The sun rises at Xcel Energy’s new 750 MW supercritical pulverized coal Comanche Unit 3 in Colorado. Photo by Greg Bissen.
Power Engineering magazine invited six industry executives from the coal-fired sector to discuss issues affecting current and future prospects of coal-fired generation. The executives are Tim Curran, head of Alstom Power for the USA and Senior Vice President and General Manager of Boilers North America; Ray Kowalik, President and General Manager of Burns & McDonnell Energy Group; Jeff Holmstead, head of Environmental Strategies for the Bracewell Giuliani law firm; Jim Mackey, Vice President, Fluor Power Group’s Solid Fuel business line; Tom Shelby, President, Kiewit Power Inc.; and David Wilks, President of Energy Supply for Xcel Energy Group. Steve Blankinship, Power Engineering magazine Associate Editor, was the moderator.
Q. Does the adoption of some form of a national cap and trade program mean the end to building new coal-fired plants in the U.S.?
David Wilks, President of Energy Supply for Xcel Energy Group
Wilks: As an energy supplier, we are on the forefront of wrestling with this question. It is going to pose additional costs on our traditional coal-fired units. But in the long ride, this country will have to have supply diversity. And if our true goal is energy independence, we will have to have coal because we have such a huge reserve here in this country. We ought to, and will, figure out a way to use it effectively.
Tim Curran, Head of Alstom Power for the USA and Senior Vice President and General Manager of Boilers North America
Curran: I would add to David’s comments that some level of certainty is going to provide our customers with the ability to fund new coal plants. Like David said, coal is certainly needed for our energy independence. In the past we have proven that once goals have been set the market will respond to them. We have a great record in the industry of meeting emissions reduction targets and we’re confident that the same can be done with carbon.
Wilks: That’s right. Once we know what’s required we’re going to have innovators and creative people who, after the uncertainty, will figure out ways to do it. Not too long ago we had to collect sulfur dioxide from coal and we started out with wet scrubbers that weren’t efficient and were very expensive. But the technology has evolved dramatically over the years.
Jeff Holmstead, Head of Environmental Strategies for the Bracewell Giuliani law firm
Holmstead: In the long term there is no way to imagine how we can grow our economy without coal, but in the shorter term cap and trade can cause problems unless we get it right. I think the precise nature of the program will matter a lot in the short term outlook for the industry. Depending on how cap and trade is set up, it could at least temporarily slow development of coal-fired power.
There are some things in Waxman-Markey that simply don’t make any sense. They impose some pretty onerous performance standards for new coal-fired plants. The idea is that under this version of the legislation, you would not be able to develop a new coal-fired power plant without carbon capture and sequestration. And until that becomes feasible, a new coal plant would not have the options available as existing plants do. Existing plants can go into the offsets markets and do other things. New plants are significantly disadvantaged under Waxman-Markey and significant things need to be changed. It’s not just a cap and trade bill. It has all sorts of performance standards that would make new plants extremely expensive in the short term. It would be hard for them to compete with gas.
Jim Mackey, Vice President, Fluor Power Group’s Solid Fuel business line
Mackey: As long as there’s uncertainty, coal plants will be in limbo. There’s too much uncertainty on the future cost of carbon credits in a cap and trade program. There’s also too much uncertainty about renewable options like wind and solar and their transmission needs and backup power energy storage. How’s that going to play out? Natural gas pricing, incentives, grants, loan guarantees, tax credits will all determine if coal plants are feasible. It’s going to be very difficult to build a new coal plant without carbon capture on a cap and trade system.
Tom Shelby, President, Kiewit Power Inc.
Shelby: Over time, people will innovate and come up with a solution that makes new coal plants financable. But in the short run that seems very problematic to be able to build a coal plant without carbon capture and sequestration.
Mackey: I agree. And in some areas it will be easier to sequester than in others. Tenaska Trailblazer has an enhanced oil recovery application in the Permian Basin. But we need five to 10 years to prove sequestration to the point that utilities and others are comfortable with spending that kind of capital to build commercial scale carbon capture plants.
