Difficult Decisions

Special Report: Executives Discuss the Future of Coal-Fired Power

By Russell Ray, Managing Editor

Coal-fired power producers are facing a myriad of new rules establishing strict limits on air and water emissions. What’s more, forecasts of abundant gas reserves and low gas prices continue to push the industry further away from coal.

As a result, utilities are conceiving calculated strategies that call for a massive retirement of coal-fired generation, hefty investments in new control technologies and a changeover to generation fueled by cleaner-burning gas. Clean coal research and development has slowed, but it has not stopped. Progress is being made on several fronts.

The future of coal-fired generation is still unclear as government regulators work to finalize new rules on greenhouse gas emissions, wastewater standards, and coal ash management. But most agree that coal, which has long been the dominant fuel for power generation in the U.S., will serve a diminishing role in U.S. power production.

I recently moderated a roundtable discussion with executives from Alabama Power, the Electric Power Research Institute (EPRI), and Alstom. The discussion centered on the future of coal-fired generation, the sustainability of today’s low gas prices and the challenges of complying with a collection of new rules from the Environmental Protection Agency (EPA).

The participants were: Tim Curran, president of Alstom Power; Tom Alley, vice president of Generation, Electric Power Research Institute; and Jim Heilbron, senior vice president and senior production officer, Alabama Power.

What follows is a transcript of that discussion.

Power Engineering: Together, low natural gas prices and stricter environmental rules are expected to prompt the retirement of more than 60 GW of coal-fired generation in the U.S. by 2020. As a result, plans to build new coal-fired capacity have largely been postponed. Is there enough incentive to pursue projects and initiatives that demonstrate and validate the use of clean coal technologies? How would you describe the progress in clean coal research and development?

Tim Curran   Tim Curran: I would describe it as stalled. We know that there is substantial work taking place globally on coal. We are on our ninth project of supercritical boilers in India. We recently contracted two 1,000-MW coal-fired units in Malaysia. We’re also working on projects in development in Indonesia and Vietnam. It’s fortunate that we can keep our competency in this technology working around the world while we hope for a return to the use of coal in the U.S. When we look at the retirements, it seems like, overall, that new gas plants are not moving forward as fast as they had been projected. In terms of new coal and new technology development, we’re pursuing many options to serve the markets outside the U.S.


Tom Alley   Tom Alley: I would agree with Tim. I think the pace of any kind of activity around clean coal has certainly slowed significantly. I think the Department of Energy (DOE) is actively funding some initiatives around advanced technology on CO2. There are smaller efforts that the industry is pursuing – technologies that really manage traditional pollutants. As we do more research on traditional pollutants, we have to continue to look at water. We realize that the technologies we’ve developed around removing traditional pollutants from flue gas have put those things in some other waste stream. That waste stream ends up being something else the site has to manage. We’re trying to stay ahead of the curve in the development of technology around wastewater.

Many decisions have already been made. We read announcements every day that plants are being closed. But there are still a number of people out there that are still anguishing over decisions around a particular asset. Do they want to upgrade that asset to include emission controls to comply with current regulations, or is it better to close that asset?

Jim Heilbron   Jim Heilbron: As a former wholesale guy, I have to touch on something that Tim talked about, which is the slowdown in the build. I think the economy is a really big player in that. It continues to be sideways, at best, in many markets. Whether it is coal, gas or whatever, it is just slow right now.

From a research perspective, there is a lot of advancement in what we would consider a pilot and demonstration scale type of project (at Plant Barry near Mobile, Ala.). We see valuable information coming out of that, which will hopefully lend itself to commercial deployment at some point. We’re definitely getting some good information from that project. We’re thinking hard about how you reduce the energy-intensive needs of getting CO2 out of the flue gas stream and how to build it cheaper. Those are the two major obstacles that face a CCS retrofit on any existing asset. There are other projects across the country that are in construction phase at the commercial scale. We will certainly be paying attention to those and learn as much as we can. You have to think about the economic viability of these projects and how you are going to make them feasible from a customer perspective.

When you think about it from a planning perspective, we really need regulatory certainty. Without that, I think CCS development at a commercial scale is challenged because you don’t have a regulatory driver moving you down that path.

