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Technical Assistance Consultant’s Report

Project Number: 46052 March 2015

People’s Republic of China: Roadmap for Carbon Capture and Storage Demonstration and Deployment (Financed by the Carbon Capture and Storage Fund)

Component A–Work Package 3 Report: Selection of early opportunity CCS demonstration projects in the PRC

Prepared by

Huiquan Li, Chinese Academy of Sciences Andrew Minchener, IEA-Clean Coal Center For Department of Climate Change, National Development and Reform Commission (Executing Agency) National Center for Climate Change Strategy and International Cooperation (Implementing Agency)

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

Road Map for Carbon Capture and Storage (CCS) Demonstration and Deployment in the People’s Republic of China

WORK PACK AGE 3 REPORT:

Selection of early opportunity CCS demonstration projects in the PRCHuiquan Li, Chinese Academy of SciencesAndrew Minchener, IEA-Clean Coal Center

March 2015

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WP3A

FINAL REPORT

TA 8133 Component A

Work Package 3A

Selection of early opportunity CCS

demonstration projects for China

November 2014

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Key messages

In the PRC, there are some sixteen possible coal based CCS full chain integrated

demonstration projects although the great majority are at the early concept stage. As

such, the level of process information that is available is generally insufficient to allow

any robust assessment of likely technical and economic performance to be

undertaken. Consequently, the best that could be achieved would be a preliminary

ranking of possible projects, after which the Chinese Government could encourage

the project developers to provide a comprehensive pre-feasability dataset and to

show how their proposed projects might meet the following criteria:

Be consistent with Chinese energy & environment strategic objectives, as defined in the 12th Five Year Plan and other government documents;

Have support from local government for the implementation of the proposed project;

Comprise a large scale coal based process that is representative of the technology used in either the Chinese power, chemicals (including coal to liquids and gaseous

fuels), iron and steel, or building sectors, to which a CCS technique will be applied;

Include the whole technical chain of CO2 capture, transportation and utilization/storage;

Be developed sufficiently such that a Front End Engineering Design (FEED) study will be able to start;

Be technically ready for capturing at least 85% CO2 from the gas stream;

Have a storage/utilisation level equal to or larger than 100,000 tonnes of CO2, and preferably close to or in excess of 1 Mt CO2 per year;

Have a geological location identified and characterized to the extent that there is a reasonable expectation that the quantities of CO2 captured over the demonstration

project lifetime can be adequately stored/utilized:

Include downstream heat recovery, if a power project, to improve the overall process efficiency;

Include the design and implementation of a comprehensive monitoring and verification programme for CO2 storage, which will need to be applied also for

EOR applications since a portion of the CO2 remains contained within the

reservoir.

It is strongly recommended that, in order to implement this suggested approach, the

Chinese government should consider setting up an independent panel of industrial

experts to work with the project developers to gather the process related data

necessary to assess the project viability against the key criteria set out above. In this

way, a robust and transparent selection process could be established that would lead

to a shortlist of projects being produced from which the more attractive options could

then be subjected to a FEED study. Once these were completed and, subject to

acceptable results and a financing plan being established, this would allow the

Chinese government to take well informed decisions as to how such bankable

demonstration projects could be taken forward.

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Within this ADB TA project, an initial assessment procedure has been suggested,

which allows a reasonable preliminary ranking of possible projects to be determined.

This approach considers a range of technical parameters and assigns weighted

scores that are dependent on the overall objective of the demonstration programme.

For example, this can be to either determine the near-term need to identify potentially

low cost opportunities or the longer term requirement to identify possible projects that

offer high replicability potential.

Since the input information to the assessment procedure is limited both in scope and

accuracy, it is evident that there is not a significant differentiation between the results

obtained for the various projects. Based on the criteria used in the low cost

assessment, there is little significance between the rankings for the top four projects,

which comprise coal to chemicals related possibilities. Similarly, for near to medium

term possibilities where replicability is a key issue, there is limited differentiation

between several coal power plant projects. For both options, all these projects are

reasonably well advanced in their planning and design activities and all include some

level of CO2 EOR application, which will provide a revenue stream that will offset

some of the operational costs associated with the implementation of CCS.

Thus, it is evident that the coal-to-chemicals prospects represent the more attractive

low cost opportunities. For the medium term, when wide scale replicability will also

become important, it will be necessary to consider all three first generation CO2

capture possibilities since no clear technology winner can yet be identified. Thus

post-combustion CO2 capture fitted to pulverised coal power plant will be very

important as this technology is readily suited for retrofit to the modern components of

the existing coal power fleet. Similarly, oxyfuel will also need to be considered as it

can be readily applied to existing power plants. In both cases, the technologies will

also be applicable for new applications, with some suggestions that oxyfuel might

offer some potentially significant capital cost and operational cost reductions

compared to the alternatives. Finally, IGCC should not be discounted as, although it is

not yet technically and economically proven, there still appears to be scope to offer

lower CO2 capture opportunities, albeit for new plant only, compared to the other two

prospects in due course.

At the same time, recognising that China might wish to take forward a near term low

cost demonstration opportunity, prior to a robust and transparent selection process

being established, it would be appropriate to specifically examine proposals from

large energy companies that already have CCS/EOR experience at industrial pilot

scale and have already expressed their commitment to work with the NDRC and

international funding organisations such as the Asian Development Bank. When this

commitment issue is considered, a potentially significant and ambitious project is

immediately identified. This is a proposed early stage coal to chemicals plant

demonstration project to be undertaken by Shenhua, with CNCPC using the captured

CO2 for EOR in an oil field in the Erdos region. Most importantly, the Chairmen of both

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these major SOEs have signed Memoranda of Understanding with the China

Petroleum and Chemical Industry Federation. They intend to first undertake a

pre-feasibility study and pilot test during 2014/2015 and then a FEED study for a 1-2

million tonnes CO2 per year capture and EOR project. This will be supported with an

assessment for a subsequent inter-provincial CCUS network around the Erdos basin

oil fields, including capturing CO2 from coal-fired power plants as well as coal to

chemical plants. Such a network would lead to a CO2 capture and utilisation

opportunity covering part of Inner Mongolia, Gansu, Ningxia, and Shanxi Provinces,

with an annual CO2 utilisation capacity of some 5 million tonnes.

This proposed project offers a very attractive near term demonstration opportunity. It

comprises a low-cost CO2 capture option from a coal to chemicals plant, and has the

joint involvement of China’s major coal producer and its largest oil company, both of

whom have committed to work together. In the near term, the intended project offers a

very significant CO2 capture/utilisation prospect, which will represent one of the largest

planned demonstration projects in the world. There is close proximity to an oil field,

with proven amenability to CO2-EOR, which further emphasises the low cost

possibility. Equally importantly, the oil field region contains a very large number of coal

to chemical plants and coal-fired power plants, and is also distant from large human

agglomerations. As such, the subsequent intended CO2 network is an attractive and

suitably ambitious further stage demonstration that will allow China to establish itself at

the forefront of global CCUS activities.

Consequently, support for this major CCUS project in China by the Asian Development

Bank in collaboration with the NDRC is strongly recommended.

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Contents 1 INTRODUCTION 1.1 Status of CCS in China 1.2 Scope of work 2 INTERNATIONAL PERSPECTIVES FOR CCS DEMONSTRATION PROJECT DEVELOPMENT 2.1 Global summary of large scale integrated CCS projects 2.2 International approaches for selecting and funding CCS demonstration projects 2.3 The international relevance to China

3 CCS DEVELOPMENT IN CHINA 3.1 Status of China’s CCS initiatives 3.2 Overview of China’s current demonstration project proposals 3.3 Rationale for ranking of possible projects 4 GENERIC APPROACH TO PROVIDE A PRELIMINARY RANKING OF CHINESE DEMONSTRATION PROPOSALS 4.1 Basic principles of intended project evaluation 4.2 Construction of evaluation criteria and indicators system 5. CHINA CCS DEMONSTRATION PROJECT PRELIMINARY EVALUATION AND SELECTION 5.1 Presentation of overall results 5.2 Ranking on a lower cost basis and a replicability basis 5.3 Description of the top ranked projects 6 PROPOSED NEXT STAGES OF THE ASSESSMENT PROCESS 7 RECOMMENDATIONS TO THE NDRC AND THE ASIAN DEVELOPMENT BANK FOR AN EARLY OPPORTUNITY CCS DEMONSTRATION PROJECT 8 REFERENCES

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List of Tables

Table 1 Regional distribution of large scale integrated CCS projects

(GCCSI 2014a) Table 2 Sector and technology based analysis of LSIP data base (based on GCCSI 2014a) Table 3 Listing of possible large scale coal based CCS demonstration projects in China Table 4 Summary of CCUS demonstration project evaluation index and

classification

Table 5 Methods to assign index weights

Table 6 Index weighting where either cost or replicability is critical Table 7 Basic evaluation results (arrayed by project number)

Table 8 Provisional list of early CCUS projects where low cost is the key

assessment criterion

Table 9 Provisional list of CCUS projects where replicability is the key

assessment criterion

List of Figures Figure 1 Suggested CCUS demonstration project evaluation index system

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1 INTRODUCTION

1.1 Status of CCS in China The current measures for reducing the greenhouse gas emissions of the People’s

Republic of China (PRC) are focused on improving energy efficiency, energy

conservation and increasing the share of non-fossil fuel energy sources. At the same

time, as reflected in the PRC government’s 2011 Action Plan on Climate Change,

there is a growing recognition that while these options remain important, they will only

go so far and that carbon capture and storage (CCS) will also need to play a key role

in China’s climate change abatement strategies, It is an important climate mitigation

technology that offers medium to long term opportunities to make very deep cuts in

CO2 emissions while continuing to utilize coal for major applications.