Shelby: And from an engineering and construction perspective, until we’re comfortable enough to take the risks necessary for financing and provide certainty on cost and schedule.
Holmstead: Waxman Markey talks about having a 17 percent reduction by 2020, but it would have immediate impacts. In fact, it would have some retroactive impacts. Plants on the drawing board and proposedand in some cases even permittedwould still be subject to these performance standards. Waxman-Markey has some provisions really designed to stop or significantly alter some of the plants that are moving now. I understand that some of those provisions were addressed in the 3 a.m. revisions (last minute revisions the night before passage). But there must to be a very significant effort in the Senate, especially to address the short term problems of Waxman-Markey.
Q. Talk a bit about the recent deferrals of several coal plants planned for the western U.S.
Holmstead: Plants have been deferred due to uncertainty about CO2 rules, potential cost increases and economic downturns. I think that’s the case with the LS Power project in Nevada and maybe the Nevada Power Project. We’re working with Desert Rock (a 1,500 MW development by Sithe Global Power and the Navajo Nation in New Mexico). We think Desert Rock is likely to go ahead, even with some of the problems we have run into. But while I think Desert Rock will ultimately be built, there’s more litigation to get that one done.
Ray Kowalik, President and General Manager of Burns & McDonnell Energy Group
Kowalik: There’s a myriad of reasons new coal plants don’t move forward and CO2 is just one of them. Economic conditions, the state public service commissions and what their beliefs are. Do they really want coal? The other thing is that the West has something the rest of the country doesn’t have and that is a lot better access to wind and solar. That comes into the decision making process much more in the West than it does in the central U.S. or the East. So you consider the fact that you have a lot more access to renewables in the West and couple that with the uncertainty of carbon capture and you get a little nervous about whether coal is the right decision in today’s market.
Mackey: I agree with that. I think some of the plants that were being developed, at least in Nevada, were being developed as a hedge against gas prices. We’ve seen gas prices turn. Today they’re around $3.80/MMBtu. And I think they’re down to stay for a while. That has changed the pro forma for some developers. Also, I think when the decision was made to defer some of these projects, cost escalation was continuing to rise and nobody really knew where it would end. That has gotten under control. But I think one of the main reasons for deferment is the renewable energy standards. What we’re seeing now is Nevada Energy looking at meeting its needs with gas-fired plants supplemented by solar. They can use some of the renewable energy standards as the driving force regardless of the cost of renewable power. They need to do that to meet renewable energy standards.
Wilks: We’re 95 percent complete on our 750 MW Comanche 3 supercritical unit in Colorado. We also have a project right now with a supplementary solar project; a 10 MW solar project on a 50 MW coal-fired unit. It’s a demonstration of supplemental solar heating and we will see if we want to expand it.
Shelby: There is still a big problem around solar and what the ultimate cost on a dollar per kilowatt basis will be, even with incentives.
Curran: I would add one point on the deferral of western coal plants. We have mentioned several reasons why they have been deferred, but in the long run, I believe the volatility of gas will keep coal plants being built. I don’t think gas prices will stay down. There is quite a lull now and during this time we are developing 10 demonstration projects for dealing with CO2. Four of them are in some stage of operation. This period will allow us to advance those carbon technologies to a state that we hope will help promote coal in the future.
Q. Coal plant development continues in China and to some extent in Europe. Is this being lost on American policy makers?
Mackey: I don’t believe it’s been lost on U.S. policymakers. I think many of the bills and amendments here have some sort of carbon tax on imports from countries that don’t have a cap and trade or maybe produce more greenhouse gases per industry output.
Shelby: I agree with that Jim. I see bills that include talk about putting tariffs on imports, but it’s questionable whether that will stick or not. It’s not lost that they are doing it but it’s lost on the impact to our energy policy. There is no room for movement on our energy policy the way it’s being presented right now that would allow us to continue to build coal because they are doing it in other parts of the world. We’re in a race to lower our carbon emissions right now and that’s what’s at the forefront of our energy policy.
