What are the specific US policy design parameters that could provide investors and lenders with net cash flows that are both high enough and certain enough to attract private capital to CCUS projects? To address the question, the report undertook an analysis to help predict which policy configurations would incentivize widespread deployment of CCUS in the US electric generation industry. The paper examined a set of options and applied them to representative existing US power plant types— supercritical pulverized coal and natural gas combined cycle—with two ownership/revenue structures: traditionally regulated, vertically integrated investor owned utilities (IOUs) and independent power producers (IPPs) selling to IOUs under regulator-approved contracts. The paper used conventional models typical of a project finance assessment and determined which policies would be effective at attracting financing.
The government broadly has two options to make an energy project more economically feasible: It can lower the owners’ costs through capital incentives (such as an investment tax credit or accelerated depreciation) and provide revenue enhancements (such as production tax credits, contracts for differences, or guaranteed power contract requirements). In considering policy design to decarbonize existing power plants, policy makers should take into account more than just the cost of CO2 capture. They should consider ownership structure, fuel type, plant efficiency, and policy mechanisms to achieve the desired outcomes. Policy recommendations should differ for stimulating adoption of carbon capture for coal plants versus gas plants, for ensuring the lowest total system costs, or for realizing the fastest decarbonization potential.