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Coal: The new black
But luster may fade in era of CO2 regulation
Few Americans today would even pick up a chunk of coal, much less burn it in their fireplaces. But if the coal industry has its way, the notoriously dirty fuel that powered the steam engine will send new smoke plumes across the wilds of Montana, Utah and other states to bolster the nation's 21st-century energy supply.
Encouraged by the Bush Administration, which has wrapped coal in the red, white and blue bunting of homeland security, developers propose more than 90 new coal plants in 36 states. The new generating capacity if all were built would exceed 60 gigawatts, enough to power 62 million homes.
The International Energy Agency predicts that coal-fired generation worldwide could double by 2030; the Natural Resources Defense Council warns that the new plants could add half again as much carbon dioxide to the atmosphere as fossil-fuel burning has already put there over 250 years.
That's surprising progress for an industry that, despite providing half of the nation's electricity, appeared marooned in the past century.
Coal has an enviable selling point at a time when the nation is worried about the economy and uneasy about its dependence on foreign fuels. Exploiting lax emissions and mining regulations, coal plants produce cheap power from domestic coal fields that could last hundreds of years. Meanwhile, soaring natural gas prices are driving gas-fired plants – coal's primary competitor – out of the market.
Major Northwest utilities are joining the coal surge. PacifiCorp, Puget Sound Energy and Avista Utilities plan to acquire new coal generation, spurring an outbreak of plant development. One is under construction in Montana and at least six more have been announced; together, the plants could power several major cities. Additional plants are planned in Utah and Wyoming.
The CO2 dilemma
But betting ratepayers' fortunes on coal is riskier than it first appears. Political support is growing at both the state and federal levels for regulation of carbon dioxide (CO2) emissions. Analyses from a variety of research groups, including those that back coal development, show that even minimal CO2 standards on power plants could cost coal its competitive advantage.
Last year the U.S. Senate narrowly defeated the McCain-Lieberman Climate Stewardship Act, which would have forced power plants to either cap emissions at a threshold level or purchase credits to operate above it. The same legislation has been filed in the House. A Massachusetts Institute of Technology (MIT) study concludes that the proposed regulation would cost power plants at least $8 for each ton of emitted carbon dioxide in 2010, rising to $13 per ton in 2020.
That extra expense would push the price of new coal generation up by about a penny per kilowatt-hour, to 5.5 - 6 cents per kWh, according to the Natural Resources Defense Council.
At that price, coal is more expensive than gas or wind. A 2001 analysis published in Environmental Finance showed wind power has a price advantage over new coal plants when CO2 costs just $5 per ton. With CO2 at $10 per ton, the analysis showed, coal would be no cheaper than combined cycle gas plants (assuming gas at $4 per million BTU).
Major Northwest utilities don't concede that CO2 regulations will render coal plants uneconomical (see story, p. 2 ). But the threat of a carbon tax did persuade PacifiCorp to include a large acquisition of wind power in its 2003 Integrated Resource Plan as a hedge against rising fossil-fuel generation costs.
Modern coal plants are now able to reduce emissions of nitrogen oxide (NOx), sulfur dioxide (SO2) and mercury, but they have no affordable option for capturing CO2. A potential carbon tax poses an open-ended risk for coal plant operators, and, ultimately, electricity ratepayers, because a plant built today will lack the capability to control increasingly costly emissions.
Capture technology too expensive
That concern is palpable in the utility industry. Paul S. Fischbeck, with the Center for the Study & Improvement of Regulations at Carnegie Mellon University, recently told Chemical and Engineering News that in seminars with utility executives "We ... ask them to raise their hands if they don't expect carbon regulations in 20 years, and in a room of 200 we get about two or three hands."
Coal industry leaders also sense that a day of reckoning may not be far off. Last year Henry Courtright, a vice president at the Electric Power Research Institute, went before a U.S. House committee to urge accelerated federal funding for CO2 capture and sequestration technology. Courtright said "economical" technologies "need to be developed if fossil fuels are to remain as environmentally acceptable, affordable energy sources for electricity generation."
Courtright said the cost of electricity from a conventional pulverized coal (PC) plant would go up 70 to 80 percent if it employed existing CO2 capture methods. Power from a PC plant would then cost just under 8 cents per kilowatt-hour, according to MIT – more than half again the price of wind power, even without the federal production tax credit for wind developers.
The extent of coal plants' CO2 dilemma is illustrated by the popularity of what currently passes for "clean coal" generation.
