From the mid-1990s until about four years ago, natural gas–fired combined-cycle plants dominated new capacity additions in North America. They became the technology of choice for all the right reasons: low emissions, short construction schedules, combustion efficiency, and—most important—low fuel costs. For almost a decade, natural gas prices were moderate and stable at about $2 to $3/mmBtu.
Then, in 2002, demand for natural gas began to outstrip supply, and the price of the fuel responded in classic fashion—by rising and becoming volatile. The upward trend has continued until today (gas prices have passed $7/mmBtu), and so has the volatility, making predictions of future levels pure guesswork. The odds are that natural gas prices will never again fall below $5/mmBtu on a consistent basis.
Obviously, the higher prices have exacted severe economic penalties on combined-cycle plants. Bear in mind that for such plants, fuel costs account for about 70% of operating expenses. So the typical plant that earned big profits when gas prices were $2/mmBtu found itself just breaking even when the price hit $4 and losing money as prices rose above that level. As the production of many combined-cycle plants became too costly to dispatch, the plants were run much less often, sometimes less than 10% of the time. With no end in sight to the run-up in natural gas prices, the long-term economic viability of gas-fired combined-cycle plants became questionable at best.
For owners of existing combined-cycle plants saddled with high gas prices, the solution is to find a cheaper fuel to burn. Coal immediately comes to mind. Although the price of "steam" coal (including Powder River Basin coal) in the U.S. generation market has risen sharply over the past year, coal still costs far less per Btu than its main fossil-fuel competitors—natural gas and oil (Figure 1). What's more, coal's abundance makes its price inherently more stable and predictable over the long haul.
1. Short-term price outlooks for coal, oil, and natural gas, as of July 2005. Source: U.S. Energy Information Agency
Making a purely economic case for burning coal, rather than gas, in combined-cycle plants is easy. It's much harder, however, to make a convincing argument that the technology is available to do so at reasonable cost. After all, existing combined-cycle plants were designed to burn gas or oil (a liquid), not a solid fuel such as coal. The remainder of this article examines the current state of technologies for gasifying coal. Included are management-level analyses of the technical considerations and economic consequences of adapting an existing combined-cycle plant to burn coal rather than natural gas.
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