Coal, New Projects, Nuclear

Nuclear and IGCC May Provide Future Baseload Capacity

By Teresa Hansen, Associate Editor

“Not long ago, utility generation discussions focused on overcapacity. Now, these discussions are beginning to focus on a new building campaign,” said Roger Gale, GF Energy’s president and CEO, who opened the “Developing New Baseload Capacity” session at the recent Edison Electric Institute (EEI) Annual Convention/Expo in Las Vegas. GF Energy authored the 2005 Electricity Outlook, an annual survey and analysis of the North American electricity industry sponsored by EEI and the Canadian Electricity Association. Gale commented on some of the survey’s results during the session.

He said survey results show that most utility executives believe they must take action on global climate change in the near future, but not quite yet. Most also think new generating capacity will be required in the next three to seven years and that coal will fuel most of that new capacity, at least initially. “There are currently 120 coal projects being planned for the United States,” he said.

Gale also said that 66 percent of the utility executives surveyed believe that nuclear capacity will be needed in the United States within the next 10 years. However, only one-fourth of that 66 percent expect to order new nuclear capacity in time to meet that need.

Gale also commented on natural gas and LNG terminals in the United States. Although more than 30 LNG terminals have been identified and are in some stage of planning, Gale said that most utility executives surveyed doubt that many will be built within the next three years.

Paul Bowers, Southern Company Generation’s president, also spoke at the session. He pointed out that since 2000, 98 percent of the new capacity built in the United States has been gas-fired generation. However, like many other utility executives, he doesn’t expect that trend to continue. He said Southern Company is promoting coal, including integrated gasification combined cycle (IGCC), for baseload capacity. It is also looking at nuclear as a viable technology for future baseload generation.

“There has been an unintended effect from ‘the dash for gas’ of the 1990s and 2000s,” said Gale Klappa, Wisconsin Energy Corp.’s chairman, president and CEO, another of the session’s speakers.

The unintended effect is related to pricing dynamics, Klappa said. “Year round gas use is not a good thing for the market and consumers. Because the summer demand for natural gas has risen so much as a result of gas-fired generation, national pricing dynamics have changed dramatically,” he said. “Gas has been good for IPPs (independent power producers), but now that gas prices are so high, gas may not be so good for electricity consumers.”

Who Will Build New Baseload Capacity?
“States that did not get overbuilt in the 90s are needing new baseload,” Klappa said. He mentioned that Ohio, Indiana, Minnesota, Florida, Colorado, West Virginia and Wisconsin are in need of new baseload capacity. “There hasn’t been a new baseload plant built in Wisconsin since 1984,” he said. “Will IPPs build a merchant nuclear plant, or even a merchant coal plant?” Klappa asked.

Because the chances of an IPP building a new large nuclear or coal baseload plant are fairly slim, at least in the near future, Klappa believes that regulators will need to be involved in the process of building baseload capacity.

John Rowe, Exelon Corp.’s chairman, president and CEO, also spoke during the session. He believes that different parts of the country will see different models for building baseload capacity. “There are parts of the country where baseload capacity is needed soon. Jurisdictions most committed to retail and wholesale competition will be biased toward low construction cost technologies, such as gas turbines,” Rowe said. Merchant plants could furnish this capacity. “Other states and regions that already have a lot of baseload in the rate structure will be biased toward nuclear and coal technologies,” Rowe added.

In the past, there have been three fundamental models for building baseload capacity, according to Rowe. There’s been rate-based financing and construction, integrated resource management financing and construction based on long-term contracts, and merchant power. Rowe believes the models for new baseload capacity will be less defined and will be a hybrid of the three fundamental models.

He believes in the jurisdictions where merchant power makes the most sense, building new capacity will be put off as long as possible. “The merchant builder will put off the capital investment as long as possible,” he said. This baseload capacity model focuses mostly on the return-on-investment and less on consumers needs and expectations, according to Rowe.

Nuclear Power’s Future
Rowe also said Exelon management believes new nuclear plants are a good choice for future baseload capacity, but the utility is a long way from going out and saying, “let’s build one.”

“There is a lot of fallout, which is different in different regions,” Rowe said. “There’s an uncertainty surrounding the actual cost of a new nuclear power plant. A new plant could cost 40 percent to 45 percent more than the estimate.”

Klappa agreed with Rowe’s assessment of the nuclear revival. “I can’t imagine any utility building nuclear as a baseload plant today,” Klappa said. “There has been some revival discussions, but they (nuclear plants) are just not practical yet. I think real nuclear capacity is close to a decade out.”

In addition, all the speakers mentioned a lack of long-term spent fuel storage and the uncertainty it has caused the industry. Rowe believes there are several prerequisites that must be met for new nuclear plants to be built. “There must be a need for capacity, and that prerequisite has been met in several regions. High-priced natural gas is another prerequisite that has been realized,” he said.

Other prerequisites that are close to being met are terrorist-proof, secure designs and the support of environmental groups, Rowe added. This leaves the final prerequisite of a suitable place for long-term storage of spent fuel. All the speakers agreed that a long-term repository must be identified and settled upon before a true nuclear revival will occur.

Bowers also mentioned that it could take 4,000 to 6,000 people to build a new nuclear power plant and this could pose a problem. “The (electric utility) industry is already facing a workforce shortage. Where will it find enough qualified people to build a new nuclear power plant?” he asked.

Rowe believes that by 2010, a consortium will construct one or two new nuclear power plants, which will basically serve as pilot projects for the latest nuclear designs. If the spent fuel storage problem is solved, then he predicts double-digit numbers will be built from 2015 to 2020.

Klappa agreed with Rowe’s prediction. “Once the egg is cracked, things will start to move quickly,” Klappa said.

IGCC as a Baseload Technology
According to the speakers, IGCC is the principle alternative to nuclear power, but it is complicated and expensive. Bowers spoke about the IGCC plant that Southern Company is building in Orlando, saying the company would likely not be building the plant were it not for the U.S. Department of Energy’s monetary contribution. “The technology is expensive and basically unproven on a large scale,” he said.

Rowe mentioned three main factors that are diving IGCC development: an abundance of coal, continued global concerns about nuclear power, and the fact that IGCC can sequester carbon monoxide emissions.

In addition to technologies, the session speakers talked about the need for a stable and defined regulatory environment. All the speakers agreed that not only does the United States need an energy bill, but it also needs stable, sensible environmental regulations.