Coal: Fuel of Choice

By: Barbara Altizer
Coal Leader

Spencer Aberham

      U.S. Secretary of Energy Spencer Abraham requested that The National Coal Council prepare a study identifying which opportunities could expedite the construction of new coal-fired electricity generation and that the Council examine opportunities and incentives for additional emissions reduction including evaluating and replacing the oldest portion of our coal-fired power plant fleet with more efficient and lower emitting coal-fired plants. The Secretary expressed his belief that this report could serve as a blueprint for industry while acting as a guide to promote the construction of new coal-fired facilities.

The study findings are:

Coal is the fuel of choice now, and will remain so into the future.
Coal-based power plants produce greater than 50% of all the electricity in the United States. It will remain the primary fuel source for electricity generation for the foreseeable future. It is secure, affordable, and environmentally compatible. The country has about 250 years of supply in reserve at the present rate of consumption. Through continued research, development, and deployment of new technologies, coal will continue to fuel low-cost electricity and to demonstrate continued environment improvements.

Natural gas has been the dominant fuel for new power plants in the last decade.
Over the past decade, the availability of low cost natural gas and increased competition in the electric generation market, when combined with certain federal energy policies of the 1990s promoting the use of natural gas, has resulted in the choice of natural gas over coal as the fuel for most new generating plants. The net effect of the 1990 policies was to stimulate natural gas demand through its use to generate electricity to the detriment of American citizens who use it for home heating purposes and industries which rely on natural gas for their primary feedstock or other uses.

Coal provides a pathway for greater energy independence.
As the demand for electricity continues to increase, the Energy Information Administration (EIA) and others have forecasted large increases in electricity generation using natural gas as a fuel. With the United states’ best prospect for increasing national gas supplies coming from foreign sources including Canadian imports and liquefied natural gas (LNG), a better alternative for energy independence would be to build more new, domestically supplied coal-based power plants.


Low Cost Electricity Comes From Coal

There is renewed interest in using coal to fuel new power plants.
Increases in the price and historical volatility of natural gas supplies, the long-term stability of coal prices, and the financial impacts from a number of financially distressed investments in natural-gas combined-cycle power plants have led to a renewed interest in coal-based electricity generation. Forecasts of natural gas supplies and prices have become more accurate. Supply difficulty and price volatility that have occurred since 2000 and the revised estimates of natural gas reserves by some companies have resulted in more realistic assessments of natural gas supplies and a more reasoned projection of natural gas prices. The National Petroleum Council’s 1999 and 2003 reports provide good examples of this increasing accuracy. The higher price forecasts and other warnings in turn make the economic models used to support natural gas-based power plants less attractive.

Generators are expected to remain credit worthy.

Tom Kraemer

    Experts in the financial community believe that the outlook for investor-owned electric utilities (IOUs), rural electric cooperative and municipal generators (gencos), and independent generation companies, diversified energy merchants and energy traders, is generally stable. While many IOUs and gnecos have either maintained creditworthiness or are well on their way to financial recovery, the investment community believes that many in the merchant or independent power sectors will need time to recover. There are structural differences between the various power producers, and financial issues that impact decision about whether or not to construct new coal-based facilities differ between the segments.

Permitting delays have been an impediment to building new coal plants.
The length of permitting time, as well as redundant permitting requirements, has created impediments to new construction. These delays are a result of an inefficient permitting process – including a lengthy permitting appeals process – that can delay plants to the point of causing plant cancellations. Even with new coal-based generation meeting, and in some cases exceeding, the most stringent emissions control requirements and efficiency standards, the time from project initiation to start-up is routinely extended due to delays in the permitting process that do not result in any changes to the plant’s emissions control systems. These delays result in increased costs and cause uncertainty in the investment community (with higher perceived risks related to developing new coal-based plants).

Environmental regulatory approaches have been an impediment to building new coal plants.
Over the past three decades, the prevailing environmental regulatory approaches have led to the retrofit of high capital cost emissions control technologies at existing coal-based generating plants. In order to avoid the risk of stranded investments and the uncertainty of investing in new plants, power plant operators have taken steps to extend the lives of existing plants. This has also made it more difficult for new plants to enter the electricity market at a price competitive with the overall cost of electricity from older, coal-based plants where the capital cost component of electricity is much less.

Uncertainty about CO2 emissions reductions has been an impediment to the construction of new coal-based power plants.
The uncertainty of future environmental regulations, especially associated with CO2 , has complicated decisions about whether or not to repower or replace existing coal-based generation. This situation is exacerbated by the uncertainty surrounding the broader issue of carbon management.

Lack of a regional planning approach has been an impediment to the construction of new coal-based power plants.
The transitional state-by-state changes in the electric utility industry have resulted in a lack of regional planning. This lack of regional planning has resulted in a short-term focus with small, a incremental capacity additions such as natural gas combined cycle plants, rather than coal-based plants that provide enhanced energy security, long-term sustainability and lower overall electricity prices for our nation.