Holmstead: I think many people in D.C. and elsewhere are aware generally that emissions are increasing fairly significantly in China and India and that they’re using a lot of coal. There’s two schools of thought among the Democrats. One is that if we just show leadership and cap our own emissions, it will give us moral standing to insist that they do similar things. I think that’s a good political argument, but I don’t think it holds any water as a practical matter. The other thing they say is that the only way they will ever be able to figure out how to use their coal and reduce CO2 emissions is to develop the technology here and transfer it there.
The more thoughtful people in the environmental community are saying we do cap and trade here and American ingenuity will figure out how to capture the CO2 in a very cost-effective way. And then we can get the Chinese and Indians and others to do the same thing. So while it’s not completely ignored, it’s certainly not used politically as a reason not to disadvantage our own energy system in the meantime. They say it’s a moral imperative to do it and even though it may not make much of a difference, it’s a first step we have to take.
Curran: We see there’s a requirement in Waxman-Markey that a report must be prepared annually looking at whether China and India are making CO2 rules and they have to be communicated. Our business for coal in Europe is thriving. After legislation was passed there, a number of our customers decided to build supercritical and ultra-supercritical plants and we’re in the midst of supplying those. In China, all the additions are supercritical. In fact some of the highest cycles in terms of efficiency are being built today in China while the oldest plants are being shut down. We’re supplying supercritical plants in India, where it has been sub-critical since the start of the power industry. So that shouldn’t be lost in the U.S. It’s a message that should be conveyed and we’re doing our part in sending that message where we can.
Q. Replacing coal plants that produce significant amounts of greenhouse gases with coal plants that produce far fewer GHGs per unit of power generated reduces overall carbon emissions. New CFB plants are also being built in Europe and elsewhere. CFBs can use a variety of fuels and co-fire biomass. Yet outside of industry circles, such strategies are never discussed. Does anyone in the political or environmental arena acknowledge the validity of building supercriticals and CFBs?
Kowalik: I’ve talked to some of the Washington policy makers through their staffs. I think they understand the issue, but it’s a little bit lost I think because it’s tough to do anything about it. We did a rough estimate that the U.S. could build 9,000 MW to 10,000 MW using supercritical and if we just retired average plants in the fleetnot even the least efficient onesit would not raise our carbon footprint. But there’s no legislation or mechanism of any kind to accomplish that. In fact, it’s going to get even worse, because like Jeff was saying, you’re going to have to put carbon capture on that plant so it’s going to be even more cost-prohibitive to build a new one and retire the old one. We’ve got natural gas boilers with 13,000 heat rates out there when we could be running combined cycles.
Efficiency hasn’t been addressed by any legislation because instead of attacking boiler inefficiency with new technology everyone just talks about reducing CO2 and creating problems with New Source Review and lawsuits from third parties if you try to do anything with existing coal fleets or natural gas boilers. I’d really like to see legislation attack that before we start talking about carbon sequestration, which is still way off before commercialization.
Curran: There’s about 10 points of efficiency improvement available today between new and old coal plants, which is huge. An 800 MW PC plant replacement would mean about 44 million tons per year reduction in CO2. That’s huge. When we look at the coal fleet in this country being about 36 percent efficient on average and the newest designs are approaching about 46 percent, it’s significant. We’re talking about energy efficiency. And we see with some of the stimulus package dollars that have come out as cash for clunkers on cars. How about that for power plants? The market would support it.
Holmstead: That’s one of my points about the cap and trade bill. If it were a pure cap and trade regime, then I do think that creates the kind of environment that would encourage development of new, higher efficiency plants to replace some of the older marginal plants. But what we have traditionally done in this country is put all of the cost burden on new plants. It is really counterproductive to what you are supposedly trying to achieve. So I think the design of cap and trade will have a lot to do with whether we move in this direction or whether people are just going to continue to nurse along some of the older, less efficient plants, because building new ones is so expensive because you are basically going to require CCS on them.