In 2013, the National Development and Reform Commission (NDRC) announced that

its Climate [2013] Document No. 849 has been sent to all provincial, autonomous

region, special zone, municipal and city governments, as well as to a wide range of

ministries and commissions, and to all state-owned key enterprises and all related

industry associations. Its purpose is to promote carbon capture, utilisation and

storage pilot and demonstration projects throughout the thermal power, coal chemical,

cement and steel industries (NDRC 2013). This is a powerful document and calls on

the recipients to:

develop pilot and demonstration projects along the CCUS technology chain;

develop CCUS demonstration projects and base;

explore and establish financial incentive mechanisms;

strengthen strategy and planning for CCUS development;

promote CCUS standards and regulation; and

strengthen capacity building and international collaboration.

This initiative will play a major role in driving forward CCS demonstration and

deployment in China.

1.2 Scope of work This study considers the international perspectives of CCS development, including

the various approaches to establish major demonstration projects, and draws lessons

on how such experience might benefit China’s own CCS ambitions. The international

perspectives of CCS development are assessed, including the various approaches to

establish major demonstration projects. China’s current CCS activities are reviewed,

including its current large scale demonstration project proposals. Recommendations

on how to move forward are then made such that China can subsequently establish a

robust, transparent approach to identifying and supporting the initiation of significant

CCS demonstration projects.

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2 INTERNATIONAL PERSPECTIVES FOR CCS DEMONSTRATION PROJECT DEVELOPMENT

2.1 Global summary of large scale integrated CCS projects The Global CCS Institute (GCCSI) publishes an annual listing of all publically declared

large scale integrated CCS projects (LSIPs) worldwide. The GCCSI defines LSIPs as

those which involve the integrated capture, transport and storage of CO2 at a scale of:

at least 800,000 tonnes of CO2 annually for a coal-based power plant, or

at least 400,000 tonnes of CO2 annually for other emission-intensive industrial facilities (including natural gas-based power generation).

Table 1 Regional distribution of large scale integrated CCS projects

(GCCSI 2014a)

Region Status Total

Identify Evaluation Definition Construction Operation

USA 0 4 6 2 7 19

Europe 1 3 5 0 2 11

Australia & New Zealand

0 3 0 1 0 4

Canada 0 0 1 5 1 7

China 6 2 4 0 0 12

Middle East 0 2 0 1 0 3

Other countries in Asia

1 1 0 0 0 2

Africa 0 0 0 0 1 1

South America

0 0 0 0 1 1

Total 8 15 16 9 12 60

As of February 2014, some 60 such projects were listed (GCCSI 2014a). Twelve are defined as operational. These are natural gas based process projects either to remove CO2 to meet pipeline quality standards or for chemicals manufacture, mostly using pre-combustion technology. The very great majority of the remaining projects are at the early stages of identification, evaluation and definition. Table 1 provides a

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regional breakdown for the projects, based on the GCCSI database as of 24 February 2014. Further analysis of the information shows that the great majority of projects are intended for implementation in the USA and then China, Europe and Canada. Table 2 indicates that the majority of the projects are being developed for the non-power sectors, particularly in the case of gas. In overall terms there is a small majority of coal based projects worldwide compared to gas and oil options.

Table 2 Sector and technology based analysis of LSIP data base

(based on GCCSI 2014a)

Sector CO2 capture technology Total

Post-combustion Pre-combustion Oxy-combustion

Coal power 7 12 4 23

Coal

Chemicals

- 9 - 9

Gas power 3 - - 3

Gas

chemicals/

processing

- 17 - 17

Oil processing - 2- - 2

Unknown - - - 6

Total 60

It is also worth noting that many of the potential LSIPs identified by the GCCSI in North America and to some extent Europe are based on natural gas processing, with CO2 EOR as the preferred usage route. This is in contrast to China where the focus is on coal, both for power and conversion activities. In China coal to chemicals projects appear to offer significant possibilities for CCS demonstration including CO2 EOR.

2.2 International approaches for selecting and funding CCS demonstration projects The basis, rationale and issues arising from various approaches adopted within OECD countries to select and fund commercial prototype CCS demonstration projects are presented. The importance of this review is to highlight the experiences arising from these various approaches, which were undertaken in order to ensure transparency and value for money as these projects are to be funded in part with public money. In Europe and the USA, there have been significant R&D projects undertaken, with the objective to reduce the cost and efficiency penalties associated with post-combustion, pre-combustion and oxyfuel based CO2 capture techniques for coal fired power plants, and to develop alternative technologies for the longer term that may have advantages such as chemical looping (GCCSI 2013). While this is of

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significant international value, there has been limited progress towards establishing commercial prototype CCS demonstration projects. In part, this has been due to uncertain investment conditions but also due to the lack of supportive policies and appropriate regulatory conditions. That said, there are efforts in both the USA and the UK to break down such barriers with programmes to establish large scale demonstration projects. In particular, there are two major programmes that have been supported by the governments of the USA and the UK, and in both cases valuable lessons can be learned from such experiences as their respective first attempts to establish a viable demonstration programme did not proceed successfully.

2.2.1 The USA FutureGen CCS demonstration project FutureGen is a USA government project that was in created in 2003, for implementation as a public-private partnership. It has proved very difficult to achieve a viable commercial prototype demonstration project although a robust way forward now appears to be in place. While this has created certain difficulties for the government, it has provided a valuable learning curve that may be of benefit to other countries with ambitions to establish a new technology option at such a large scale (Floger 2013).

First attempt at a public –private partnership The initial plan was to build a near-zero-emissions gasification based coal fuelled 275 MWe power plant to produce hydrogen and electricity while using CCS, with 1 Mt/year of CO2 being captured, transported and stored in a saline aquifer. This project was intended to be designed, developed and operated by the FutureGen Industrial Alliance, a non-profit consortium of coal mining and electric utility companies, with the USDOE providing a portion of the required funds. The Alliance comprised a consortium of 10 companies from the USA, China and Australia. The initial estimated gross project cost, including construction and operations, and excluding offsetting revenue, was set by DOE at $1.65 billion, with the expectation that they would provide US$1 billion and the Alliance would provide the balance. In order to select a viable project, the USDOE called for tenders, which led to four potential options being selected as a short list. The project developers for these four options were then required to submit pre-feasability level technical and economic plans for all parts of the CCS chain, from which in 2007 a winning consortium was chosen, with plans to build an IGCC project with pre-combustion capture in Illinois. As an example of the process, selection of the CO2 storage site was based on a review of proposals against a set of environmental, technical, regulatory, and financial criteria, with input from external technical advisors on power plant design and CO2 storage. An initial twelve proposals were reduced to four by this process, and those four were reviewed further, including a determination of their suitability via an environmental impact analysis as required by the National Environmental Protection Administration. However, it became evident that the level of detail in much of this assessment process was not adequate as the estimated costs for the chosen project rose steadily, reflecting very much the lack of maturity of the IGCC+CCS concept at that time. The DOE sought to draw in additional funding from industry but, in the absence of a firm costing, this approach was not successful. Indeed the project was still in the development stage when its funding was cancelled in January 2008.

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Second attempt with FutureGen2.0 Despite this significant failure to establish a technically and financially viable project, the USA Government remained keen to establish a way forward. The USDOE expressed support for continuing the project using stimulus funds and making it a part of a larger portfolio of research projects developed in collaboration with other countries. There was a shift in technology choice to oxyfuel combustion in that this was thought to offer significant potential in terms of lower cost and efficiency penalties compared to post-combustion capture while being a type of technology that would not be vulnerable to large cost uncertainties compared to IGCC with pre-combustion capture. The general approach adopted to select a project for this second attempt remained very similar to that used previously, with possible candidates being solicited, a short list being drawn up and a pre-feasability study being undertaken for each project on the shortlist to identify the efficiency penalties, likely costs and a viable CO2 storage location. This has led to the selection of the Future Gen 2.0 demonstration project, which has replaced the ill-fated original IGCC concept. The USA DOE continues to cooperate with the FutureGen Industrial Alliance, which comprises all its original overseas members and almost all its national members. This time the aim is to retrofit a 200MWe coal-fired power plant in Meredosia, Illinois with oxy-combustion technology. The goal is to capture more than 1 Mt of CO2 each year, which accounts for more than 90% of the plant’s CO2 emissions, and to reduce other emissions to minimal levels. This will require testing of the oxygen separation technology, new boiler and exhaust processing technology after combustion at power plant scale. In particular, the plant’s CO2 purification and compression unit is expected to deliver 90% CO2 capture and reduce other emissions, such as SOx, NOx and particulates, to near-zero levels. The CO2 is to be transported and stored underground in nearby deep saline aquifers (Bellona 2013). This is a three phase programme. Phase 1 included technical and financial activities, such as identification of a storage site, preliminary characterization and test drilling, and a commitment from the Illinois Commerce Commission to cover the FutureGen 2.0 project’s output under its power purchasing plans. This was completed successfully in February 2013, after which the USDOE announced the beginning of Phase 2 of the project development with a new cooperative agreement between the FutureGen Industrial Alliance and the DOE. At this point, the USDOE made a financial commitment of support that allowed the developers to move forward with the first US$100 million worth of work on demonstration of the oxy-combustion technology. Recently, the project received the final approval that it needed in order to begin the construction activities when the DOE formally approved its commitment and allocated US$1 billion for the FutureGen Alliance (GCCSI 2014b).

