Special Report: Executive Roundtable on Coal Plant Development

Issue 9 and Volume 112.

Power Engineering magazine invited five leading executives to discuss current issues affecting coal-fired power plant development as well as future prospects for the generation type. Executives included Mike Morris, CEO of American Electric Power; Richard Klover, vice president, Energy Global Practice, Burns & McDonnell; Bruce Levy, president, International Power America; Gary Nedelka, CEO, Foster Wheeler International Power Group; and Bruce Davis, vice president-coal sector, Shaw Power Group. David Wagman, managing editor of Power Engineering magazine, was the moderator.

Bruce Davis, Shaw Power Group
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Q. Bruce Davis from Shaw, do you think carbon capture and sequestration (CCS) can be achieved at a cost that will keep coal competitive as a baseload option?

A. First of all, carbon capture and storage technology is an emerging technology; it hasn’t been demonstrated on a commercial scale. There are some programs being considered to help fund the demonstration or pilot programs and the initial estimates for some of the projects are upwards to $1 billion for the capital costs and operating costs of a 400 MWe system. So at that level we’re almost equaling the cost of the power generation facility itself.

As an alternative to the CCS system there’s all sorts of discussion about a potential carbon tax and in the range of $15 to $30 per ton. Our analysis with the $30-a-ton tax still points to supercritical coal as being the least-cost baseload option when compared to natural gas or compared to even nuclear.

Gary Nedelka, Foster Wheeler
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Gary Nedelka from Foster Wheeler, your thoughts?

A. From a technical viewpoint we’re certainly at the early stages of proving carbon capture and sequestration. What we’re looking at from a carbon capture standpoint is actually designing boilers today that are easily retrofittable in the future to be oxygen fired so they can be part of a carbon capture and sequestration scheme. Today you could fire these units with air in a standard mode and then with very minimal modifications to the boiler in the future go to oxygen firing to facilitate CO2 capture.

Michael Morris, AEP
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Mike Morris, as CEO of AEP, the nation’s largest generator using coal, what’s your view on CCS and the ability to keep coal as a baseload option?

A. Clearly we have two challenges. We need the retrofit technology for the existing fleet. And even if I buy the notion that that could be a $1 billion project, that would still keep my existing 800 MW or 1,300 MW facilities well within market prices without much difficulty whatsoever. For a newly constructed plant, adding $1 billion or more to the overall cost when the last numbers we’ve heard in the nuclear world are $7,000 a kW, I think there’s room for coal.

What I’m very worried about, though, is that the in-state regulator with the political pressure and the environmental pressure will not be approving pulverized coal, supercritical coal. In today’s political environment we’re going to have to push this technology to the marketplace rather than wait for it to be constantly stairstep-demonstrated. And that may or may not work. But it’s either that or nothing to be built and ultimately we’ll be shuttering coal plants long before their practical life is through and that will leave this country in an extremely awkward position.

Richard Klover, Bums & McDonnell
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Richard Klover from Burns and McDonnell, your thoughts?

A. The key factor is going to be, what is the expectation on natural gas pricing? Depending upon what you believe, natural gas pricing will basically move coal’s competitiveness on a dollars-per-ton basis. So I think natural gas prices will be a big driver in moving coal down the road.

One of the most significant issues in the political and environmental market we’ve got is the public perception on CO2 storage and the potential liabilities associated with sequestering CO2 underground and the associated issues with leakage and groundwater contamination. It’s going to be important that there’s an education of the public that sequestration alternatives are going to be a low risk.

Bruce Levy, International Power
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And Bruce Levy from International Power, we don’t want to leave you out of the discussion.

A. Regardless of what the economics are there is a political reality. And the political reality right now is that the pendulum has swung all the way to “CO2 is a bad thing and it all should be removed.” I think some differentiation between what to do in the future (when there is more technology and some of the unknowns are better known) and what to do in the short term with things such as efficiency improvements that would reduce CO2 by 5 and 10 percent is a better approach than just shutting all coal plants down now. And some coal plants in fact might have that ability for short-term improvements left in them: upgrades of steam turbines and different types of modifications. The problem is most of the other environmental rules that are affecting our plants are tending to make them less efficient.

We talked about capital costs for sequestration, but one of the issues is the amount of energy that you use, whether you talk IGCC or some other technology. There was one IGCC plant proposed recently: a 600 MW plant that was going to have 400 net megawatts because 200 MW of the power was going to be used to capture the carbon. Those kinds of costs mean you have to start wondering if you are better off capturing carbon and storing it. The rush that’s going on now has got the potential to really drive the solution to the wrong place.

Q. Richard Klover, do you think the term “clean coal” has come to mean CCS exclusively or does it also mean (as it used to) capturing substantially all of the historically regulated emissions, along with mercury?