Wilks: I agree with Jeff about cap and trade. But one of the things we see talking with our customers and regulators is that as a country and populace we need to decide what we need to do. We’re finding there is no such thing in their minds as new coal plant technology, just clean coal technology. That’s what we’re up against. Unless it has CCS it’s not clean. So we can do whatever we want to increase efficiency, but it will never be a compelling selling point with the public or our regulators. We can do what we can but there’s not going to be a mechanism for having these projects built without carbon capture and sequestration.
Mackey: One point that is forgotten is that all fossil fuels produce CO2, and that includes gas. Regardless of schemes out there that say you can’t emit more than California or at least have CCS for half the generation to meet the carbon emissions level of natural gas, to get to an 80 percent reduction level by 2050 as proposed, we will have to do something with gas. So how can we get that as an industry unless perception changes? This is something we have to continue to work on, to get the facts out there.
Q. In light of recently lower natural gas prices and stiffening opposition to new coal units, will we see a strong trend toward building more gas-fired generation?
Mackey: I think we are certainly seeing an oversupply of natural gas in the U.S. because of the shale formations, but most of the collapse of gas prices is due to the economic downturn that contributes to the large oversupply. We may run out of natural gas storage by the fall of this year. I think there are around 23 shale formations being developed right now, so I think producers are concerned that prices will stay suppressed for quite a while. I think it may end up around $7. I do think there could be a rush to build natural gas plants or at least shift some of the peaking units to baseload power. Certainly gas prices are inherently volatile and I think the industry will have difficulty timing the supply with the demand and that will lead to spikes.
Holmstead: There is an effort by the environmental community to place significant restrictions on hydraulic fracturing and that is likely to be a significant debate over the next two years. If there is something done that significantly curtails fracking, you’ll likely see the cost of gas go up and I think that will have a significant impact on some of our longer term plans. Unfortunately, there are other things going on at the federal level that can affect the relative merits of gas and coal and other things. If fracking were curtailed, a lot of areas that are now very profitable would no longer be profitable.
Q. Many inside and outside the coal-fired sector are highly skeptical of the viability of capture and sequestration. Your thoughts?
Wilks: We have been working on this quite hard for some time, because in our service territory in West Texas and New Mexico tertiary oil recovery using carbon dioxide has been going on for a couple of decades and we are comfortable with it. So far as the geology, I think we’re pretty close in most areas to knowing whether it’s feasible or not. I think what we lack is the public comfort with the idea that you can store carbon dioxide underground and it will stay there forever. That’s the piece I think we need to work on until the public has comfort and acceptance. It’s going to require some pilots for this to go forward. But the geologists are pretty comfortable that it can be done. How much of it can eventually be sequestered remains unknown.
Holmstead: I think that eventually we’ll get to a more sensible approach to siting and permitting new energy projects, but I don’t see that in the near term. For so many years, Congress and the states have responded to environmental concerns by giving project opponents additional process rights. I think of the Desert Rock Project where there are actually four different avenues for litigation that are going to be proceeding simultaneously. You can challenge the air permit in one forum, and case-by-case MACT (maximum available control technology) in another one. And you get to challenge under the Endangered Species Act and you also get to challenge under the National Environmental Policy Act. So because of all the new process rights that have been created over the years, it’s hard to site a new wind farm these days. Even if you have most of the environmental community saying it’s a good thing, anyone who opposes it can stretch out the process for a long time. And I think we will have the same problem with CO2 sequestration.
When I was with EPA, I spent a lot of time with the technical people and I think they were all very comfortable that while you need site-specific assessments, in general that technology works. But try to get a permit or a loan to do it because of all the issues out there and it becomes very difficult. So regardless of pilots and success in remote areas, the opportunities for stretching these things out in any number of forums makes it easier for opponentsno matter what their real objectives areto make it very difficult to get these things done. And I think CCS falls in that same category. And even though people supposedly support it, all you need is a few local people who oppose it and they can essentially stop it for years and years and make a project uneconomical.
Curran: We’re involved in a DOE demonstration sequestration project with American Eelectric Power with their Mountaineer plant and we’ve heard that President Obama is going to the dedication. We also understand that the Canadian government will assume the risk of sequestration until there’s enough experience for the insurance market to step in.