Power Engineering: Power producers have until April 2015 to comply with the Mercury and Air Toxics Standard. Many options are available and several new clean-air rules are still looming. The decisions utilities make now could increase the cost of complying with new limits for other air pollutants down the road. How does a utility avoid choosing the wrong solution?

Tom Alley: Every plant is unique. It’s an integration of the plant design, the type of coal that’s used, access to water. A number of variables go into the performance of the plant and the emissions a plant has. Solutions for emissions control is really a combination of a number of different technologies that are trained together to handle these pollutants. It’s not just one technology. It’s hard for me to believe that a utility is going to get it wrong. The research and development here is around creating a number of options that utilities have to address the specifics of their plant. All of these things have to be put together in a consolidated form to manage pollutants. So it’s very unlikely they get it wrong. It’s a great role for research and development to work on these individually. That gives the utilities a chance to pick and choose which options make the best sense for them.

Jim Heilbron: We have some certainty. We have MATS. We know when that will occur. We have to think about each unit, consider all of the numerous business drivers for that asset, and then decide whether it’s better to retire or control or retire and replace. We’ll do that with sensitivity analyses and scenario planning. At the end of the day, you have to go with the lowest cost option that’s best for the customer. We do all that with one goal in mind. How do we comply with the law and how do we deliver the lowest cost, reliable electricity for our customers.

Tim Curran: We believe we’ve got the best portfolio of products to assist our customers. One case and point would be the development of a multi-pollutant device that we call NID, a semi-dry flue gas desulphurisation system. It enables the customers to meet the requirements of MATS and CAIR with a single device in a most cost-effective way. We developed that device about five years ago, and we’ve actually demonstrated it in the U.S. Our challenge is to be able to ramp up to support our customers’ needs with this short time frame to comply. It’s tough when you plan for a market and decide you’re going to ramp up, but then a scenario changes, which cancels the contract. So we’re being whipped around as a supplier, but this is our business and we’re doing all we can to support our customers.

Power Engineering: The carbon capture and storage market in North America has suffered several setbacks. Several companies have backed away from plans to add expensive CCS systems to coal-fired plants due to poor economics. Still, a few coal-fired projects under development in North America plan to use CCS technologies. Alabama Power’s Plant Barry started capturing CO2 in June 2011 and sequestering the CO2 underground in August 2012 in a successful demonstration project. SaskPower’s Boundary Dam project is expected to be completed early in 2014. Mississippi Power’s Kemper County coal gasification/CCS project is expected to be up and running in 2014. In addition, Summit Power’s 400-MW coal gasification/CCS plant known as the Texas Clean Energy Project is expected to begin commercial operation late next year. Where is the market for CCS heading? Will the projects at Plant Barry, Boundary Dam, Kemper County and Texas open the door to more CCS projects in North America?

Jim Heilbron: We want to keep coal in the mix. We want to have a diverse portfolio that can hedge our customers’ risk to price volatility. By keeping all of these fuels alive, we’re able to achieve that. As a result, we can deliver the lowest cost option to our customer at any given time despite what the market might be doing in any given commodity. CCS is really the only technology solution to address the challenge of large-scale CO2 emissions from fossil fuel plants. It is definitely technically feasible. We’re proving that in our fleet, and others are too.

From a commercial-scale deployment perspective, we need some regulatory certainty to give us direction. You have to be ready to deal with the risk profile of these projects, especially when you start talking about injecting CO2 deep into the earth. More work needs to be done to give us more certainty around these projects. I would tout Mississippi Power’s Kemper County coal gasification/CCS project because it will have a much smaller carbon footprint. It will serve the customers of Mississippi Power for many years. It’s close to 80 percent completion and is scheduled to begin operation in May 2014. There’s proof there that there are CCS options where they are commercially deployable.

