Resurging Coal Market Spurs Renewed Development Projects

Issue 4 and Volume 105.

By Steve Blankinship,
Associate Editor

Peabody Group’s 1,500 MW Thoroughbred coal-fired plant will be built on the company’s site near Central City, Ky. Photo courtesy of Peabody Group
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Despite the fact that it currently produces more than half the electricity in the U.S., over the past two decades coal has remained a slumbering energy giant in terms of new capacity. Now, the giant is stirring. Soaring gas prices, critical energy shortages in the western U.S. and potential shortfalls elsewhere have energy providers revising old plans and drawing up fresh ones to get new coal generating capacity up and running.

One of the more dramatic coal generation announcements in recent months comes from Peabody Group. Coal’s resurgence may allow Peabody to reclaim its own destiny following decades of ownership by other companies. Peabody has announced it will sell about $300 million worth of stock to gradually ease out of ownership by merchant bankers Lehman Brothers, and announced plans to build The Thoroughbred Energy Campus, a 1,500 MW mine-mouth coal-fired power plant in Muhlenberg County, Kentucky on the company’s Gibraltar mine site.

Thoroughbred will consist of two 750 MW coal-fired units equipped with state-of-the art environmental controls that, according to company officials, will make the plant the cleanest, lowest emission generating facility of its size east of the Mississippi River. It would mark the first time ever that a coal company has built, owned and operated a coal plant. Peabody is seeking a joint venture partner for the power plant project. By building the plant at the site of the coal, the fuel cost advantage over natural gas is further enhanced by eliminating the cost and logistics associated with long-distance rail transportation. Although the region has several major coal-fired plants in operation, Jacob Williams, Peabody’s vice president of commercial services, says Thoroughbred will be “the region’s low cost winner, bar none.”

Peabody is the world’s largest private-sector coal producer with 9.5 billion tons of coal reserves. Much of the coal Peabody mines is low-sulfur coal produced from the Powder River Basin area in Wyoming. Peabody sold 179.2 million tons of coal in the year ended March 31, 2000, up from 93.3 million tons in 1990. The company owns and operates mines in Arizona, Colorado, Montana, New Mexico, Wyoming, Illinois, Indiana, Kentucky and West Virginia.

Peabody says it has been in discussion with a number of parties regarding new coal-based generation, perhaps on the company’s large land holdings. “Coal tends to be more predictable, both in pricing and supply, than either oil or natural gas,” says Vic Svec, vice president of public relations for Peabody. “We expect to see more coal-based generation in the future.” Peabody expects the coal industry to grow at a faster pace than in previous years. “Coal accounts for 85 percent of all fossil fuel reserves in the U.S., while natural gas is ten percent and oil is five percent,” Svec said. “This long-term supply reserves of coal makes it an attractive fuel for utilities.”

Peabody is not the only coal company planning to build the generation capacity to use it. Westmoreland Coal Company has submitted a proposal to regulatory officials to develop, own and operate a 500 MW lignite-fired power plant near Gascoyne, North Dakota. The company’s existing operations include Powder River Basin coal mining and seven independent power projects.

Tri-State Generation and Transmission is considering building a $1.2 billion coal-fired power plant in southeastern Colorado. Construction could begin by 2003. Tri-State is a not-for-profit power generator owned by member co-ops. The Southeast Colorado Power Association is one of Tri-State’s members in the area and would be expected to sign on. The Arkansas River Power Association might also be a part owner and customer. If built, the new facility would be similar in size and operation to the association’s three unit, 1,264 MW Craig Station located in northwestern Colorado. Tri-State is now in the preliminary discussion stages to determine whether there is sufficient interest among other power suppliers in the region to participate in the project.

Wisconsin Energy Corp. has revealed plans for three 600 MW coal units, meaning 1,800 MW of WEC’s 2,800 MW of announced new capacity for Wisconsin customers will come from coal. And there are hints of renewed coal activity by at least a half dozen other major concerns. Due to increased demand, U.S. coal production is expected to be 21 million tons higher in 2001 than last year, a record 1.115 billion tons, according to the National Mining Association. “Good energy policy can neither neglect nor penalize coal,” says NMA President and CEO Jack Gerard. “California would not be in crisis today if they hadn’t foreclosed on coal in days gone by.”