2.2.2 The UK Government CCS demonstration competition As with the USDOE, the UK Government via its Department of Energy and Climate Change has encountered significant problems in ensuring that viable CCS demonstration projects can be selected for public funding support.

The first UK competition The UK established the basis for UK infrastructure investment within the energy sector of the economy. The Government’s vision is that it can reduce carbon emissions from the energy sector and tackle climate change through supporting:

the commercial deployment of CCS;

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the introduction of new nuclear power stations;

increased deployment of renewable energy sources; and

improved energy efficiency. The UK government has stated its belief that the energy market will drive the most efficient investment strategy for power generation, which will incentivise investment in low carbon energy generation to meet the challenges arising in delivering a secure, low carbon and affordable energy system. However, for the short to medium term, the Government recognises that it needs market mechanisms to continue to support emerging low carbon technologies, including CCS. On this basis, in 2007, the Government launched a competition for industry to run a project to design, construct and operate the UK’s first commercial-scale CCS demonstration project at a coal-fired power station by 2014. The Government further made a commitment to make up to £1 billion available in capital investment for the first such demonstration project. It made a call for proposals, which received a positive response from industry. However, after establishing a short list of four possible projects, the competitive process began to fail. Firstly, two of the four shortlisted bidders subsequently withdrew, due in part to longer term uncertainty as to the prospects following the demonstration phase. The government then provided a total of £40 million (~US£60 million) to fund FEED studies for both the remaining possible projects, with all of the findings from such studies subsequently being made available in the public domain. Such studies typically follow on from initial high-level (pre-feasability) plans, and allow project developers to refine designs and, for example, obtain quotes from suppliers. This gives greater certainty on costs before the project developer and, in this case, the government commits significant funding on construction. As the FEED studies were completed, one of these two bidders then withdrew because their intention to build a new supercritical coal power plant with CCS did not fit the government’s declared timescale. This left one bidder, comprising a consortium of Scottish Power, National Grid and Shell. In October 2010, the Government estimated that the Scottish Power consortium’s bid required capital of £1.9 billion, based on data provided by the Scottish Power consortium before its engineering and design work had been completed. This was well in excess of the Government’s £1 billion capital budget for the project. In October 2011, the government ceased contractual negotiations as it couldn’t agree a deal that would represent value for money since the project couldn’t be funded within its agreed £1 billion capital limit. A second sticking point was that it couldn’t agree with Scottish Power how to offset the additional cost of the new carbon price floor (a minimum charge for emitting CO2) to secure the availability of Longannet power station for the duration of the demonstration project. Furthermore, it concluded that there was also no prospect of agreeing contract terms, including IPR issues, which would be mutually acceptable to all members of the consortium. Consequently, the competition was cancelled. In hindsight, following an Audit Office enquiry, it was decided that, while the competition was launched based on the strategic importance of CCS, it lacked both a detailed business case and a viable means for options appraisal. There was insufficient clarity over how a single demonstration project would contribute to policy objectives. The original project specifications were deemed to be too narrow, which limited the number of bidders applying to the competition, the technical project options they could submit, and the flexibility of the negotiations. The Department also gave limited weight to commercial viability when it assessed bidders’ outline proposals.

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Regulatory uncertainty further contributed to the Department’s inability to reach a commercial contract (National Audit Office 2012). As with the FutureGen approach, although the competition did not result in a contract, it increased the UK Government’s experience of the associated technical, regulatory and commercial challenges, and its knowledge of the costs of CCS. With regard to the latter point, it has paid for the two FEED studies, which may help to reduce the costs of future engineering and design work (CCSA 2014). Given the potential importance of CCS to establishing a low carbon economy, the UK Government has persisted in its attempts to establish a sound financial basis for support of a commercial scale CCS demonstration, as described below.

The UK CCS commercialisation competition This second attempt by the UK government to select CCS demonstration projects is intended to support industrial practical experience in the design, construction and operation of commercial-scale CCS. The £1 billion capital funding is meant to: generate learning that will help drive down the costs of CCS;

test and build familiarity with the CCS specific regulatory framework;

encourage industry to develop suitable CCS business models; and

contribute to the development of early infrastructure for CO2 transport and storage. As part of the improved learning process available to the government for its new programme, DECC has declared that its competition will need to fully investigate the costs and the technical, price and regulatory risks in individual projects and compare their value. It will monitor the return that industry is likely to make and how government risks can be minimised. It has also set governance arrangements to assess routinely whether the programme is on course to deliver value for money. This is expected to include, at the project level, formal breakpoints with triggers for further reviews as necessary to test the value for money of proceeding further. This second competition was launched in April 2012. Its objective is to identify and support projects that can contribute to reducing the costs of CCS technology so that it can compete with other low carbon technologies in the 2020s. This resulted in a wide range of outline proposals being submitted, from which a shortlist of four was drawn up. In October 2012, DECC announced that all four were being taken forward into a new intensive phase of pre-feasability project definition combined with detailed commercial negotiations. On 14 January 2013, DECC confirmed it had received revised proposals from all four projects. In March 2013, DECC announced that two bidders had been shortlisted for the next phase of the competition (Gov.UK 2013a). These are:

The Peterhead Project, for which Shell UK and Scottish Southern Electric (SSE) intend to retrofit post-combustion capture to an existing Combined Cycle Gas

Turbine (CCGT) at Peterhead Power Station, Aberdeenshire. The flue gas stream

will be routed to an absorber where about 90% of the CO2 will be removed by

application of amine capture technology. The CO2 will be transported by pipeline

approximately 100km offshore to the Goldeneye platform, where it will be injected

into a depleted gas reservoir for long-term storage, at a depth of more than 2km

under the floor of the North Sea. The project will capture in the region of 1Mt of CO2

each year during a 10-year demonstration phase.

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The White Rose Project, for which Capture Power Limited (a consortium of Alstom Power, Drax Power Station and the British Oxygen Company) and National Grid

will build a new state-of-the-art 426MWe (gross) clean coal power plant with full

CCS, capturing approximately 2 Mt of CO2 per year. This will link into the planned

development of a CO2 transportation and storage infrastructure to an offshore

saline aquifer in the North Sea, which would have capacity for storing CO2 arising

in the future from possible additional CCS projects in the area. The Government then entered in to negotiations with these two preferred bidders to agree terms for FEED studies. As of April 2014, contracts had been signed for both the White Rose project and the Peterhead project. A final investment decision will be taken by the Government in early 2015 on the construction of the two projects, which, on that timescale, would be expected to become operational by 2020. In accord with the broader objectives outlined above, the UK Government is working with industry to create a new cost-competitive CCS industry for implementation in the period 2020 to 2030 (Gov.UK 2014). Support for the development of CCS includes: the £1 billion commercialisation competition to support practical experience in the

design, construction and operation of commercial-scale CCS;

a £125 million, 4-year co-ordinated research, development and innovation

programme; and

reform of the UK electricity market so CCS will be able to compete with other

low-carbon energy sources The latter point is being addressed with the development of a new pricing mechanism through the introduction of a Contract for Difference (CfD). This aims to secure the significant investment required to replace the generation capacity scheduled to close by 2020 and deliver a secure, low-carbon electricity system in a least-cost way. The CfD is a long term, private law contract that pays the generator the difference between an estimate of the market price for electricity (the ‘reference price’) and an estimate of the long term price needed to bring forward investment in a given technology (the ‘strike price’). This removes generators’ long term exposure to electricity price volatility, substantially reducing the commercial risks faced by these projects, encouraging investment in low-carbon generation at least cost to consumers (Gov.UK 2013b). The expectation is that companies with low-carbon generation with a CfD will sell their electricity into the market in the normal way, and remain active participants in the wholesale electricity market. This approach recognises that the levels of support required to ensure the transition to a decarbonised electricity market (and to achieve carbon and renewable energy targets) must take account of two core objectives, namely minimising costs to consumers and reducing uncertainty for investors. There are costs to replacing the UK’s ageing energy infrastructure with low-carbon alternatives, and the Government will aim to minimise the impact of its policies on the costs that consumers and businesses pay. The intention is that by giving advance visibility of the support available, and when and how prices may change, will provide developers with the clarity they need in order to plan their projects and take investment decisions.

2.3 The international relevance to China The USA and UK CCS demonstration programmes have both encountered significant

problems in establishing robust and transparent means of evaluating possible projects

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for a commercial prototype CCS demonstration. Such means are necessary as, in

both cases, public money is being used to provide part funding. Of the two, the pitfalls

arising and the solutions applied are better described in the public domain in the case

of the UK. The lessons learned are of great value and would appear to be applicable

to any nation considering supporting a large scale demonstration project, including

China, whether this will be by open competition or by an alternative arrangement.

For any country that is determined to pursue CCS, the rationale and choices for

demonstration projects are strategic considerations, with a need for the national

context, technology status and other factors, such as feasibility, stakeholder interest,

timing and cost, to be taken into account. In particular, whatever the means used to

select possible projects for such demonstrations, there needs to be an audit trail of

steps taken and decisions made, since no government, internal or external investor

should sanction such a major investment unless they can be sure that the project is

technically robust and that a sound business case can be made. This requires the

project developer to provide suitable reassurances such that the funding body can

make an informed decision.

