CO2 emissions completely, so the cost per tonne of CO2 avoided is in the order of $27 per tonne.

 Combined cycle gas generation is expected to cost as much as $200 per MWh, and while this form of generation reduces CO2 output per MWh of electricity produced, it does not eliminate CO2. The cost per tonne of CO2 avoided would be almost $199-$238 per tonne.

Conclusions to draw

It would be erroneous to conclude that, by virtue of their lower implied carbon costs, we should "load up" on hydro, nuclear and renewables. Hydro resources are limited, nuclear is a base load asset and wind in particular is non-firm. On the other hand, natural gas plants, simple cycle in particular, are both flexible and firm.

Those who purchase carbon offsets to reduce their GHG footprint may spend up to $30 per tonne of CO2. It is interesting to note that Ontario’s generation plan is spending as much as 10 times that amount to offset CO2 emissions from coal-fired generation.