In fractures hurdles are impediments to the construction of new coal-based power plants.
Opportunities to install new coal-based power plants in both the short term and in the future are inhibited by several factors that warrant attention on a national environmental and energy policy basis. These factors include the continued failure of the Federal Energy Regulatory Commission (FERC) and the states to deal with transmission congestion, declining engineering resources in the United States, limited availability of skilled construction labor to build new coal-based power plants, declining manufacturing infrastructure in the United States for the fabrication of steel and steel components required for new coal plants, and growing regulatory hurdles to permit and construct new coal mines.


New Coal-Based Plants Announced Since 2000

The National Coal Council makes the following recommendations:

Streamline the permitting process.
The Department of Energy, in concert with other appropriate agencies and stakeholders, should develop an integrated, flexible, and streamlines approach to environmental regulations and permitting for new, advanced coal-based generation. Operating permits is issued under this approach should include assurances that new regulations will not change the permit for a certain fixed period of time after the start-up of the new plant. The Department of Energy (DOE) should then work with the U.S. Environmental Protection Agency (EPA) and others to implement this approach. The goal is to encourage the development and deployment of a domestic, reliable, clean and affordable energy supply. This approach will create incentives and certainty for investments in advanced coal-based generation, while allowing appropriate time for capital stock turnover.

Recognize the strategic importance of integrated gasification combined cycle (IGCC) technology.
The Department of Energy, in concert with other agencies, should create incentives that recognize and reward the potential for integrated gasification combined cycle to replace the use of natural gas in the electricity generation market, produce synthetic gas for poly-generation, and to accelerate progress of the Hydrogen Initiative. This would help stabilize the price of natural gas and free more of it for use in the chemicals, fuels and fertilizer industries, thereby saving domestic jobs in those industries. Also, coal gasification could provide additional feedstock for these industries at a competitive cost.

Recognize the importance of other coal-based technologies.
While IGCC technology is strategically important to the future of coal, the Department of Energy should also support R&D for other advanced coal-based technologies, including advanced pulverized coal-based technology and circulating fluidized bed technology, especially in the areas of carbon capture and ultra-supercritical designs and other efficiency improvements, so that investors in coal-based power plants can choose from a portfolio of attractive technologies.

Encourage regional planning.
The Department of Energy should explore the viability of and encourage a regional planning approach for capacity additions. The regional approach should consider a mechanism to reward investment in efficient and environmentally superior coal-based plants that would have widespread regional benefits and transcend the individual territory of any one state of IOU.

Continue with meaningful R&D.
The Department of Energy should continue research and development work on advanced, efficient and lower-emitting coal-based technologies to ensure that technology continues to keep pace with the goals set forth in the DOE/CURC/EPRI Roadmap. In addition, this effort should include adequate funding and support for flagship programs such as FutherGen and the Hydrogen Initiative.

Continue with technology demonstration.
The Department of Energy should ensure that proper mechanisms and incentives are in place to allow not-yet-mature and first-of-a-kind technologies to be demonstrated in the marketplace so that promising coal-based technologies can be ready for wide-scale deployment through programs such as the Clean Coal Power Initiative.

Provide meaningful incentives for the commercialization and deployment of new advanced coal-based technologies.
The Department of energy should develop incentives to overcome the risk-adjusted cost differential between options of conventional technologies and new, more efficient, lower-emitting advanced coal-based plants so that these advanced plants can be more expeditiously deployed in the marketplace. The menu available for such incentives includes, but is not limited to, tax incentives, production incentives, public/private cost-sharing, accelerated depreciation, loan guarantees, and federal credit.

Maintain a balanced portfolio of Research & Development, Demonstration and Deployment.
The Department of Energy should recognize the importance of properly funding Research & Development, Demonstration and Deployment and must ensure that proper funding is allocated to all three elements of technology development.

Work with state regulators for cost recovery of new advanced coal-based plants.
The Department of Energy should facilitate the development of a clear regulatory mechanism that will allow investors to recover added costs of replacing some of the older, less efficient existing power plants with new advanced coal-based power plants. Innovative cost recovery proposals should address both state and regional concerns. Additional vehicles could be developed to insure recovery of new capital investment as well as any stranded capital from un-recovered investments associated with the retirement of older facilities. This mechanism would have the opportunity to provide a new incentive to facilitate the construction of new coal-fueled power plants with minimal impact on the federal deficit.

Continue to be a champion for coal.
The Department of Energy should continue to strongly reinforce, as often as possible that coal is a vital resource for our country. Coal must be utilized to provide an adequate measure of energy security and reliability, and it has been and will continue to be the major fuel for electricity generation in the country. The use of coal should be encouraged as an alternative feedstock for chemicals and fuels (especially those are imported), and appropriate incentives and regulatory approaches should be provided to encourage its use in as clean a manner as possible. The use of clean coal technologies should be fostered, encouraged and promoted in other countries where coal is a vital resource. Ever-changing environmental regulations create an impediment to new coal plants. Investment in new plants involves hundreds of millions of dollars and the investment community needs clear and stable rules as a foundation for that investment. Regulations can be and are reinterpreted over time. Stability can only be achieved through legislation. cl



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