In the near term, the expectation is that CCUS, with CO2 utilisation included rather

than just storage, will be critical to making the technology a commercially viable option

within China as it offers a potential revenue stream that can to some extent offset the

additional operational costs arising. The main focus of such utilisation is for Enhanced

Oil recovery (EOR) although there are smaller scale options including for the

production of food and beverages, fertilizer and algae. It is also important to recognise

that CO2 utilisation can only fulfil a relatively minor role due to limited market

opportunities once large scale CCS deployment has to be implemented. CO2 based

EOR has been tested at reasonable scale in China, up to 100,000 tonnes CO2/year,

and there are strong plans to scale up such activities. To date, much of the CO2 has

been provided through natural gas stripping although some has been sourced from

CO2 capture on a coal fired power plant (Minchener 2011). EOR offers the least

carbon intensive route to obtain extra oil from domestic reservoirs, so improving

energy security for China. From a CCS perspective, much of the CO2 can remain

trapped in the oil deposit and provided that this is monitored this proportion of the

trapped CO2 can be designated as being stored. The exact proportion will depend on

the geological characteristics of the deposit. Studies in China have suggested that

about 60–70% of the CO2 is permanently sealed in the ground while the remainder is

removed with the extracted oil.

The initial stage in establishing a CCS demonstration project should be the provision

of a pre-feasability study for the power plant or other industrial process. This is a high

level assessment of the project that will establish an overall process concept, covering

the host plant and all stages of the associated CCUS techniques, in sufficient detail to

determine likely process performance and a techno-economic assessment such that

a better than order of magnitude costing can be determined. Within such a

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pre-feasability framework, it is then possible to broadly identify capital and operating

costs that will be incurred should CCUS be introduced. This will allow a preliminary

assessment of whether such a project should be viable. As well as the technical

assessment, there would be a need to determine the conformity of each project with

the following criteria. Thus the intended project should:




fuels), iron and steel, or building sectors, to which a CCUS technique will be

applied;

Include the whole technical chain of CO2 capture, transport and utilization/storage;



Have a utilization/storage level equal to or larger than 100,000 tonnes of CO2, and preferably close to or in excess of 1 Mt CO2 per year;





EOR applications since a portion of the CO2 remains within the reservoir. The expectation is that the owners of an acceptable project will be able to provide a positive response to each criterion listed above. The one exception at this first stage selection process might be the CO2 storage monitoring and verification where the fallback response would be the adequate recognition of the need for such a programme and suggestions as to how the owner might go about addressing this requirement if their project reaches the short list. If this pre-feasability study appears positive, the next stage would be to develop a robust design and costing for such a large scale technology demonstration. For this, it would be necessary to undertake a detailed front end engineering design (FEED) study, which corresponds to the point where very significant financial commitment needs to be made. To put the scale of this pre-project investment in context, the two FEED studies that were funded by the UK Government in their first CCS competition cost some RMB 400 million in total. The FEED study provides a verifiable means to justify the rationality of the technical CCUS option for the demonstration project, including system definition, identification of key problems and justification of proposed solutions. Items to be considered include:

17

Maturity of the demonstration project, including operational scope, scale of input, readiness of the infrastructure and associated industrial facilities for project

implementation, and availability of the necessary expertise, site and equipment;

Project innovativeness, including technological sophistication, and compatibility/suitability for implementation in China; and

Availability of a comprehensive management plan, including strategy and procedures to ensure full implementation of the project.

There will be a need to provide preliminary but justifiable estimates of the impact of applying CCUS to the industrial process on: process/cycle efficiency and the energy penalty per unit output; and

investment and operational costs including equipment for each part of the CCUS chain, extra land requirements, any characterisation work for the CO2 storage site,

additional coal use, water use, manpower, waste products disposal, environmental

permits, monitoring and verification costs. This will provide support for the overall financial model and plan, including total incremental cost of the demonstration and likely sources of financing. There will be a further need for the project owner to have a long-term operations plan for the plant with the CCUS integration when and after the project is completed. The project owner should also make a commitment to provide non-IPR data and materials to facilitate project evaluation by external experts, including dissemination of such information and materials generated during the implementation of the project as part of a programme for public awareness and acceptance, with some emphasis on the monitoring and verification results for any CO2 storage site (including EOR) within the project. It is also important to stress that China has already adopted this approach in the China-EU Near Zero Emissions from Coal (NZEC) Phase 2 collaborative project. Thus the Chinese team, under the guidance of the Ministry of Science and Technology and comprising key national CCS experts from well-regarded institutes and universities, made a call for proposals and then selected three coal based power sector proposed demonstration projects that had been put forward by major Chinese industrial organisations. The developers of each of these three projects are now being funded by the European Commission to carry out a small prefeasibility study. Once these studies are completed, the most appropriate proposal will be selected by the Chinese team to receive further significant funding from the European Commission to undertake a FEED study.

3 CCS DEVELOPMENT IN CHINA

3.1 Status of China’s CCS initiatives CCS can in principle be applied to any large scale stationery fossil fuel process. For

coal based technologies, this could include their use for the power, iron and steel,

cement and chemicals sectors. Globally, coal power dominates coal use and as such

must be seen as the more important sector to address. The next largest sectors are

iron and steel, and cement. However, in these cases, to date, progress with CCS

development is limited due to technical issues that have yet to be resolved. Globally,

18

the coal to chemicals sector is much smaller than the others, with almost all modern

units having been established in China.

From the Chinese perspective, current coal use in the power, iron and steel, cement

and chemicals sectors is about 2,200 Mt, 450Mt, 450Mt and 170 Mt respectively.

Interestingly, the coal chemicals sector, although currently smaller than the others,

offers significant near term relatively low cost CCS demonstration opportunities. This

is because the CO2 capture stage, which normally represents close to 80% of CCS

costs, is an integral part of the chemicals production process and so doesn’t represent

an add-on process cost. Consequently the overall CCS costs will be very much lower

than those in the other coal sectors.

CCS is a R&D priority for China, covering all capture options, transport and storage,

together with a strong level of international co-operation. The drivers are to reduce the

energy penalties and high costs for the first generation technologies while developing

improved second generation systems. Over the last decade, the national CCS

research programme has ranged from fundamental research on CO2 use for EOR

applications and long-term storage, to the development of advanced CO2 capture

technologies based on adsorption and absorption processes, and to explore and

characterise CO2 storage options together with technology for the monitoring of CO2

storage integrity. Many of these R&D activities include a strong level of international

co-operation, through capacity-building programmes with, amongst others, Australia,

Canada, the European Commission, Italy, Japan, the UK and the USA.

With regard to progression beyond research, China may have made a later start than

many other countries but it has achieved rapid success with various industrial

development activities. There are some very significant large industrial scale trials

that are being funded and implemented by major Chinese power generation, coal and

oil companies.

Indeed, China has established a significant CO2 capture technology base.Thus, for

post-combustion CO2 capture, China is as well advanced as other countries, with

Huaneng Power having successfully implemented a 120,000 tonnes CO2 /year

capture unit on a side-stream from the ultra-supercritical 2x660MWe Shidongkou No

2 pulverised coal power plant in Shanghai, the largest coal based project of its kind

prior to the successful start-up of the Boundary Dam project in Canada. Huaneng

Power is now examining a demonstration scale option for this technology via the

NZEC Phase 2A China-EU cooperation programme. For pre-combustion capture,

various companies have learnt a lot from their coal to chemicals programmes.

Shenhua Group has undertaken a full chain CCS trial on a coal to synthetic oil unit,

which comprises part capture of the CO2 vented from the coal gasifiers together with

compression and subsequent tanker transport and storage in a saline aquifer, at an

annual rate of 100,000 tonnes. There are plans to develop a larger facility capable of

handling ~1Mt CO2 annually. Further, Huaneng Power is planning to examine the

19

detailed application at an annual scale of 60,000 tonnes CO2 capture/year on a

sidestream from China’s first 250 MWe IGCC demonstration plant. With regard to

oxyfuel, Huzhong University of Science and Technology has undertaken extensive

trials at small industrial scale and is now working closely with Dongfang Boilers to

establish a 35MW industrial pilot scale unit. They are also undertaking a capacity

building project, with ADB and Dongfang Boilers support, to define the basis for a 200

MWe demonstration unit that would be hosted by Shenhua Guohua Power. This is

being supported by the ADB via the TA8133 Component B capacity building project.

Such oxyfuel demonstration plans are at a comparable scale to the intended activities

in the USA, if rather smaller than what may go ahead in the UK.

When CO2 storage is considered, Chinese understanding may not be as advanced as

that in the EU and the USA. However, increasingly, China is building up its expertise

and is starting to establish the basis for a national CO2 storage atlas, which

represents a key step in the rationalization of CCS. These points are considered

below.

There are various CO2 EOR activities underway, including monitoring of CO2 stored,

reflecting China’s interest in CO2 utilisation. A series of large-scale trials by major oil

companies is underway, which are a direct scale-up and development of the research

undertaken previously. This includes PetroChina, which has carried out a major CO2

EOR-related activity by stripping CO2 from a natural gas source and injecting it into at

the Jilin Oilfield, Liaoning Province. PetroChina reports that, in some cases, oil

recovery through CO2 injection may be enhanced by 10–20%. For 2015, the aim is to

achieve an annual additional oil extraction of 500,000 tonnes, with a CO2 storage

capacity of some 0.8–1.0 Mt (MOST 2010). Sinopec has undertaken some EOR

activities in the Shengli oilfield of Shandong Province (Zhang and others, 2011) using

CO2 captured in a post-combustion capture system with MEA solvent at the Shengli

coal power plant. There are provisional plans to scale up operations for a 1 Mt/y CO2

EOR demonstration project in the oilfield for operation by 2015 (MOST 2011).

