The journey to carbon neutrality: Finding the right model for asset decommissioning

September 14, 2021

Daryl Walcroft
Principal, Capital Projects & Infrastructure Leader, PwC US
Scott Bailey
Director, PwC Operations, PwC US

In the other installments of this four-part series on paths to carbon neutrality in the energy, utilities and mining (EUM) sector, we discussed how companies can make progress toward a clean-energy future in three key areas: investment and capital allocation, carbon capture, storage and upcycling and reducing carbon emissions at source.

Insights gained in addressing these pathways to a carbon-neutral future may bear positively on the challenges of asset decommissioning, the area we’ll examine here. Reducing carbon is always the main driver of asset decommissioning, and deciding when and how to decommission a carbon-producing asset is likely to involve balancing significant capital investment options. Businesses should also remember that assets can be wholly or partially upcycled, rather than entirely decommissioned.

Asset decommissioning may take longer and cost more than expected

Asset decommissioning is a big and growing business, but it’s often not fully understood in terms of both the costs and the complexity of execution involved. For some companies, a critical first step for success is to reframe the decommissioning of large greenhouse gas (GHG)-producing assets as a central part of the enterprise’s mission, and present it as a responsibility rather than a burden.

For EUM companies in particular the challenges and opportunities posed by decommissioning assets to reduce carbon output (such as ash pond cleanup or wellhead cap and abandonment) may be complex. Retiring obsolete assets can be a long, costly and technically intricate process. These projects often run over allocated budgets and target dates. Not all companies are used to working through all of the long-term implications of major decommissioning initiatives. But those that have made progress in successfully allocating capital to capture and use carbon and to reduce emissions at source could find themselves with a vast wealth of experience and insights to draw upon.

Reducing reliance on coal leads the way

As carbon reduction rises to the top of the economic agenda, a significant number of carbon-producing assets are—or soon will be—ready for decommissioning and disposal. As US electrical power generation comes to rely on greener energy sources, many of these assets set for retirement will be coal-fired power plants.

US coal-fired electrical generation capacity generally held steady through the first decade of the 21st century, but retirements began increasing around 2012, and the pace has only picked up since. If recent trends hold, nearly 70 gigawatts of electrical generation capacity could be retired in the next five years, representing close to one-third of current US coal-based capacity, or about 6% of total installed electricity generation capacity overall.1

The viability of plans for growth, the evolution of the mix of energy sources used and an organization’s ability to simultaneously decommission some assets while building others will all depend critically on decommissioning strategies and initiatives. A company that owns coal-fired power generation assets that it hopes to retire will require a clear, long-term strategic vision for asset retirement timelines. It will also need to perform effective, short-term tactical planning to begin the retirement process.

carbon neutrality

Decommissioning large assets poses special challenges

Until recently, decommissioning challenges in the energy sector (with the important exception of nuclear power plants) have been largely overlooked by both public and private stakeholders more interested in high-profile “new build” or retrofit projects. Yet decommissioning large assets poses special challenges, none of which can be safely neglected.

  • The technical challenges often involve managing radioactive, toxic and/or hazardous materials as well as handling, transporting, reusing, recycling and/or disposing of large components. The good news here is that the engineering and construction industries are rapidly developing powerful new technologies to ensure worker safety in “hot environments.” These include augmented reality (smart glasses) and fully immersive virtual reality devices that can help to ensure the sustainability of the toughest decommissioning programs, from refineries to nuclear power plants.

  • The economic costs are typically significant and are likely to increase as more legacy assets reach the end of their life span, but few operators have put aside sufficient capital to effectively decommission their assets. For example, at the global level, decommissioning costs in the nuclear sector lie in the range of US$1 billion to $1.5 billion per 1,000-megawatt plant.2 However, public funding options are evolving, and some decommissioning projects in the energy and utilities sector may become eligible for significant government support.

  • Decommissioning also presents social challenges. For instance, in managing the transition of an asset from normal operation to the end of its lifespan, members of the workforce must often take part in effectively decommissioning their own jobs. Retraining workers to transition to green jobs within the same company or industry while they wind down an asset could be optimal, but would require careful planning.

In asset decommissioning, three models dominate

Understanding the available options is the first step toward balancing strategy, capital plans and available resources. Most companies will need to choose between these three decommissioning models on a case-by-case basis:

  • Keeping the whole process entirely in-house, including ownership of the asset, resources to perform decommissioning activities, and capital project management and oversight.
  • Selling the asset specifically for the purpose of its decommissioning. 
  • Retaining ownership of the asset while partnering with an outside firm (or firms) to manage the decommissioning work, including oversight, governance and execution.

Only by choosing the right model can a company be certain to address its environmental, social, financial and regulatory obligations.

Choose the right model to prepare for the future

Successfully decommissioning nonstrategic carbon-producing assets is essential to putting a company on the path to a carbon-neutral future. Yet the EUM sector today is just at the beginning of a long journey in asset decommissioning. Areas that aren’t yet top of mind—such as the decommissioning of natural gas and spent renewable assets—will soon come increasingly to the fore.

One thing is for certain: More and more investors, regulators, employees and communities will all increasingly expect provable success in decommissioning from EUM companies in the coming years, especially those involved with carbon-intensive activities.

1 Sources: US Energy Information Administration: “Energy explained” (2021); “Existing Capacity by Energy Source, 2019.”

2 Source: The World Nuclear Industry Status Report 2020.

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