A. Previous to the heightened awareness of global warming and the climate change issue, the focus was really on improving overall plant efficiency. Since we’ve seen the heightened change as a result of the court ruling with regards to CO2 we’re seeing now the environmental groups working very hard to make carbon capture and storage part of a clean coal definition. Right now the industry as a whole has yet to adopt this in general. What has occurred so far in regard to CCS is that in the absence of regulation you’re looking at how do you make your plant carbon capture-ready? What are you going to be able to do as far as building a new plant and incorporating provisions for future addition of carbon capture and storage when regulation drives you to that point?

Mike Morris from AEP, you work across a number of regulatory jurisdictions. What are you hearing from the regulatory community when it comes to how they view clean coal technology and also what are you hearing from Wall Street?

A. I think the regulators are very nervous about their jurisdiction being responsible for paying for what they would consider to be a science project. I think you saw that in the order that was issued (April 14, 2008) by the Virginia Corporation Commission (regarding) our application to build a 629 MW IGCC facility. Virginia said they didn’t feel there was enough knowledge about the technology nor the ultimate cost to ask the people of the Commonwealth to pay for what in essence they said was a demonstration project. Indiana in the reverse was very straightforward about exactly understanding the challenges when they approved the Duke Indiana Edwardsport plant. So there is a difference among them.

Any different view from Wall Street?

Morris: Wall Street is watching with interest. The way that these plants are going to be built (nuclear stations as well as modern coal plants) is you will have upfront approval of capital costs and Wall Street will be happy to finance them.

Bruce Levy from International Power, your thoughts?

A. Clean coal will drive up the cost of gas significantly more because the demand for gas will be higher. We’re talking about costs that no one wants to pay… so we are talking about all sorts of action and leaving undefined “who pays.” I think regulators really want it to be someone else’s problem. How Wall Street feels about it is they really want it to be someone else’s problem. And until the situation is clarified no one is going to want to build anything even if it makes great economic sense and even if it is clean.

Does clean coal just refer to carbon or does it include everything? I think now it’s really just carbon and mercury. Those seem to be the only things politicians will talk about and it’s the only things that are going to get attention.

Gary Nedelka from Foster Wheeler, do you share that view or do you have another perspective?

A. I share the view that it seems that most of the emphasis on coal burning development, permitting and so on seems to hinge on the perception that carbon is the greatest evil that we face right now. Going to the higher pressures and higher temperatures, going to the super critical and ultra supercritical cycles, that’s probably the shortest and surest steps we can take right now to cut down on CO2. One of the other things that we’re starting to see a lot of interest in is the co-firing of carbon-neutral fuels—different biomasses—in combination with coal. If we can get a unit up to 20 percent to 30 percent biomass you’re making a significant reduction in the amount of CO2.

We’re seeing a lot more interest in this in Europe than we have in the U.S. In Europe, we probably have 40 or so CFBs (circulating fluidized bed plants) that are running either completely or nearly completely on biomass, whereas in the States we’re only just starting to see the beginnings of that market starting to take place. Putting certain levels of biomass into permits is one way in the short term that we can as an industry say that we’re taking steps to lower the overall amount of CO2 in what’s predominantly a coal-fired facility.

And Bruce Davis?

A. This is a national election year and the campaigns are chasing every vote they can. I have faith in our elected officials that they are not going to make silly mistakes that are going to cause the U.S. economy that is heavily dependent on coal for its electric power to tank. Having said that, I do think that co-firing of biomass with coal is a way of making coal greener in the eyes of authorities that approve construction of new large generation facilities.

Gary Nedelka and I are involved in a project (Dominion’s 585 MW circulating fluidized bed Virginia City Hybrid Energy Center) that allows co-firing of coal waste and biomass and that received its approval to proceed with the issuance of the air permits. One of the criteria written into the permit was that after three years of operation the plant needs to burn a minimum of 5 percent biomass and then each successive year after that adding 1 percent up to 10 percent. Co-firing of coal and biomass is going to be a more common plant design consideration. I also think as utilities look to improve their generation assets that trading off new plant emissions against older plants with the idea that the older plants will be decommissioned and shut down also is also attractive to improving the carbon footprint of our base load generation assets.

Gary Nedelka, what affect do you think federal legislation affixing a price to carbon dioxide will have on coal-fired development?

A. Our view on that right now is that there are so many different variables in play that it’s impossible to just look at the price of CO2 in a vacuum or in just a linear relationship with where coal will end up.

What are the other variables?

Nedelka: The price of natural gas is certainly going to be a huge variable and that’s not just an elastic relationship with the price of coal. Natural gas will have its own supply constraints, whether it’s pipeline capacity within the U.S., the capacity of LNG terminals that are being planned or even the supply side of LNG. It just doesn’t seem that LNG is going to jump up in the United States as fast as a lot of people might have anticipated. So just saying the price per ton of CO2 is a little bit simplistic.