CO2 EOR may be less developed in China than the USA although China’s oil

companies are now major representatives within the industrial scene. As such, they

are gaining the necessary expertise by cooperating with other companies and, as

appropriate, buying that expertise through international business purchases (Ding

2009; MOST 2013). Apart from EOR, China has also shown significant interest in

other CO2 uses, including CO2 synthesis for energy chemicals, copolymer plastics

and carbonic acid esters. This work is mostly at the small scale pilot development

stage.

With regard to storage, as distinct from EOR in which only some of the CO2 is

permanently retained in the deposit, there is reasonable recognition that the use of

onshore and, in places, offshore storage in saline aquifers represents the ultimate

way forward. The leader in assessing aquifer based CO2 storage has been Europe,

20

with about 1Mt of CO2 being successfully stored and monitored each year for over

twenty four years in an offshore aquifer. That said, China’s onshore saline aquifer

study on the Shenhua coal to oil project in the Erdos region, which was established

with USA technical assistance, represents a valuable assessment in its own right.

It is also important to highlight some of the financial issues, which are covered in

greater detail in other work packages. For China, the funds to carry out the underlying

research have been provided through the National High-Tech (863) Programme, the

National Basic Research (973) Programme, the State Science and Technology

Support Programme, major science and technology special funds, and various

international cooperation project funds. For the subsequent industrial pilot scale

activities, funding has been gathered from a number of sources. These include public

funds, via various government sources, international financing by organisations such

as the ADB and the European Commission, as well as from the industrial enterprises

themselves. For the possible large scale demonstrations, in general terms, the

approach is similar but the scale of requirements is much greater. Indeed, every study

on financing for CCS demonstrations in developing countries, including the work of

the ADB, has highlighted the importance of international grant support, and support to

operations to be combined with other fiscal measures (The Climate Group, 2010).

Consequently, financing of an early-stage demonstration project will be a complex

process. Finally, with regard to policies and regulations, China has made limited progress. It

has issued a series of policies, which relate to climate change and possible mitigation

approaches, in which it has publically recognized the potential importance of CCS in

order to establish near-zero emissions fossil fuel power generation systems. However,

to date, while a significant R&D programme is underway, there has not been too much

consideration of subsequent technology deployment and there has been no declared

intention to progress beyond the demonstration stage (Minchener 2011).

Regulations will be needed to support the demonstration and deployment of CCS in

China, particularly for the geological storage of CO2, but also to address the safety of

pipelines carrying CO2 and the environmental impact of CO2 capture plants. There has

been considerable work undertaken internationally, based on the EU member states’,

USA, Canadian and Australian initiatives, together with the outputs arising from the

International Energy Agency (IEA) Working Group on CCS regulation (IEA 2010).

Various ADB capacity building studies have also considered this issue. These have

concluded that for demonstration purposes, existing regulations should be able to be

modified to accommodate CCS demonstration (ADB 2010 and 2013) and that the

outputs arising should provide the basis for deployment-specific regulations to be

established.

3.2 Overview of China’s current demonstration project proposals

The industrial scale pilot activities have built on the laboratory work, provided

information for design of plant, allowed an understanding of how capture systems

21

work with real flue gas streams, and provided hands-on experience for some aspects

of CO2 utilisation and storage. This has led to a number of commercial prototype

demonstration prospects, of which those that meet the GCCSI criteria are included in

the LSIP database (GCCSI 2014a).

On the basis of information provided either by MOST or the GCCSI, a list of possible

coal based CCS demonstration projects has been compiled, Table 3. This comprises

several possible projects that meet the GCCSI criteria plus others that are smaller but

within the broad range that might be worthwhile taking forward, as agreed by the

NDRC and ADB. Those projects marked with a * include some data that have been

provided either from MOST or from discussions with prospective project developers.

However, in all cases, it can be seen that the level of information that has been

obtained is very limited, which is a combination of many potential projects being at an

early concept stage together with a reluctance by developers to provide data. In

particular, with regard to utilization/storage opportunities within oil fields and saline

aquifers, there is minimal site specific data available. Therefore the estimates are

limited in most instances to indicative capacities within potential candidate areas of

the main sedimentary basins and the overall oilfields. As such, there is considerable

uncertainty in any assessments of the likely distance between CO2 source and

possible storage areas. Combined with the limited information on the intended CO2

capture route, this means that the estimates of the overall CCS costs are very

uncertain. Consequently, the scope to be able to provide a meaningful ranking of

these potential projects is constrained. This has a direct impact on what can be

achieved, as is considered in the section below.

22

Table 3 Listing of possible large scale coal based CCS demonstration projects in China

Name Location

Scale

(tonnes

CO2

/year)

CO2

concentration

prior to

capture

Capture

process

CO2

utilisation/

storage

option

CO2

Transportation

distance (km)

CO2 emission

reduction

cost

(RMB/tonne)

Project status

Phase 3 of

China

Huaneng

Group's

GreenGen

Project *

Tianjin 500,000

-1500,000 35%-45%

Coal based IGCC

power plant,

pre-combustion

capture

Geological

storage

or EOR

<100 400-500

Preliminary feasibility

study. Provisional plan

to operate in 2016.

Have not yet entered

the substantive action

Sinopec

Shengli Oil

Field CCS

Project

Shandong 1,000,000 13-16%

Coal-fired power

plant, post-

combustion capture

EOR <100 350-400

1st phase completed.

Plan to complete 2nd

phase construction

during 2015

Shenhua

Group Yulin

Coal to

Liquid

Project*

Shaanxi 2,000,000 35-45%

Coal chemical，

pre-combustion

capture

EOR 10-50 200-300


study. Plan to progress

construction in 2015.

Shenhua

Ningxia Coal

to Liquid

Plant Project

Ningxia 2,000,000 35-45%

Coal to chemicals,

pre-combustion

capture

EOR 10-50 200-300


study. Plan to progress

construction in 2015.

23

Name Location

Scale

(tonnes

CO2

/year)

CO2

concentration

prior to

capture

Capture

process

CO2

utilisation/

storage

option

CO2

Transportation

distance (km)

CO2 emission

reduction

cost

(RMB/tonne)

Project status

Yanchang

Oil Field

EOR Project

Shaanxi 360,000 35-45%

Coal to chemicals,

pre-combustion

capture

EOR <50 300-350

Design. Plan to

complete construction in

2014. Carbon capture

part of the project has

commenced, the oil

recovery part of the

project is under site

selection and testing

Shanxi Intl

Energy

Group

CCUS

Project

Shanxi 2,000,000 40-50%

Coal-fired power

plant, 2x350MW,

oxyfuel combustion

capture

geological

storage or EOR 100-200 210-270


study and so capyture

costs are very

approximate. Have not

yet entered the

substantive action

Alstom &

Datang

Daqing

Project

Heilong

jiang

1,000,000

(50%

capture rate)

40-50%

Coal-fired power

plant, 350MW, oxyfuel

combustion capture

Storage +EOR 50-100 200-300

Feasibility study, plan to

start construction during

2015

Datang &

Alstom

Dongying

Project

Shandong 1,000,000 40-50%

Coal-fired power

plant, 1000MW,

oxyfuel capture

Storage +EOR 50-100 200-300



2015

24

Name Location

Scale

(tonnes

CO2

/year)

CO2

concentration

prior to

capture

Capture

process

CO2

utilisation/

storage

option

CO2

Transportation

distance (km)

CO2 emission

reduction

cost

(RMB/tonne)

Project status

Lianyung

ang IGCC

with CCS

Project

Jiangsu 3,000,000 40-50%

Coal-fired power

plant，pre-combustion

capture

Storage or

chemical

industry

30-50 200-300

Planning. Have not yet

entered the substantive

action

China

Guodian

Corp CCUS

Project

Tianjin 2,000,000 13-17%

Coal-fired power

plant，

post-combustion

capture

geological

storage or EOR - 300-400 Planning

Huaneng

Group

Yuhuan

Power Plant

Phase III

Zhejiang 500,000

-800,000 13-17%

Coal-fired power

plant，

post-combustion

capture

EOR or

chemical

industry

>100 300-400 Planning

CO2

Geological

Storage

Project

Inner

Mongolia 1,000,000 35-45%

Coal chemical，

pre-combustion

capture

Underground

salt water

cavern

<50 250-350

Planning. The first

phase of project is

funded by the ministry of

land and resources.

Yulin Energy

/Chemical

Group

Shaanxi 350,000 >90%

Coal chemical，

pre-comb capture

Industrial grade

CO2 <50 <200 Preliminary feasibility

study.

25

Name Location

Scale

(tonnes

CO2

/year)

CO2

concentration

prior to

capture

Capture

process

CO2

utilisation/

storage

option

CO2

Transportation

distance (km)

CO2 emission

reduction

cost

(RMB/tonne)

Project status

Shenhua

Guohua

oxyfuel

project

Shenmu,

Shanxi 1,000,000 13-17%

200 MWe coal-fired

power plant,

oxygen-enriched

combustion capture

Storage +EOR 130-150 200-300



2015

Huizhou

Refining,

coal to

hydrogen

project

Guang

dong 300,000 13-17%

Coal-fired power

plant, pre-combustion

capture

Offshore storage

+EOR 100-200 200-300 Preliminary feasibility

study.

