Balancing risks and rewards

More top utilities are making plans to add one or more integrated gasification combined-cycle (IGCC) plants to their generation portfolios over the next decade. Some 25 separate projects are on the drawing board, virtually all planning to use Eastern coal. Western coals pose tougher challenges for gasifiers, and their lower heat content disadvantages project economics.

The three alliances of IGCC suppliers (turbine and gasifier makers) and plant designer/builders say the technology is ready for prime time and are offering attractive guarantees and warranties to early adopters. I agree that for IGCC, the question is not "if" but "when" and "how many." But like so many things in life, timing is everything.
 

Sedan or sports car?

Utility executives, ratepayers, and most regulators are understandably conservative when considering billion-dollar decisions they’ll have to live with for decades. Once bitten, twice shy, they might say. Massive capital outlays for emissions control retrofits, needed investments in conventional coal and gas capacity, and recent large rate increase requests have left many utility execs wary of going back to the well one too many times.

In the power business, adopting a sexy technology like IGCC demands a satisfactory answer to three prosaic questions: Is it commercially available? What does it really cost? and Has it worked reliably? In the case of IGCC, the answers will be "yes" only when the technology proves—at utility scale—capable of baseload operation on a grid at performance levels like those of the newest pulverized coal (PC) plants. The gasification tax credits in the Energy Policy Act (EPAct) are intended to act as a thumb on IGCC’s risk/reward scale, if you will.
 

You go first

The U.S. DOE has announced that 45 IGCC projects have applied for a total of $4.6 billion in gasification tax credits. Since EPAct authorized only $1.15 billion, the DOE will recommend to the IRS which projects seem most worthy. Those that make the cut on November 30, when the IRS is expected to make a decision, will go forward—if they can attract financing. The others will likely be doomed without a subsidy. I"m betting most of the credits will go to projects using Western coal.

Will the coal states fight for their home teams? AEP’s plan to be the first to build a commercial IGCC plant has been challenged by Ohio ratepayer advocates who contend that the state’s restructuring law forbids regulated utilities from building their own capacity. Yet the Ohio Public Utilities Commission has already approved AEP’s request to recover about $24 million in IGCC plant preconstruction costs. Ohio’s Supreme Court will decide who"s right.

Michael Morris, AEP"s chairman, has said the litigation could "delay the project by up to four years." Its 2007 groundbreaking is looking a little shaky right now because the court is under no pressure to make a quick decision. Morris also said that "AEP won’t build any power plants without being assured by regulators that the company can collect project-related costs." How long can AEP wait before it must shelve the IGCC option and "settle" for building conventional PC plants to meet near-term supply needs?
 

PC and political correctness

On a much grander scale, California has sent to Governor Schwarzenegger’s desk legislation that would require coal-fired power imports to comply with a greenhouse gas performance standard. The standard would be the level of CO2 emissions from a comparably sized gas-fired combined-cycle plant—making IGCC the de facto technology for any imported power.

For a state that has teetered on the edge of brownouts for years and has few new projects in the queue, the legislation just doesn’t make any sense. The Golden State currently gets 20% of its juice from out-of-state coal-fired plants but expects to raise that share.

Now California’s legislators are, in effect, dictating to neighboring states what kind of plants they may build in the future. That is going to go down sideways in Wyoming and may place the proposed Frontier Line at risk. The Frontier Line is a proposed transmission line that will move up 12,000 MW from Wyoming through Utah and Nevada to California.
 

Ready or not

Here’s how I think the situations in Ohio, D.C., and California will play out. It’s pretty certain that AEP will have to apply the brakes to its IGCC project, and others dissed by the tax man may have to follow suit. Still, I believe that up to a dozen IGCC plants will be built over the next 10 years. That number, however, will pale against the 100+ PC-fired projects that will debut over the same period. As long as PC remains the lower-risk option, utilities won’t want to spend the time or money to deal with project delays, ratepayer lawsuits, and technology uncertainty when reserve margins are dropping every year.

The Frontier Line will probably be scaled back so green fortress California will be breeched only by renewable generation. Its western neighbors—including yours truly in Arizona—will enjoy the economies of coal-fired generation "by wire." System reliability and supply concerns will trump the glory of being the first on the block with an IGCC plant.

—Dr. Robert Peltier, PE Editor-in-Chief

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