We still look at different models and if CO2 credits were in the $70 range that might be the area a break point would happen and maybe carbon capture would begin to look like it would be equivalent to a gas-fired power plant.

Mike Morris from AEP?

A. I’m in full agreement with the variables and the impact they will have. To the natural gas issue, the U.S. strip for 2009 is somewhere in the $12 to $14 range. The world price for natural gas in 2009 is in the $18 to $20 range, so we can forget about LNG until we’re willing to pay world prices. But even then I think the government of China, the government of Japan and the European Union will outbid individual U.S. participants in the auction prices for the very limited amount of LNG that’s available.

If we get into a $70, $80, $90 carbon price we will experience a price elasticity impact on electricity that we have not seen before. I could see many of us shutting plants simply because the demand cycle has tipped down by 30, 40, 50 percent. So I hearken back again to the comment that I hope our politicians at the end of the day will wake up and do something that’s logical although, unfortunately, I spend more time in that arena than I would like to and I hold very little hope for that myself. But one of the great things about America is you never know when they’re going to surprise you.

Bruce Levy are you any more optimistic at International Power?

A. Well, actually less so. Setting a value on carbon will do nothing because it will simply raise the price of power. It will raise the price of natural gas which will drive up the cost of power from natural gas which will make coal plants able to afford the price of the carbon.

Europe is a good example. They set artificial targets for reducing CO2 without any way of actually knowing how they were going to achieve them. They set a price for CO2 but then let the price rise and fall based on a market. The important signal that Europe sent is that they are still building pulverized coal plants where political will (allows) construction. They’ve stopped building them where political will won’t (allow construction). And they have not invested anything really noticeable in any sort of carbon capture. There will not be a solution by just setting a price. There really has to be some sort of path to get there that hasn’t yet been proven enough to know that it will really get us there.

Mike talked about what would happen if prices hit $70 a ton for carbon, which some think might be the cost if you look at sequestration programs that have been proposed. (Such a price) really would significantly reduce electric demand. If we cut demand by 20 percent and send the right signals so that 20 percent results in the shutdown of our dirtiest plants we actually can see CO2 drop significantly more than 20 percent, which I think everybody would be happy with.

Richard Klover from Burns and McDonnell, your thoughts?

A. I think a carbon tax isn’t going to do what we need to have done. When you look at a cap and trade program and you look at the emissions trading system (in Europe) it’s really failed to promote the development of carbon technologies. A lot of that was due to the structure of the allocations that really weren’t optimally designed to promote the development of CO2 (technology). Regulations need to consider offsets, because if offsets are included like Kyoto it’s going to lead to an increase in the number of allowances and it’s also going to dilute the price, which is going to reduce incentives for further development. I think that’s probably where we need to see more of a presence from Congress to support this early development and to have the incentives out there for getting these technologies through demonstration and actually into commercialization.

And Bruce Davis, what’s your view at Shaw?

A. It’s a balance of new generation options that includes nuclear, new clean coal, retiring old coal units that are not up to today’s standards, using natural gas for peaking and cycling units and other industries that demand that fuel, and keeping oil in the refineries making fuel for automobiles. To me, that’s the balance that we have to have in any energy policy and I’m optimistic that this is going to get the attention that it needs.

Let’s talk a bit more about politics. Mike Morris, what do you think the key factors are in whether or not Congress passes something akin to Lieberman-Warner or other kinds of climate change legislation?

A. I had an opportunity to be with the major utilities from around the world and offered this question: “What would you do in the European Union if the United States took no action (on climate change)?” One of the principal European Union utilities said that there are 27 member countries, three of them worry about climate change and 24 intend to do nothing; Poland intends to do nothing, the Czech Republic intends to do nothing and on and on and on. So if we don’t have the world joining us, whatever this environmental calamity that we’re all so concerned over will visit us anyway.

In the Senate, in particular, to have 60 U.S. Senators sit down and say “I feel strongly enough about this that if it damages the U.S. economy and we have more and more and more people on federal support, so be it.” That’s a very difficult vote.

I think all U.S. utilities are dedicated to the notion of trying to reduce their footprint in any way that they can. That might lead us to a legislative answer. But a Draconian tax with gas at $4 a gallon, a Draconian tax with unemployment rates going up, housing markets still really impacting the US economy; I’m not sure that Congress has the will to do that.

Bruce Davis from Shaw, your thoughts?

A. I’m on board with you on that. I just don’t see any elected official committing political suicide and tanking the U.S. economy by demanding certain emissions limits or taxes on certain emissions. I just don’t think it’s going to happen.