Whole

industry

chain project

The

Northwest 5,000,000 40-50%

Coal chemical,

pre-combustion

capture

EOR 100-200 200-300


study, plan to launch in

2015

26

3.3 Rationale for ranking of possible projects

Within the Chinese context, the requirement is to demonstrate the complete CCUS

chain, in order to build on the previously undertaken research activities and the

various industrial pilot scale CCUS technology projects. As described above, such

demonstrations need to encompass technical, environmental and economic

performance issues such that enterprises can be encouraged to accept commercial

CCUS projects and that ultimately positive public perception can be achieved. These

demonstrations also allow the Chinese Government to establish appropriate

mechanisms for the organization and management of subsequent large-scale CO2

emission reduction projects, in order to lay the foundation for future deployment of

commercial scale CCUS projects. The sixteen possible coal based CCS demonstration projects for China that have

been identified, Table 3, represent a reasonable listing although the great majority are

at the early concept stage. As noted above, the level of process information that is

available is generally insufficient to allow any robust assessment of likely technical

and economic performance to be undertaken. Consequently, the best that could be

achieved would be a preliminary ranking of possible projects. Once such a ranking

has been produced, the Chinese Government could encourage the project developers

of the more promising options to produce a comprehensive pre-feasability dataset

and to show how their proposed projects meet the following criteria:




fuels), iron and steel, or construction sectors, to which a CCS technique will be

applied;

Include the whole technical chain of CO2 capture, transportation and utilization/storage;



Have a utilization/storage level equal to or larger than 100,000 tonnes of CO2, and preferably close to or in excess of 1 Mt CO2 per year;



EOR applications since a portion of the CO2 remains contained within the

reservoir.

It is strongly recommended that, in order to implement this suggested approach, the

Chinese government should consider setting up an independent panel of industrial

27

experts to work with the project developers to gather the process related data

necessary to assess the project viability against the key criteria set out above. In this

way, a robust and transparent selection process could be established that would lead

to a shortlist of projects being produced from which the most attractive, realistic

options could then be subjected to a FEED study. Once these were completed and,

subject to acceptable results and a financing plan being established, this would allow

the Chinese government to take well informed decisions as to how such bankable

demonstration projects could be taken forward.

4 GENERIC APPROACH TO PROVIDE A PRELIMINARY RANKING OF CHINESE DEMONSTRATION PROPOSALS

Within this ADB TA project, recognising the data limitations, a possible procedure has

been suggested, which would allow a reasonable preliminary ranking of possible

projects to be determined. This approach considers a range of technical parameters

and assigns weighted scores that are dependent on the overall objective of the

demonstration programme. For example, this can be to determine the near-term need

to identify potentially low cost opportunities in the coal to chemicals sector and the

medium term requirement to identify possible projects that offer high replicability

potential, which would focus on the coal power sector.

4.1 Basic principles of intended project evaluation This suggested approach is generic, based on a mathematical method that is applied

to build a comprehensive evaluation model, from which an integrated assessment

index is calculated. This has been used as the theoretical basis of technology

selection and project scheduling. Each project is assessed against several criteria, in

each case with a score being assigned. These scores are aggregated with the overall

index being calculated by a weighted integrated computing approach to provide the

final selection result, i.e. the CCUS Project Priority. The weighting of the scores

reflects the fact that if project selection should be driven by the need to ensure low

costs projects then there will be some differential compared to selecting projects

where replicability is the priority. As the level of information on most projects is very

limited, this system can provide some guidance as to project suitability within the

national context. However, it is not a means by which significant financial decisions

can be taken, as noted previously.

A large scale CCUS demonstration project needs to address technological, economic

and environmental issues within a complex implementation framework that will most

likely involve several organisations from various industrial sectors. This raises major

organization and managerial challenges, which must be met in order to lay the

foundation for a subsequent commercial scale project that will comprise the start of

the PRC deployment phase. As such, there is a need to consider the following project

principles:

28

Sustainable development principle, which should comply with the required

environmental sustainability of China's energy strategy.

Within the near term CCS demonstration opportunities, the need is to ensure that CO2

utilisation can be included wherever possible as a revenue source that can contribute

to lowering the overall costs of such demonstrations.

Economic principle, which recognizes the need to drive down energy use and

costs for the overall CCS process.

The cost per tonne of CO2 avoided for CCS is lower than most other low and near

zero CO2 technologies (Stern 2010). However, because it needs to be applied at large

scale, this currently represents a very significant additional cost burden on the coal

based process to which CCS might be applied. This places several obligations on

demonstration project developers, in particular to learn by doing such that the means

to reduce efficiency losses and ways to limit capital and operating costs can be

established.

Reliability principle, which means that there must be a strong case that any

technology to be demonstrated can meet the expected performance

requirements on a consistent basis.

It is important for early CCUS demonstration projects to succeed and to establish

long-term, stable operation, which can increase the confidence of the government and

the public that these technologies can meet the future requirements for decarbonizing

the coal based industrial economy. Thus the technology chosen to be demonstrated

has to have been shown to be reliable at least at the industrial pilot scale. While this is

generally the case with most CO2 capture options, the PRC has less experience of

large scale CO2 pipeline transport and relatively limited CO2 storage projects although

its knowledge of CO2 driven EOR is growing rapidly.

The scope to expand principle, which means there must be the prospect that

any demonstration of a technology can be subsequently scaled up for

commercial applications.

For example, if a demonstration project has an annual CO2 capture of up to 1,000,000

tonnes, the technology should be capable of being scaled-up to 10,000,000

tonnes/year before 2030, such that the demonstration can address the future

application of industrialization scale.

Funding availability principle, which requires that robust funding routes can be

identified in order to reflect the significant potential of the designated CCS

demonstration project.

Financing of an early-stage demonstration project will be a complex combination of

various forms of support. These include public funds, via various government sources,

international financing by organisations such as the ADB and the European

Commission, together with the project developers’ own investment.

29

Legal and regulatory support principle, which ensures that the demonstration

projects can proceed.

Regulations will be needed to support the demonstration and deployment of CCS in

China, particularly for the geological storage of CO2, but also to address the safety of

pipelines carrying CO2 and the environmental impact of CO2 capture plants. Various

ADB capacity building studies have considered this issue. These have concluded that

for demonstration purposes, existing regulations should be able to be modified to

accommodate CCS demonstration (ADB 2010 and 2013) and that the outputs arising

should provide the basis for deployment-specific regulations to be established.

The suggested CCUS demonstration project evaluation index system is outlined in

Figure 1.

Figure 1 Suggested CCUS demonstration project evaluation index system

4.2 Construction of evaluation criteria and indicators system The comprehensive evaluation index system is multifaceted. The following key issues

are considered particularly relevant (Shen 2010):

Integration of the various parts of the CCS process

30

Quantifiable outcomes

Specific application characteristics

Fully relevant to Government policy objectives

4.2.1 Evaluation design and scoring criteria

The evaluation index system has been established by selecting relatively independent

indexes which are also rich in connotation. The theoretical analysis method is used to

fully reflect and distinguish each index based on project benefit characteristics.

Subsequently, the method of frequency analysis is used to gather statistics and

analyzes various indexes from a variety of sources. Finally, the actual CCUS technical

benefit evaluation index system is established by screening and adjusting of the index,

based on expert opinion.

4.2.2 Construction of model

An analysis hierarchy process (AHP) is used to establish the index system. First, the

target is divided into a specific criteria layer and a target layer, and then each layer is

subdivided into smaller systems where the index can be established. Once the indices

for these small systems are established, the whole index system can be divided into

three layers, namely the target layer, criteria layer and index layer (Diakoulaki 1995).

Based on a study of the characteristics of CCUS demonstration projects, and adjusted

by expert consultation, the evaluation index system is established with a hierarchy

structure of target layer and index layer, Table 4. In the hierarchy structure, the target

layer is to reflect the overall level of the CCUS demonstration project, which is

expressed by the CCUS Project Priority (CPP).

For the CCUS technology comprehensive evaluation model, the weighting of each

index is very important. For this multi-objective, multi-attribute decision-making

problem, the effect of each assessment on the result and attributes is not equal, and

the index weight can be used to describe the relative importance of the attributes of

the decision-making plans. When the value of every index is determined, the

evaluation result significantly depends on index weights. There are currently several

methods to determine such weights, which are reviewed in Table 5 (Zhou 2007). For

this study, the use of experts to determine the index weights has been adopted. Thus, the assignment of the index weightings is given as follows: indexes in the same

criterion layer are assigned with an equal weight; the weights of different criterion

layers are assigned by the class due to their importance, and the weight of higher

class is two times of the nearby one; all the eight criterion are classified into three

classes, namely normal criterion (weight 1), important criterion (weight 2) and leading

criterion (weight 3). For the selection of leading criteria, according to different

evaluation directions, two different weight standards are determined based on

economic benefit and potential replication of the projects and technologies, Table 6.

