Coal gasification: American coal power's last, best chance?
“We have the absolute destruction of the United States coal industry. It isn’t coming back. It’s permanent. Virtually all of it is permanent. And if you think it’s coming back, you don’t understand the business. Or you’re smoking dope.”
Those aren’t the words of a Sierra Club communications staffer or Bill McKibben’s latest press release. They are remarks given earlier this month by Robert Murray, owner and CEO of Murray Energy, the nation’s largest privately-owned coal company. He told attendees at an industry conference that the “the insane, regal administration of King Obama” and the Environmental Protection Agency are driving the industry into the ground.
In a way, he’s correct. As Bloomberg reported alongside Murray’s quote, the coal industry is in trouble. The industry’s market capitalization has declined from $78 billion in 2011 to around $25 billion today. While coal generated more than half the nation’s electricity in 2007, it now accounts for 37%—a number that’s expected to keep falling.
Analysts and industry insiders alike agree that coal’s decline is mainly due to two factors: The low price—and resulting boom in production—of natural gas, and proposed EPA regulations that aim to reduce carbon emissions and other contaminants resulting from the combustion of coal in traditional power plants.
Those factors together make building a new, traditional coal-fired power plant a near impossibility for America’s utilities, according to Michael Rutkowski, managing director of the energy practice at Navigant consulting.
“A new pulverized coal plant just is a non-starter right now,” he told Utility Dive.
Luckily for Murray and America’s fossil fuel-reliant utilities, coal advocates say there are technologies that can get around the new emissions regulations, if they can be implemented on a large scale. The most promising technology is Integrated Gasification Combined Cycle (IGCC) and it could be American utilities’ last best hope of burning coal in the 21st century.
IGCC: A way forward for coal?
There are a few different varieties of coal gasification, Rutkowski says, but all of them share some critical features: They convert coal into a cleaner-burning synthetic gas, remove the impurities such as sulfur and mercury, and then burn it in combined cycle plant like natural gas. Some plants, like Mississippi Power’s nearly-operational Kemper County project, capture the remaining emissions and sell the byproducts to assist in further fossil fuel extraction.
There are currently two large IGCC power plants in the United States—Duke Energy’s operational 618 MW Edwardsport plant in Indiana and Southern Company’s under-construction 582 MW Kemper County project in Mississippi. In June, Reuters reported that a number of power companies have scrapped their IGCC plants due to their high cost and the abundance of cheap natural gas, leaving Duke and Southern as the last two utilities standing.
Duke Energy declined to speak to Utility Dive about the Edwardsport project, only saying it was involved in regulatory proceedings and would not comment. Southern Company representatives agreed only to answer written questions via email.
In the Kemper plant, Southern thinks it has found a way to keep burning coal deep into the 21st century, says Jeannice Hall, senior media relations strategist at Southern.
“Southern Company has been offering solutions to America’s energy challenges since we first developed our robust, proprietary R&D programs more than 40 years ago,” she wrote. “We believe we have found a way forward for coal in America through the technology being developed at Mississippi Power’s Kemper County energy facility.”
The problem for Southern—as it was for nearly 20,000 MW of proposed IGCC capacity that utilities have scrapped since the 1990s—is cost.
Just like building a nuclear plant?
Rutkowski is a veteran of the Wabash River IGCC demonstration project, one of the first in the United States in the 1990s. He says that while utilities like Southern may be excited about the technology, it isn’t competitive with its main substitute.
“IGCC has very different project economics than the alternative now, which is natural gas combined cycle, and that’s what’s preventing it from being built beyond these couple of demonstration projects,” he said.
The analyst says the cost and uncertainty of return on investment in IGCC plants puts them almost on par with another type of expensive, risky generation investment.
“I think you almost could compare [IGCC projects] to nuclear plants,” he said, “because they have a very high capital cost ... have relatively high fixed costs once they’re operating, and you still have uncertainty associated with the carbon capture [technology].”
Those risks make it difficult to build IGCC plants in competitive power markets, Rutkowski explained, because of the presence of lower-cost, lower-risk investments available like natural gas. Pricing signals for new generation in markets like PJM and ISO-NE, he says, are too short-term to justify the risk and cost of a coal gasification plant.
“They almost have to be built, as they are being built now, in a rate-based environment,” Rutkowski said. Construction costs for Edwardsport, Reuters reported, raised rates for Duke customers in Indiana by 14%.