Gary Nedelka from Foster Wheeler?

A. One of the things we also should keep in mind is the United States is not the only emitter of greenhouse gases and power stations emit only 20 percent to 25 percent of the greenhouse gases when you start to look at them within all the other sectors. When you start looking at the price tag for what you are really going to get in return, it’s going to be a tough sell, especially in the face of a tough economy right now.

Bruce Levy from International Power, your thoughts?

A. We saw a reduction in CO2 production in the U.S. more driven by basic economic signals when oil got more expensive than gas. People burned more gas and made less carbon. At the same time, Europe had their cap-and-trade and carbon tax programs and they emitted more CO2. So when our senators and our Congress start realizing that they can start to add significant economic drag to our citizens and not accomplish anything, I think they may be more reasonable. If push comes to shove and they do enact something it won’t be as Draconian as what is currently talked about.

Richard Klover from Burns and McDonnell are we going to make this unanimous or do you have another point of view?

A. It’s going to be unanimous here. It’s so obviously a worldwide issue. You have China going through rapid growth putting on a new coal plant every week. It’s really going to be difficult for Congress to put together something that’s going to have significant impact and drain on the economy when we have a worldwide issue at hand.

Let’s take stock of where we are with this issue and what’s going to break the logjam with regard to new coal-fired power plant development. Mike Morris from AEP, what’s your view?

A. Let me make sure I differentiate between the public and the elected officials, because if I ask my customers they would be happy as a clam to have more coal plants built as a general proposition. Across the 1.5 million meters that we serve we probably get 2 to 3 percent pushback on don’t build any more coal.

But to the elected officials; you know it would be really easy to say that a real energy shortage where we had to call industry and say, “Look, there’s nothing wrong with the system, we’ve just run out of capacity,” I don’t think that day will come. And here is the piece that I think will drive it.

Let’s say the foreign nationals come to this country as they’ve done before and they say, “Governor, I want to build a new manufacturing plant in your state and with it will come six of my suppliers. We collectively will need 1,200 MW of electricity.” The governor’s economic development arm will reach out to the utility in the state and say “Guys, this is what’s going on.” And they’ll say, “Governor, we don’t have any power.” “Pardon me?” “Governor, we do not have 1,200 MW of capacity. But we could import it.”

So you’re the governor of a Midwest state and you say, “Well, we could get it from Iowa.” So the Governor calls auto manufacturer X back and says, “We can do it, we’re going to bring the power in from Iowa.” And if I’m car company X I’m going to say, “Well, thanks, governor I’d just as soon put my plant in Iowa.”

I think that economic development reality—and we are very, very close to that nationally—is going to send a shudder in the political process of the states. There is little political understanding of the storm that is brewing and the day that those economic development arms of every of the 50 states comes forward and says, “We don’t have any capacity, Governor,” then we’ll start to see more regulatory approval.

Look at Indiana. Governor (Mitch) Daniels has said Indiana will not be—will not be—a net importer of electricity. They’ve already approved one station. And if my Indiana/Michigan subsidiary needed additional capacity I have been asked to come in and make a filing.

Bruce Levy at International Power, your thoughts?

A. There’s going to be a big effort needed to get the level of awareness that we all think is needed to get politicians to make the right decisions. Clearly, some have it. There are also still some that are very powerful that have a vision of making things “good” without understanding the impacts.

As recently as four years ago the very mention of a nuclear plant would have gotten all kinds of people offended. Now you have even environmental groups saying we’ll take nuclear plants over coal plants: CO2 has been made a bigger monster. Those things will swing back. And when they go to site a nuclear plant in a place where people would have been against it a few years ago, they still might be against it again.

Richard Klover from Burns and McDonnell?

A. In the environment we’re in today, we’re not being driven to make the right long-term selection of technology. We’re being driven into making short-term decisions on technology, which is really going to hit the people in the back pocket. That’s when it’s really going to take hold: when the public understands the link between national policy and what the impact is on their electric bill. The answer is that coal is obviously part of that long-term mix as well as nuclear. We need to have that fuel diversity.

Bruce Davis from Shaw?

A. If there are regions of the country that experience brownouts or that have insufficient capacity to expand their economies, those will be clear signals that an energy policy needs to be implemented. With respect to nuclear power, four or five years ago not much was being said about it as an option, but there still was a program to increase the public’s awareness. That education process in advance of what’s about to happen is imperative.

And Gary Nedelka from Foster Wheeler?

A. When it gets to push comes to shove with the economy versus policy it seems clear that the economy eventually is going to win out. It certainly has in (other) nations and I see no reason to think it different here. When it eventually hits the economy the attitudes and decisions are going to change.

Steve Blankinship, associate editor, contributed to this story.