31

Table 4 Summary of CCUS demonstration project evaluation index and classification

Criterion layer Evaluation index

5 4 3 2 1

Sources of CO2 CO2 sources

Key industries (power plant, steel, cement, coal to chemicals company)

Non-ferrous metal industry

Other chemical, construction material industries

Other industries Non-chemical industries

CO2 concentration ＞80% 60%-80% 40%-60% 20%-40% ＜20%

CO2 emission reduction cost

unit emission reduction costs (RMB)

＜200 200-299 300-399 400-599 ＞600

Byproduct economic benefits of CO2 utilization

>500 RMB / t-CO2 200-500 RMB / t-CO2 100-200 RMB / t-CO2 <100 RMB / t-CO2 0 RMB / t-CO2

Global performance of CO2 emission reduction technologies

Technical maturity Mature and being promoted

Under promotion with 3~5 demonstration projects

One demonstration project

Under intermediate trial stage

Under laboratory trial stage

Scale of project emission reduction

＞1,000,000tpa CO2 300,000-1,000,000tpa CO2

100,000-300,000tpa CO2

10,000-100,000tpa CO2

＜10,000tpa CO2

Domestic IPR 100% At least 90% At least 80% At least 70% Less than 70%

Emission reduction program integrity

Storage source compared to CO2 storage requirement

On-site utilization or

storage（0-10km）

Utilization after

short-distance pipeline

transportation (10-50km)

Utilization after

medium distance pipe

transportation

(50-100km)

Utilization after

long-distance

transportation

(>100km)

No utilization

Applied potential of emission reduction technologies

Near-term potential >100,000,000 tpa CO2 10,000,000-100,000,000 tpa CO2

5,000,000-10,000,000 tpa CO2

1,000,000-5,000,000 tpa CO2

<1,000,000 tpa CO2

Middle and long term potential

>1,000,000,000 tpa CO2

100,000,000- 1,000,000,000 tpa CO2

50,000,000- 100,000,000 tpa CO2

10,000,000- 50,0000,000 tpa CO2

<10,000,000 tpa CO2

Project organization and financing options

Organization One single enterprise Two enterprise cooperation

Three enterprise cooperation

Four to five enterprise cooperation

Five and above enterprise cooperation

32

Table 5 Methods to Assign Index Weights

Item Method Brief Introduction of the Method Characteristics of the method

Subjective

weighting

methods

Experts

Mark Expert consulting, back to back evaluation and summarizing.

This method is easy to operate and by using the

knowledge of the experts, the conclusion is easy

to reach. However, the subjectivity is strong and

it can be difficult to achieve convergence of

experts’ views.

AHP

For multi-layer structure system, firstly with the comparison of relative amount,

determine several judgment matrix, and then set the eigenvectors as the weights,

finally comprehensively calculate the weights.

High reliability, with small errors. However, this

can still be affected adversely by subjective

assessments at the early stage of the overall

process.

Objective

weighting

methods

Entropy

method

According to the basic principle of information theory, information is a measurement

of orderly degree in a system and entropy is measurement of disorder degree in a

system. And if the entropy of an index is smaller, the information that this index

offers is larger, the effect of the index in the comprehensive evaluation is larger and

the weight of this index is higher.

All these objective weighting methods rely on the

quality of data and ignore the relative importance

of the index itself. So when data are insufficient

or the distribution of index value is unbalanced, it

is not suitable to adopt objective weighting

methods.

Standard

deviation

method

Similar to entropy method, if the standard deviation of an index is lager, it indicates

that the variation of this index is larger, the information it offered is more, the effect

of the index in the comprehensive evaluation is larger and the weight of this index is

higher. Otherwise, if the standard deviation of an index is smaller, it indicates that

33

the variation is larger, the information it offered is less, the effect of this index in the

comprehensive evaluation is smaller and the weight is lower.

CRITIC

When determining the objective weight of the index, the conflict of intensity and

contrast intensity should be considered. Contrast intensity indicates the gap of the

values assigned by different evaluation scheme of the same index, which is shown

in the form of standard deviation.

The standard deviation indicates the gap between the values assigned by different

evaluation scheme of the same index. And the standard deviation is bigger, the gap

between different methods is bigger. Since contrast intensity is based on the

correlation between indexes, if two indexes are positive correlation, it indicates that

the contrast intensity of these two indexes is smaller.

Artificial

neural

network

A large-scale parallel non-linear dynamics system.

34

Table 6 Index weighting where either cost or replicability is critical

Guiding

index

CO2

source

CO2

concn

CO2

unit

redn

cost

CO2

utilizn

benefit

Tech maturity

%

CO2

redn

IPR

CO2

source and sink match

Near

term potl

Long term potl

Organizn

Cost 1 1 3 3 2 2 2 2 2 2 1

Replicability 1 1 2 2 2 2 2 2 3 3 1

35

5. CHINA CCUS DEMONSTRATION PROJECT PRELIMINARY EVALUATION AND SELECTION

The sixteen potential CCUS demonstration projects have been assessed using the generic model approach described above and a ranking

assigned.

5.1 Presentation of overall results The results are given in Table 7.

Table 7 Basic evaluation results (arrayed by project number)

Name

Allotted scores for each criterion

Overall

project

ranking

CO2

indl

Source

CO2

concn

Unit

CO2

redn

cost

CO2

utilsn

benft

Tech

mature

IPR %

CO2

redn

Source

and

Sink

Match

Short

term

potl

Long

term

potl

Organ Cost

basis

Repl

basis

Phase 3, China

Huaneng Group's

Tianjin GreenGen

Project

5 3 2 1 4 4 3 3 4 5 5 2.72 2.96

36

Sinopec Shengli Oil

Field CCS Project

5 1 3 3 4 5 3 4 4 5 4 3.12 3.24

Shenhua Group

Yulin Coal to Liquid

Project

5 3 3 3 4 5 3 3 5 3 3 3.00 3.08

Shenhua Ningxia

Coal to Liquid Plant

Project

5 3 4 3 4 5 3 2 5 3 3 3.04 3.08

Yanchang Oil Field

EOR Project

5 3 3 3 4 4 2 2 5 3 3 2.76 2.84

Shanxi International

Energy Group

CCUS Project

5 3 4 1 2 5 2 2 4 5 3 2.64 2.80

37

Alstom & Datang

Daqing Project

5 3 4 2 2 5 2 3 4 5 3 2.84 2.96

Datang & Alstom

Dongying Project

5 3 4 2 2 5 2 3 4 5 3 2.84 2.96

Lianyungang IGCC

with CCS Project

5 3 4 2 4 5 2 2 5 3 3 2.84 2.92

China Guodian

Corporation CCUS

Project

5 1 3 1 4 5 2 1 4 5 5 2.60 2.80

Huaneng Group

Yuhuan Power Plant

Phase III

5 1 3 3 4 4 3 2 4 5 3 2.84 2.96

38

CO2 Geological

Storage Project

5 3 4 1 3 5 3 4 5 3 2 2.84 2.96

CCUS project of

Yulin Energy and

Chemical Group

5 5 4 2 4 4 3 2 4 4 3 2.92 3.00

Shenhua Guohua

oxyfuel project

5 3 4 2 3 5 3 2 4 5 5 3.00 3.12

Huizhou refining

coal to hydrogen

project

5 1 4 1 3 3 3 2 4 5 4 2.60 2.76

Whole industry

chain project 5 3 4 3 4 5 3 2 5 3 3 3.08 3.12

39

5.2 Ranking on a lower cost basis and a replicability basis The top ranked early CCUS demonstration projects in the PRC, which would be for

plants in the coal-to-chemicals sector, where low cost capture and CO2-EOR is

economically feasible, are listed in Table 8. For the power sector, some early CCUS

demonstration projects have also been identified, as listed in Table 9. These have a

similar selection criteria to the coal to chemicals projects, but with an emphasis on the

potential for low-cost capture, future replicability and the credibility of the project’s

supporting proponents.

Table 8 Provisional list of early CCUS projects where

Low cost is the key assessment criterion

Rank Project Name Location

CO2 capture

scale

(tonnes/year)

Project Status

1 Whole industry chain

project

The

Northwest 5,000,000

Preliminary

feasibility study.

2 Shenhua Ningxia Coal to

Liquid Plant Project Ningxia 2,000,000

Preliminary

feasibility study.

3 Shenhua Group Yulin Coal

to Liquid Project Shaanxi 2,000,000

Preliminary

feasibility study.

4

CCUS project of Yulin

Energy and Chemical

Group

Shaanxi 350,000 Preliminary

feasibility study.

Since the input information to the modelling process is limited both in scope and

accuracy, it is evident that there is not a significant differentiation between the results

obtained for the various projects. As such, while the listing in Table 8 broadly

represents the more promising opportunities, there is little significance between the

rankings, based on the criteria used in the assessment. Thus these four coal to

chemicals related possibilities are reasonably well advanced in their planning and

design activities and all include some level of CO2 EOR application, which will provide

a revenue stream that will offset some of the operational costs associated with the

implementation of CCS.

Where replicability is paramount, there are two potential coal power projects that

generally show significant promise while also showing that the assessment process

cannot readily identify specific winners, in part due to the lack of adequate quantifiable

process and financial data. For the medium term, when wide scale replicability will

become important, it will be important to consider all three first generation CO2

capture possibilities since no clear technology winner can yet be identified. Thus

post-combustion CO2 capture fitted to pulverised coal power plant will be very

important as this technology is readily suited for retrofit to the modern components of

40

the existing coal power fleet. Similarly, oxyfuel will also need to be considered as it

can be readily applied to existing power plants. In both cases, the technologies will be

applicable for new applications, with some suggestions that oxyfuel might offer some

potentially significant capital cost and operational cost reductions compared to the

alternatives. Finally, IGCC should not yet be discounted as, although it is not yet

technically and economically proven, there still appears to be scope to offer lower CO2

capture opportunities, albeit for new plant only, compared to the other two prospects

in due course.

