January 15, 2008

Regulatory risks paralyzing power industry while demand grows

Kennedy Maize and Dr. Robert Peltier, PE

IGCC reality strikes

Then, market realities took hold. A refinery-like process, IGCC is inherently much more expensive than conventional combustion of coal or gas. What’s more, the economics of capturing and storing carbon are as unknown as the technologies are unproven; no currently operating plant can do both.

Nor does anyone really know what to do with the CO₂. The multisyllabic buzzword is “sequestration,” meaning “put it somewhere out of sight.” Where? There’s no shortage of suggestions: in salt caverns, in old coal mines, into oil and gas reservoirs to boost their output, under the seabed, under your mattress. How about shooting the CO₂ into outer space? If the gas isn’t permanently stored, it will eventually find its way back into the atmosphere.

Veterans of prior decades’ energy debates are reminded of the long, fruitless discussion about what to do with spent nuclear fuel, aka high-level nuclear waste. Bury it in salt caverns? Dig a hole in Nevada? Bury it in seabeds? Shoot it into space? Yucca Mountain notwithstanding, there’s no real answer yet, other than to keep the waste at plant sites.

The question of CO₂ disposal, at least in terms of volume and weight, is much bigger than that of what to do with spent nuclear fuel. There’s a heck of a lot more CO₂ coming from fossil-fueled plants than fatigued fuel from nukes. The nuke waste is solid, making it easier to handle than gaseous CO₂.

Like nuclear safety and spent-fuel storage, coal’s CO₂ emissions have become intensely political, although not particularly partisan. Democrats (New York Governor Eliot Spitzer), Republicans (California Gov. Arnold Schwarzenegger, Florida Gov. Charlie Christ, Arizona Sen. John McCain), and independents (Sen. Joe Lieberman of Connecticut) alike are telling gencos they can’t use coal if they can’t hide the CO₂ somewhere.

In California, the state legislature, with the governor’s backing, passed a law that not only continues a decades-long ban on coal burning in the Golden State but also puts an end to utilities (including municipals) buying power generated by coal in other states, as they have done for generations. In Florida, Christ’s contempt for coal led Tampa Electric to scuttle its new IGCC project.

The New York Times reported in October that in the Rocky Mountain West, where energy development has long been a favored land use, “An increasingly vocal, potent and widespread anti-coal movement is developing” as ranchers and farmers join with traditional environmentalists to resist coal-fired projects. Also joining the no-coal coalition are ski resort operators, retired homeowners, and religious groups, the Times reported.

The Times article quoted Rick Sergel, CEO of the North American Electric Reliability Corp., the nation’s reliability watchdog. He said, “It’s clear new coal-fired generation is running into roadblocks. I don’t believe we can allow coal-fired generation to become an endangered species. We simply must use all the resources we have.”

That’s not how environmental groups see the constant battle to ensure that supply matches demand. According to the Sierra Club’s Bruce Niles, who runs the group’s national campaign again coal, his group and others have worked together to file 29 administrative actions and lawsuits against proposed coal plants.

Not all have succeeded, of course. Peabody Energy’s Prairie State Energy Campus, a proposed 1,500-MW mine-mouth project in southern Illinois, has survived a withering legal attack and now looks like it will indeed get built.

Coal projects sidelined

A DOE report (www.netl.doe.gov/coal/refshelf/ncp.pdf) released late last year contained mostly bad news for coal generation. Of 12,000 MW of new coal-fired capacity announced in 2002 for expected commissioning in 2005, only 329 MW actually got built. According to the report, during an average year between 1997 and 2006, only 293 MW of new coal-fired generation came on-line.

Still, the DOE says it believes a fair—but unspecified—share of the 23,000 MW of the coal plants it considers “progressing” (either permitted, near groundbreaking, or under construction) may get built. Said the report, somewhat ambiguously, “Progressing plants have a higher likelihood of advancing toward commercial operation, however there is still a degree of uncertainty in these projects.”

Last year’s trade press was full of reports of such coal projects getting delayed and cancelled:

• In South Dakota, two of the seven major partners in the 630-MW Big Stone II project, representing 28% of its ownership, have pulled out, while a major muni, Rochester (Minn.) Public Utilities, has said it will not be an equity partner. Rochester may buy some of the plant’s output.
• In 2004, Duke Energy proposed building two 800-MW supercritical coal units to help meet growing regional demand. Last February, the North Carolina Utilities Commission (NCUC), not known as a patsy for green groups, approved only one, citing excessive costs. Duke is considering abandoning the entire project, according to trade press reports.
• In September, the Oklahoma Corporation Commission rejected a coal project proposed by AEP and OGE Energy. The utilities had proposed capturing its CO₂ and using it to enhance oil and gas recovery from the state’s elderly fields. The rejection caused Southern States Energy Board chief Kenneth Nemeth to note a “groundswell of movement away from fossil energy,” according to the Foster Electric Report.
• In Florida, a month before Tampa Electric pulled the plug on its $2 billion IGCC plant, the state public service commission gave a thumbs-down to a Florida Power & Light Co. plan for a coal-fired plant in Glades County. That led a municipal joint action agency in the Sunshine State to mothball plans for an 800-MW coal-fired plant in north Florida.
• In November, Idaho Power shelved the portion of its integrated resource plan that called for 250 MW of new coal capacity. The utility cited rising costs and uncertainty about greenhouse gas regulations as the reasons.

Perhaps most disturbing to developers of coal plants was an October rejection by the Kansas Department of Health and Environment of an air permit for a $3.6 billion, two-unit, 1,400-MW plant proposed by Sunflower Electric Power, a rural electric generation and transmission cooperative. The sole reason for the rejection, said Roderick Bremby, head of the state agency, was CO₂. He said it would be “irresponsible to ignore emerging information about the contribution of carbon dioxide and other greenhouse gases to climate change and the potential harm to our environment and health if we do nothing.”

The Kansas decision is ripe for litigation, according to experienced Washington energy lawyers. While the Supreme Court last year ruled that the U.S. Environmental Protection Agency has the authority to regulate CO₂ emissions under the Clean Air Act, the EPA has not issued regulations. So, according to industry environmental lawyers, Kansas will have a hard time arguing that it has authority to regulate in the absence of an EPA regulatory regime.

Nonetheless, the Kansas ruling troubles the generating industry, suggesting that the assault on coal will continue and the ferocity will increase. Washington energy consultant Roger Gale told the Baltimore Sun recently, “Coal is a tough sell, and clean coal is getting comparable to a nuclear plant” in capital costs.

The real growth in coal-fired generation in 2008 will take the form of plant upgrades and efficiency improvements to extend plant life and increase capacity factors.

If not coal, then what?