Techno-Economic Assessment
Techno-economic assessment (TEA) combines const estimates with economic assumptions to predict the cost of a CDR approach at the industrial scale.1 TEA does not exist in a vacuum. It is often included in a profile of assessments when discussing the responsible deployment of a technology: life cycle analysis, geographic study, environmental impacts, and social context to name a few.
A TEA can be divided into three major phases:2 drawing system boundaries, estimating capital costs, and adding operating costs.
- System Boundaries: Draw a boundary around all parts of the system that are critical for industrial scale up. These may include elements that are separate from the actual CDR solution itself like energy source, water needs, or other material requirements.
- Capital Costs (CAPEX): Estimate the physical costs of creating the CDR system, often called the capital costs. For agricultural systems, this may include any preliminary financing to change the way the land is treated. For engineered systems, capital cost includes the cost for any pipes, tanks, and physical pieces of equipment. Many of these cost estimates come from vetted guides to process design economics.3
- Operating Costs (OPEX): Consider all costs that would not fall under capital cost but are vital to properly operating the system. Operating costs may include the price of fuel or electricity, labor and maintenance, or the cost to procure water and other materials.
When conducting a TEA, CAPEX and OPEX are only a pair of the important metrics to consider. Most CDR solutions require an estimate of the cost per tonne CO2 stored. To estimate a cost per tonne, the CAPEX must be annualized by multiplying it by the capital recovery factor (CRF). The CRF is obtained by assuming a project lifetime and a discount factor. A discount factor is thought to describe the risk of investing in the technology, analogous to the weighted average capital cost (WACC). Newer technologies use higher discount factors because they have not been industrialized before and carry greater inherent risk.
Conducting a TEA can be challenging, especially for newer technologies that may require a lot of assumptions to assess. These estimates often come with an analysis of the error or expected variation of the economics to account for their uncertainty. Similarly, some costs are dependent on location, like electricity or certain tax incentives, to best represent these costs a TEA can be paired with a geospatial analysis.
TEA is often used to assess the costs of scaling up a CDR solution but learning curves reveal how we may expect costs to change with further deployment. Many technologies get cheaper overtime as engineers and designers learn how to improve and optimize systems. One of the most famous examples of technology learning is photovoltaic cells, which now cost about 1% of what they did in the 1970s.4 Learning curves can apply to CDR technology by assuming schedules of deployment that meet global climate needs and learning rates from different technologies to understand what expected cost changes may look like overtime.5
Because of the amount of assumptions used and the variability of certain costs overtime , TEA can’t precisely tell us how much a technology will cost at scale and how that cost will change with deployment but it can provide us with valuable insights on the expected ranges of these values.
References:
- McQueen, N.; Kolosz, B.; Psarras, P.; McCormick, C. "Analysis and Quantification of Negative Emissions," CDR Primer, Edited by J Wilcox, B Kolosz, J Freeman. 2021.
- Rubin, E. S.; Short, C.; Booras, G.; Davidson, J.; Ekstrom, C.; Matuszewski, M.; McCoy, S. "A Proposed Methodology for CO2 Capture and Storage Cost Estimates," Int. J. Greenhouse Gas Control, 2013, 17, 488-503. https://doi.org/10.1016/j.ijggc.2013.06.004.
- Peters, M.; Timmerhaus, K.; West, R. Plant Design and Economics for Chemical Engineers, 5th ed.; McGraw-Hill Education, 2003.
- Kavlak, G.; McNerney, J.; Tranig, J. "Evaluating the Causes of Cost Reduction in Photovoltaic Modules. Energy Policy 2018, 123, 700-710. https://doi.org/10.1016/j.enpol.2018.08.015.
- McQueen, N.; Gomes, K. V.; McCormick, C.; Blumanthal, K.; Pisciotta, M.; Wilcox, J. "A Review of Direct Air Capture (DAC): Scaling up Commercial Technologies and Innovating for the Future." Prog. Energy 2021. https://doi.org/10.1088/2516-1083/abf1ce.