To many, the risks of IGCC technology are exemplified in Southern's Kemper plant. Initially expected to cost $2.4 billion, construction costs have ballooned to more than $6.1 billion, and the plant won’t be fully operational until the end of 2016, according to Natalie Campen, media relations manager at Mississippi Power, the Southern Co. subsidiary building the plant.
Campen says the cost difficulties are par for the course when it comes to such a large, new power plant. She wrote to Utility Dive that Mississippi Power started construction with only 15-20% of the design completed.
“We were right on the mark with cost estimates with respect to the design around the major components of the facility: the gasifier, steam generator and combustion turbine,” she said. “Where we missed it, and where many first-of-a-kind facilities like the Kemper facility miss the mark on estimating, is in the quantities of piping and wiring and the labor associated with these materials.”
Even so, Rutkowski says, building IGCC plants is too expensive at present to compete with gas.
“You wouldn’t build a $2 billion plant that produced a substitute natural gas at $7 per million BTU when the market price [for natural gas] is $4-something on a high day,” he said.
Environmental questions: How much cleaner is IGCC, really?
Southern Company's Hall says that once Kemper is fully operational, the plant will capture 65% of the carbon produced, “making emissions better than a similarly sized natural gas generation plant.”
Environmentalists warn, however, that statistics like these disguise a bleaker reality for IGCC. While the gasification process removes impurities from the coal and creates a cleaner-burning fuel, that process consumes power as well. Experts say IGCC plants with carbon capture capabilities like Kemper consume 20-30% more coal to make a kilowatt hour of electricity than traditional coal plants.
“There’s more fuel input needed per kilowatt hour output because you have to basically oversize the plant to generate enough electricity to run the gasifier facility,” Rutkowsi said. “The heat rates don’t look nearly as good as natural gas combined cycle.”
There is also the question of what happens to the byproducts of IGCC facilities. The Kemper plant, once fully operational, will sell the CO2 it captures to assist in oil and gas exploration. While that will help the plant recoup some of its construction cost overruns, critics say it only exacerbates the cycle of climate change by encouraging more fossil fuel development.
Rutkowski cautions, however, that there are other environmental benefits to IGCC that make it cleaner than traditional pulverized coal.
“In terms of other emissions—NOx and SOx and mercury—those get captured pre-combustion," he said. “So you can capture more of those emissions and the gasification process results in less emissions output.”
The road forward: Diversification
If IGCC plants aren’t as environmentally friendly as their advocates claim and expose their owners to huge financial risk, why are companies like Southern and Duke pushing ahead? Rutkowski says part of the answer is simple inertia—many plants were conceived when gas prices were still high. But even if projects like Kemper can never compete with natural gas plants, there may still be a way forward for IGCC.
“Essentially what this type of plant provides is diversification of the supply base,” Rutkowski said. He warns that switching too much coal-fired generation over to natural gas too quickly comes with problems as well.
“That’s got its own issues around the gas supply infrastructure and the pipeline infrastructure being able to deliver to power plants,” he said. “If we were able to make that shift to gas very quickly, we’ve got an infrastructure need just to deliver the fuel to all those new gas plants.”
Campen says that diversification is one of the big benefits the Kemper plant offers Mississippi Power customers.
“Without the Kemper project, as much as 90% of Mississippi Power’s customers’ electricity would be generated with natural gas, leaving customers exposed to volatile natural gas prices,” she wrote.
Renewables advocates and environmentalists say the gas-coal dichotomy is a false choice, that even states in the deep south could get much of their energy from solar and wind, given the right economic incentives and transmission infrastructure. Look no further than Georgia, they say, where you can the nation’s fastest growing solar market. Last year, regulators there directed Georgia Power, another Southern subsidiary, to add 525 MW of solar by 2016—nearly equal to the capacity of the Kemper plant, but at a much lower cost to the utility.
Whether growth in renewables and abundant natural gas will be the demise IGCC and other “clean coal” technologies remains to be seen, but the government appears to be behind them. Kemper took advantage of hundreds of millions of dollars in federal incentives for “clean coal” technology, and the recent U.S.-China climate accord included provisions for a novel carbon capture plant.
In the end, Rutkowski says, incentives will be the key because costs are still too high at present.
“If there’s a driver for developing this type of plant, that can either be in the name of fuel diversification or it could be pure economics,” he said. “If the prices of natural gas were to significantly increase, then IGCC might be economically viable, but right now it just doesn’t appear to be.”
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