Table 9 Provisional list of CCUS projects

where replicability is the key assessment criterion

Rank Project Name Location

CO2 capture

scale

(tonnes/year)

Project Status

1 Sinopec Shengli Oil Field

CCS Project Shandong 1,000,000 Design.

2

Shenhua Guohua oxyfuel

combustion 200 MWe

project

Shanxi

Shenmu 300,000

Preliminary

feasibility study.

5.3 Description of the top ranked projects A short description is given below for those possible projects in Tables 8 and 9 where

either fully verifiable data (GCCSI 2014c) or an alternative description in english from

reputable national sources are available.

5.3.1 Regional whole industry chain project

Project owner: Shenhua Group

Location: Initial work in Inner Mongolia, with the aim to establish a regional network

also covering Gansu, Ningxia, and Shanxi Provinces

Technical aspects

Pre-feasibility study and pilot test planned for 2014/2015 and then a FEED study for a 1-2 million tonnes CO2 per year capture and EOR project plus an assessment

for a subsequent inter-provincial CCUS network around the Erdos basin oil fields,

including capturing CO2 from coal-fired power plants as well as coal to chemical

plants Overall aim is a CO2 capture and utilisation opportunity covering part of Inner

Mongolia, Gansu, Ningxia, and Shanxi Provinces, with an annual CO2 utilisation

capacity of some 5 Mt.

Key deliverables

Shenhua and CNCPC have signed a MOU with the China Petroleum and Chemical Industry Federation, to work together and for CNCPC to use the

captured CO2 for EOR in an oil field in the Erdos region.

41

5.3.2 Shenhua Ningxia Coal to Liquid Plant CCS Project


Location: Ningdong Energy Chemical Industry Base, Ningxia Province

Technical aspects

Pre-combustion CO2 capture

CO2 transport via onshore to onshore pipeline 200-250km

Various storage options are being considered, as well as CO2 EOR

New build coal-to-liquids (CTL) plant capturing around 2 Mt CO2 each year, with an

expected life time capture of 60 – 70 Mt.

Key deliverables

Pre-feasibility (concept) studies were completed in 2009.

Commercial operation not expected before 2018.

5.3.3 Yulin Energy and Chemical Group CCS demonstration in Shaanxi

Province

This project is too small to appear on the GCCSI LSIP database. Information has

been provided via various national experts working on this ADB study.

Project owner: Yulin Energy and Chemical Group

Location: Shaanxi Province, China

Technical aspects

Pre-combustion capture of waste CO2 arising from the coal to methanol process

CO2 transport by onshore to onshore pipeline for 200-250km

Use of CO2 in enhanced oil recovery

CO2 capture of around 350,000tonnes per annum.

Total CO2 capture for the life time of the project is expected to be in the range of 6-8 Mt.

CO2 transport distance of 200-250 km by pipeline for use in EOR at an operating oil field in Shaanxi Province.

Key deliverables

Final investment decision for CCS project is expected in 2014.

CO2 available for storage (capture operation start date) is expected in 2015-2016.

A commercial agreement for the off-take of CO2 for use in EOR has been reached.

Pilot scale capture unit with an annual capacity of 50,000 tonnes CO2 was built in November 2012. Project approval for the second phase has been sought. It is

claimed that the necessary capital investment has been guaranteed although no

details are forthcoming

42

5.3.4 Sinopec Shengli Oil Field EOR Project (Phase 2)

Project owner: Sinopec

Location: Dongying, Shangdong Province, China

Technical aspects

Retrofit of post-combustion carbon dioxide (CO2) capture at an existing fluidised bed boiler power plant.

Capture of around 1 Mt per annum of CO2, with an equivalent power output range of 101 – 250 MWe range.

Total CO2 capture for the life time of the project is expected to be in the range of 21 – 30 Mt.

Transport distance of between 50km – 100km by pipeline for use in EOR at an operating oil field in Shangdong Province.

Key deliverables

Final Investment Decision for CCS project is expected in 2014.

CO2 available for storage (capture operation start date) is expected in 2015-2016.

A commercial agreement for the off-take of CO2 for use in EOR has been reached.

Scope to identify means to reduce the relatively high energy consumption of the capture process, which might include new absorber design with better solvents as

well as heat integration and coupling optimization. In the longer term, the

introduction of membrane separation as an alternative CO2 capture technology,

which has the potential to reduce energy consumption, may prove possible. Thus

would require a separate demonstration project.

5.3.5 Shenhua Guohua oxyfuel CCS project

Information was obtained via national experts working on a complementary ADB

project


Location: Shenhua Guohau Power Plant, Shenmu, Shanxi Province

Technical aspects

200MW oxyfuel combustion CO2 capture retrofit project

CO2 capture of 1 Mt per year

CO2 transport via onshore to onshore pipeline 50-80km

Some CO2 EOR is intended with the rest of the CO2 being stored in a saline aquifer

Key deliverables

Pre-feasability study is in progress and is expected to be finished within 2014

43

6 PROPOSED NEXT STAGES OF THE ASSESSMENT PROCESS As has been described in Section 2.3, ultimately there is a need to establish a robust

verifiable approach for project selection, which would build on the preliminary

assessment reported here in Tables 8 and 9. This would comprise a pre-feasability

study for the more promising power plant or other industrial process projects listed. As

well as the technical, economic and environmental assessments, there would be a

need to determine the conformity of each project with the following criteria to ensure

that the intended project should:




fuels), iron and steel, or building sectors, to which a CCS technique will be applied;

Include the whole technical chain of CO2 capture, transportation and storage /utilisation;



Have a storage/utilisation level equal to or larger than 100,000 tonnes of CO2, and preferably close to or in excess of 1 Mt CO2 per year;




Include the design and implementation of a comprehensive monitoring and verification programme for CO2 storage, which will need to be applied also for EOR applications since a portion of the CO2 remains contained within the reservoir.

For the proposed projects where the pre-feasability studies appear most positive, the next stage would be to undertake a detailed front end engineering design (FEED) study. This provides a verifiable means to justify the rationality of the technical CCS option for the demonstration project, including system definition, identification of key problems and justification of proposed solutions. This will provide support for the overall financial model and plan, including total incremental cost of the demonstration and likely sources of financing. In addition, where the likelihood that a financing plan is justified and can be established, the project owner should also make a commitment to provide non-IPR data and materials to facilitate project evaluation by external experts, including dissemination of such information and materials generated during the implementation of the project as part of a programme for public awareness and acceptance, with some emphasis on the monitoring and verification results for any CO2 storage site (including EOR) within the project.

44

Finally, as has been strongly recommended already, the Chinese government should consider setting up an independent panel of industrial experts to work with the project developers to gather the process related data necessary to assess the project viability against the key criteria set out above. Once these were completed and, subject to acceptable results and a financing plan being established, this would allow the Chinese government to take well informed decisions as to how such bankable demonstration projects could be taken forward.

7 RECOMMENDATIONS TO THE NDRC AND THE ASIAN DEVELOPMENT BANK

FOR AN EARLY OPPORTUNITY CCS DEMONSTRATION PROJECT

Notwithstanding the need to establish a robust selection process, and recognising

that China might wish to take forward a near term low cost demonstration opportunity

prior to such an organisational approach being established, it is worthwhile to

consider how best to proceed in the near term. Thus it is appropriate to specifically

examine proposals from large energy companies that already have CCS/EOR

experience at industrial pilot scale and have already expressed their commitment to

work with the NDRC and international funding organisations such as the Asian

Development Bank.

A potentially significant and ambitious project is immediately identified from the

shortlist given in Table 8. This is the proposed early stage coal to chemicals plant

demonstration project to be undertaken by Shenhua, with CNCPC using the captured

CO2 for EOR in an oil field in the Erdos region. The Chairmen of both these major

SOEs have signed Memoranda of Understanding with the China Petroleum and

Chemical Industry Federation. They intend to first undertake a pre-feasibility study and

pilot test during 2014/2015 and then a FEED study for a 1-2 million tonnes CO2 per

year capture and EOR project plus an assessment for a subsequent inter-provincial

CCUS network around the Erdos basin oil fields, including capturing CO2 from

coal-fired power plants as well as coal to chemical plants. This would lead to a CO2

capture and utilisation opportunity covering part of Inner Mongolia, Gansu, Ningxia,

and Shanxi Provinces, with an annual CO2 utilisation capacity of some 5 million

tonnes.

This proposed project offers a very attractive near term demonstration opportunity. It

comprises a low-cost CO2 capture option from a coal to chemicals plant, and has the

joint involvement of China’s major coal producer and its largest oil company, both of

whom have committed to work together. In the near term, the intended project offers a

very significant CO2 capture/utilisation prospect, which will represent one of the largest

planned demonstration projects in the world. There is close proximity to an oil field,

with proven amenability to CO2-EOR, which further emphasises the low cost

possibility. Equally importantly, the oil field region contains a very large number of coal

to chemical plants and coal-fired power plants, and is also distant from large human

agglomerations. As such, the subsequent intended CO2 network is a very attractive

and suitably ambitious further stage demonstration that will allow China to establish

itself at the forefront of global CCUS activities.

45

Consequently, support for this major CCUS project in the PRC by the Asian

Development Bank in collaboration with the NDRC is strongly recommended.

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