Experts from the IEEFA say investors should be cautious of carbon capture storage plant projects which may become uneconomical because of the volatility in the energy market.
  • Energy experts say NRG Energy Inc.’s shutdown of the only operational carbon capture storage plant in the U.S. raises doubts for such projects. 
  • NRG said falling oil prices and the COVID-19 pandemic made the project uneconomical. 
  • CCS technology is considered key to the global transition away from fossil fuels linked to greenhouse gas emissions and climate change.

NRG Energy Inc.’s shutdown of the only operational carbon capture storage (CCS) plant in the U.S., due to collapsing oil prices, throws into question the viability of such ventures considered key to reducing carbon emissions and fighting climate change, energy experts say.

The Petra Nova CCS plant, meant to capture greenhouse gases from a coal power plant in Richmond, Texas, was an ambitious $1 billion project between NRG and Japan’s JX Nippon. 

NRG closed the plant in May citing falling oil prices and the COVID-19-induced economic downturn which rendered the project not viable.

A post-mortem report from the Institute for Energy Economics and Financial Analysis says there were early warning signs about the viability of Petra Nova and urges investors to scrutinize all future CCS projects.

“There are market forces undercutting the claims that carbon capture is financially viable,” David Schlissel, the director of resource planning analysis for IEEFA, told Karma.

Petra Nova was beset with problems from its inception in 2017. After carbon emissions were captured at the facility, the gas was meant to be injected into the ground to boost oil production at NRG’s West Ranch field drilling site.

The project was supported by a $190 million grant from the U.S. Energy Department. Yet it suffered technical difficulties and operational outages, according to an NRG report submitted to the government. 

There have also been questions about the projected amount of carbon emissions the plant was supposed to capture versus what it accomplished. The IEEFA report says Petra Nova missed its carbon capture goal by about 17%.

CCS plants are costly to build and operate, say experts. NRG was betting on its twin revenue streams — selling electricity from its coal-fired plant and its oil business — to keep the venture afloat.

But coal prices have been falling and coal power plants have been closing all over the U.S. at a rapid clip, edged out by cheap natural gas unlocked by the shale oil production boom and hydraulic fracturing drilling techniques.

The emergence of the U.S. as a top oil exporter in the last decade has at times helped create a global supply glut, depressing crude’s value since the 2014 oil price crash.

The pandemic-driven economic downturn and anemic consumer demand for energy was the last nail in the coffin for Petra Nova, says Schlissel.

As its underlying businesses experienced difficulties, NRG, which invested $300 million into the Petra Nova project, according to company filings, reported three impairment charges totaling $310 million in connection to the plant over the course of four years.

The IEEFA report says investors should scrutinize CCS projects tied to the fossil fuel industry  as they may experience similar challenges as Petra Nova: “The mothballing of Petra Nova highlights the deep financial risks facing other proposed U.S. coal-fired carbon capture projects, including Enchant Energy’s plan for the San Juan Generating Station in New Mexico and Minnkota Power Cooperative’s Tundra Project at the Milton R. Young Station in North Dakota.”

Some operators of coal-fired power plants have looked to the Trump administration to provide financial subsidies to keep the sector afloat, but experts say such funds would not be an efficient use of taxpayer money.

Instead, market players should consider propping up renewable energy technologies, which have become cheaper and more accessible, says Schlissel.

“Coal is competing against cheap natural gas and declining cost renewables and coal plants cannot survive that over the long term without a bailout, or being able to pass on the higher costs of producing power to customers,” Schlissel told Karma. “We believe that it would be cheaper instead of spending billions to retrofit old coal plants to expand the wind production tax credit, extend the solar investment tax credit and use renewables as a transition.”