Q. At least two U.S. grid operatorsPJM and ERCOThave expressed concerns about the cost to their retail electric customers from proposed climate change legislation. ERCOT says proposed legislation could increase retail power prices $10 billion a year by 2013. PJM’s study found congressional proposals to reduce carbon emissions could boost electric prices between $6 billion and $36 billion a year. Doesn’t this mean the case for new baseload coal remains solid?
Holmstead: There was a lot of pressure from the Democratic leadership in the House to push something through without much opportunity for real analysis or discussion of the costs. The Republicans and others who oppose Waxman-Markey indeed believe that, based on a lot of polling data and other things, the public is just not willing to spend this amount of money for dealing with climate change. And it’s interesting if you look at the polling data, the national numbers by Gallup and others that list 20 issues and ask people to rank them from 1 to 20 based on which ones you think are most important. Climate change todayeven two or three years agohas always been 19th or 20th. There is not a huge appetite publicly.
So I think there will be much more discussion of cost. My own view is that it is quite unlikely there will be a bill this year and whether there is a bill next year remains to be seen. A lot of people are very concerned about the cost and a lot of people will be educating the public and the people on Capitol Hill about the cost. I think that’s going to slow the whole process down.
The problem, though, is that then you just have this continuing uncertainty. So we’re at a point now where everyone agrees there needs to be certainty, but the environmental community says the price of that certainty is going to be very, very high. And industry is saying we want certainty but we’re not going to pay $500 billion a year for it. So there’s a political standoff and that’s why it’s not a forgone conclusion that you’re going to have legislation even next year. The people trying to keep the lights on will keep muddling through with this system we have today where it’s very difficult to get things done because no one knows what the rules are going to be.
Mackey: I think high electric prices in so many parts of the country tell us we have to have coal, which is our largest natural resource. But our nation needs to understand there’s a cost associated with it. We need legislation that provides a way to make the cost affordable. When goals were set for sulfur dioxide and nitrous oxide reductions, they were met; initially expensively. But the cost has come down to more affordable levels and electricity is affordable. We need to make sure we continue to advance the technology in all areas and offer the broadest spectrum of products to address the overall problem.
Q. Does a carbon tax make more sense than cap and trade?
Holmstead: Virtually every serious policy analyst and economist has argued that a carbon tax is more efficient, fairer and easier to implement and has a lot of advantages. But it has significant disadvantages politically. That’s why it’s just never been taken seriously in Washington. If Waxman-Markey really gets bogged down in the Senate, you could see a serious debate on a carbon tax. But right now it’s just viewed as politically unacceptable. Even if a cap and trade bill imposes exactly the same cost on consumers, it’s not called a tax and so people believe it’s politically more feasible. Even the current head of OMB (Office of Management and Budget), who is an Obama appointee, has written a couple of papers arguing that a carbon tax is much more effective, efficient and fairer.
One of my objections to a cap and trade program is that based on my own extensive experience with the acid rain program, the NOX/SIPS call, CAIR, CAMR and various trading regimes, is that people assume you can take those and just scale them up to deal with CO2. But it’s infinitely more complicated. I think with a cap and trade scheme we could end up spending a whole lot of money and get very close to nothing in terms of environmental benefit. Before now, cap and trade was all about creating an efficient and fair way to get people to install control technology that people understood. So it was a way that the industry could collectively share the burden of installing scrubbers or SCRs. That’s a very different proposition than completely retooling the energy infrastructure.
So what happens in the Senate will be very instructive and the Obama folks seem to think they can get something like Waxman-Markey through. But there are a lot of other people who are skeptical about that as people understand more about the costs, especially on the impact to the manufacturing sector as it becomes clear that you’d be crazy to build any kind of new energy intensive plant in the U.S. today but instead, move overseas. And those are the kind of arguments that I think people will be taking much more seriously in the Senate.
Curran: Regarding your point on U.S. manufacturing, this is a global issue and it seems like the globe has decided we have to tackle this issue. So as an industry in the U.S. we have to do the best we can to do the right things. I hate to see us lose our edge.