Near Circle, Mont., Great Northern Power Development is proposing a 500-megawatt "circulating fluidized bed" (CFB) coal plant that will emit far less NOx and SO2 than older plants, but still release a comparable plume of CO2. Great Northern president Jerry Vaninetti says CFB plants account for roughly half the coal generators under development in the United States.
CFB plants are not cheap. In fact, they cost about the same as the plants that both the coal industry and the Natural Resources Defense Council champion as the most promising design for isolating and capturing CO2: Integrated Gasification Combined Cycle plants.
But Vaninetti said financing isn't available for an IGCC plant. "Folks won't stand behind them operationally, or put their balance sheets behind them," he said. (Coal-fired IGCC plants have not been commercially built in the U.S., though a few have been proposed recently.)
Vaninetti said Great Northern is proceeding with the best technology available rather than wait while lawmakers deliberate CO2 regulations. "It's hard to say what's going to be feasible with this lack of clear direction," he said. If lawmakers do impose a CO2 emissions cap, he warned, they'll foist higher rates on consumers.
Over the past 20 years, the federal government has spent some $5 billion developing clean-coal technologies. Now President Bush is urging the Department of Energy to go all out finding a CO2 capture and sequestration solution for coal plants.
Bush wants to spend $2 billion over 10 years on a demonstration coal plant called FutureGen that captures CO2 and stores it underground. By comparison, DOE spends about $375 million on renewable energy technologies (not counting ethanol subsidies), that already produce virtually no emissions.
In 1992 the Congressional Research Service stated that "the great bulk" of federal incentives support mature fossil fuel equipment, "markedly distort[ing] the marketplace for energy in a direction away from renewables."
Coal plants contribute one-third of total CO2 emissions in the United States, accelerating global warming phenomena. Insurers Lloyd's of London and Swiss Re say they're bracing for a swell of severe weather events linked to global warming.
Swiss Re said the costs of global warming could double to $150 billion a year in 10 years, hitting insurers with $30-40 billion in claims – equal to one World Trade Center attack annually.
In 2002, the External Costs of Energy project concluded that the price of European coal generation would double if fossil fuel plants had to account for the environmental and health problems they cause.
A National Renewable Energy Laboratory study finds that ratepayers pay about $4 billion per year for power plants to clean up emissions of sulfur dioxide and nitrogen oxides in accordance with the Clean Air Act of 1990.
The coal industry says the subsidies and external costs associated with U.S. coal generation are small compared to the trillion-dollar consumer benefit it says results from the cheap power.
But coal generation won't likely be the low-cost alternative when customers have to start paying its external costs through CO2 regulation.
Great Northern's Montana project may herald the future, where 60 megawatts of wind capacity is planned alongside the coal plant. Vaninetti says the design will demonstrate how wind power can be shaped with coal generation, increasing total output without increasing pollution.
He's quick to dismiss the suggestion that the wind turbines provide a hedge against potential increases in the cost of coal generation. But the project may at the least represent a tacit admission that the only way to affordably curb coal's CO2 is to generate power with something else.
Coal through the Council's looking glass
The Northwest Power and Conservation Council has nearly completed its Fifth Power and Conservation Plan, designed to ensure the region develops the most reliable and low-cost generating resources.
Risk assessment is central to the resource evaluation. So the Council had to consider potential federal policy decisions that could dramatically affect how coal stacks up against other energy sources in the Northwest, says Council analyst Jeff King.
Today's natural gas price encourages coal plant development, but King says passage of the McCain-Lieberman Climate Stewardship Act, which would cap carbon dioxide emissions, would nearly wipe out coal's price advantage.
When the Council analyzed scenarios with McCain-Lieberman in place, the balance of energy resources most likely to deliver stable rates shifted dramatically. Instead of 1,000 new megawatts each of coal and natural gas, the Council's model recommended 2,000 MW of gas and eliminated coal. Wind power claimed a large role in both cases, about 4,000 MW.
"The [gas] price is the sole reason coal stays in," King said. "Any level of carbon control would favor natural gas, and we'd see very substantial [gas] development under an aggressive carbon control scenario. ... But from where we stand at the moment ... some coal makes sense."
King noted that a permanent extension of the federal production tax credit for wind energy, not anticipated in the Council models, would greatly enhance wind's appeal. The U.S. Senate recently approved extending the PTC for renewables; the House is considering the measure.