NRG to Exit Carbon-Capture Business After Texas Project is Completed

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Low crude-oil prices have claimed another victim: the economic viability of carbon capture & sequestration (CCS) projects. The economic non-viability of CCS projects raises questions as to how power generators will be able to meet the carbon dioxide (CO2) reduction mandate of the Obama administration's Clean Power Plan. CCS technology was held out as one of several compliance options for coal-fired power generators. The CPP requires power generators to cut CO2 emissions from coal-fired plants by 30% by 2030, compared to a 2005 baseline.

Last month, in an earnings call with analysts, David Crane, the chief executive officer of NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey), said the company would complete work on its Petra Nova CCS project at the W.A. Parish Power Station by the end of 2016, but that NRG would no longer invest in carbon-capture projects. The Parish plant is located in Thompsons, Texas, near Houston.

The $1 billion Petra Nova project, under construction since July 2014, is scheduled to capture a 240-megawatt (MW) slipstream of CO2 from Parish Unit 8. The project is scheduled to reduce CO2 emissions from that slipstream by about 90%. The captured CO2 will be transported via an 83-mile pipeline to an enhanced oil recovery (EOR) project. NRG's investment in that project is said to be about $300 million. The gas is expected to increase crude-oil production from 500 barrels per day (BBL/d) to about 15,000 BBL/d.

In a September 18 earnings call, Crane told investors that although NRG will finish construction of the Petra Nova project, it will not be pursuing other carbon-capture projects. Low crude-oil prices were the culprit.

"The concept of carbon capture to enhance oil recovery as a distinct business opportunity made both strategic and economic sense at $75 to $100 a barrel," Crane said. "Obviously, it does not currently make economic sense."

During the earnings call, Crane said NRG was "resetting" its environmentally related power business, including renewable energy and CCS.

The Petra Nova project was the largest post-combustion CCS project in North America. Last year, Canadian provincial utility SaskPower (Regina, Saskatchewan) completed work on a smaller post-combustion CCS project at its Boundary Dam generator. That project captures a 120-MW slipstream of CO2 from Unit 3 of that coal-fired generator. It was the world's first post-combustion CCS project at commercial scale. The cost, including Canadian government support, was about $1.5 billion.

Earlier efforts to construct a commercial-scale CCS project at American Electric Power's (NYSE:AEP) (Columbus, Ohio) Mountaineer Power Station were terminated in 2011 after state utility regulators refused to allow the utility to recover the costs of that project in electric prices. The pilot program was judged an operational success. For more on the Mountaineer CCS project, see June 8, 2009, article - Mountaineer CCS Project on Time and on Budget for October Start-Up; October 26, 2009, article - Power Plant Carbon Sequestration Era Begins at Mountaineer; and July 18, 2011, article - AEP Terminates Commercial-Scale CCS Project in West Virginia.

Speaking about the Parish project, Travis Miller, director of utilities research at Morningstar, told The Houston Chronicle, "You had quite a lot of enthusiasm" for carbon capture, "but the economics have fallen apart."

With oil prices down about 60% from their 2014 highs, Andrew Slaughter, executive director for the Deloitte Center for Energy Solutions, said CCS "has kind of gone off everybody's radar screen."

In addition to NRG's reported $300 million equity investment in the Parish carbon-capture project, other financial backers included:

• JX Nippon Oil Exploration (USA) Limited (Houston, Texas), which also committed to a $300 million equity investment
• A grant of up to $167 million from the U.S. Department of Energy (DoE) (Washington, D.C.) Clean Coal Power Initiative
• $250 million in loans provided by the Japan Bank for International Cooperation and Mizuho Bank Limited

"Last year, the Obama administration pulled funding for the FutureGen 2.0 project in Meredosia, Illinois," said Britt Burt, Industrial Info's vice president of global research for the Power Industry. "Now NRG has determined the economics of CCS don't work when oil prices are low. One by one, the industry's tools to meet tighter CO2 standards are being defunded or abandoned as non-economic. It's hard to see how the goals of the CPP can be met--particularly when CCS technology is only now getting tested at commercial scale."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and ten international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.