Tim Curran: The fundamental need is regulatory certainty. We had a demonstration project, AEP Mountaineer, that sequestered a similar amount of CO2 as Plant Barry’s project. However, that was stopped because the ratepayers in the areas that plant served would not pay to continue the project. So with no regulation, AEP pulled the plug because the ratepayers said no. We also see that DOE funding is going down, with the pressures on government spending. We expect a 30 percent reduction in DOE funding. We believe the only way to further the technology and continue the use of coal is to have regulatory certainty.

We are still doing CCS projects. Three years ago, we had 10 projects. Now we’re down to half and all outside the U.S. But we’re still developing the carbon capture technologies. We are working with the government in the U.K. on a 500-MW oxy-combustion demonstration project. It is slow going, but we’re hopeful that project will get funded. We’re confident the technology will work.

Tom Alley: The Mountaineer project and now Plant Barry certainly demonstrate the feasibility of using solvents to capture CO2. Barry extends that demonstration to look at compression, transport and injection. They’re beginning to answer the question about our ability to sequester CO2 safely in deep underground formations. These are very important projects. They’ve gone very well. They show the technical feasibility of doing some of these things. But the market for CO2 becomes very site specific. There’s plenty of capability for EOR (enhanced oil recovery), but it’s very regional. Now you’re focusing on other beneficial uses of CO2. That’s going to be a very challenging issue to resolve.

I have a lot of difficulty looking at the current projects underway right now and feel that they are opening the door for more projects. I think they’ve given us a great amount of education. They’ve accomplished many goals and educated us with regard to parasitic loads and some of the difficulties associated with these projects. But I don’t think they’ve opened the door for additional projects. Now it will be interesting to watch Kemper County and Edwardsport to get underway and watch this technology mature. Beyond the projects we see on the books right now, I don’t see a whole lot more occurring here in the U.S. I think the market of CO2 is going to be pretty restricted.

Power Engineering: The U.S. Environmental Protection Agency has delayed the release of its New Source Performance Standard for power plants. In its current form, the rule would establish one CO2 standard – 1,000 pounds per MWh – for new plants. Under this standard, it would be almost impossible to build a new coal plant without equipping it with a carbon capture and storage system, a questionable and costly technology. What is the motivation for the delay? Do you think the EPA will rewrite the rule to provide the industry separate CO2 standards for gas and coal plants?

Tim Curran: It certainly appeared, as the rule was written, that it would kill new coal. We along with other industry groups commented on the rule in pointing out that CCS is not currently technically available. It was written more for a gas plant than a coal plant. We believe they’re working on correcting the rule. Something has to change there in order to keep coal in the mix.

Jim Heilbron: They haven’t stated a reason for the delay. But hopefully they went out for comments for a reason. Hopefully there’s some more reasonability. I agree with what Tim observed, which was that the proposed rule seemed to prohibit new coal without any kind of CCS technology. That’s concerning. We were happy to participate in those 2 million or so comments that were received. We would suggest that you separate out standards for gas and for coal. That only seems to be appropriate.

Power Engineering: The future of new coal-fired generation depends largely on the price of natural gas. Are today’s low gas prices sustainable? Do you have questions or concerns about reserves or pipeline capacity?

Tim Curran: We see that supplies are ample, but we also know that gas prices will always be volatile. What’s interesting is the difference in the price of gas here in the U.S. versus Europe. When we look at the global picture, the largest increase in fuel consumption for generation in the last 12 months is coal.

We are actively participating in the gas market and are developing the next generation of gas turbines to take advantage of the increasing supply of gas. We are also continuing to develop lower cost CO2 capture technologies for coal combustion, to be ready when the market comes back to being favorable to coal. In general, we don’t believe (the price of gas) will stay as low as it is.

Tom Alley: There’s a preponderance of opinions. We see the forecasts for $4 to $6 per million Btu for the next five to six years.

There seems to be a fair amount of confidence in that. I’m fairly confident with what I see on the supply side. The supply picture gets brighter every day. But I’m a little concerned about the demand side.

Jim Heilbron: There’s no doubt coal-fired generation has a lot of pressure on it. One of them is low gas prices. I can’t predict it.

I look at the same curves. We put them up on overheads and they converge around $4 to $6. We don’t see gas as a panacea. We see it as one of the pieces of the puzzle to hedging price volatility on behalf of our customers.

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