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IssueAlert for  March 27, 2001 

Two Coal Plants Announced In the Past Two Weeks

by Bob Bellemare 
Vice President, Utility Services

U.S. Electric Power of Point Lookout, New York, announced plans to construct 
a 249 megawatt (MW) coal fired power plant at Cherry Point in Whatcom County, 
Washington.  Just last week, Reliant Energy Seward LLC, a subsidiary of 
Reliant Energy, announced it is planning on constructing a 520 MW circulating 
fluidized bed (CFB) clean-coal power plant in Indiana County, Pennsylvania. 

Analysis:  As the United States awakes from its energy policy slumber, it is 
becoming increasingly apparent that the days of near complete reliance on 
natural-gas-fired generation to meet our growing energy needs is coming to an 
end.  According to EIA statistics, natural gas prices have risen to historic 
highs with January 2001 utility deliveries exceeding $10/MMBtu, compared to 
1998 and 1999 prices which floated between $2 and $3/MMBtu.  Virtually 
overnight, natural gas has gone from one of the least expensive generation 
fuels to one of the most expensive.  Since the January price spike, prices 
have settled back down to the $4 to $5.5 /MMBtu level for Henry Hub futures 
prices, but even these prices would have been considered high just twelve 
months ago. 

Coal, by comparison, is the United States most abundant fuel source, 
constituting 95 percent of our nation's fossil energy reserves.  Coal prices 
have actually dropped for utility deliveries over the past several years 
according to EIA statistics.  In 1994, coal prices averaged $28.03/short-ton 
($1.37/MMbtu) compared to $24.68/short-ton ($1.21/MMbtu) for second quarter 
2000.  Although coal generation currently represents over 51 percent of U.S. 
generation production, few plants have recently been built because of the 
environmental concerns associated with coal generation and the relatively low 
price for natural gas throughout the 1990s.  In 1999, U.S. coal production 
actually declined by 2.1 percent which was primarily attributable to a large 
drop in coal exports coupled by smaller than usual growth in coal consumption 
for power generation. 

But brighter days may lie ahead for the coal industry.  New, so-called 
"clean-coal" technologies are being tested and developed. In the 1970s and 
80s the pressurized fluidized bed coal combustor (PFBC) was developed, 
removing sulfur (SO2) pollutants and limiting the formation of nitrogen oxide 
(NOx) pollutants inside the boiler.  The need for scrubbers or other 
post-combustion controls was eliminated by technology.  Texas New Mexico 
Power (TNP) constructed two 150 MW lignite-fired units that went operational 
in 1990 and 1991 based on the circulating fluidized bed (CFB) technology that 
Reliant is proposing for its 520 MW facility in Pennsylvania.  The TNP One 
power plant was, however, extremely costly to build.  Unit 1 cost $357 
million ($2,380/kW) and Unit 2 cost $282.9 million ($1,886/kW) to construct.  

Another technology being developed is the integrated gasification-combined 
cycle (IGCC) technology that first converts coal into a combustible gas, 
cleans the gas of virtually all pollutants, then burns the gas in a turbine 
much like natural gas.  More than 99 percent of sulfur, nitrogen, and 
particulate pollutants can be removed in the process.  Three gasification 
power plants have been built in Florida, Indiana, and Nevada.  In the early 
1990s, PSI Energy and Destec teamed up to construct a 262 MW IGCC generating 
unit at the Wabash River Project in Indiana for a total installation cost of 
$592 million ($2,260/kW).  In 1996, TECO completed the construction of its 
250 MW IGCC generating unit at Polk Power station in Florida for a total 
installation cost of $508 million ($2,032/kW). 

Japan has also experimented with clean-coal technologies.  In 1998, Hokkaido 
Electric Power Co. Inc. started commercial operation of a 75 MW PFBC power 
plant.  Test operations are being carried out at two other plants, the 250 MW 
unit of Chugoku Electric Power Co. and the 350 MW unit of Kyushu Electric 
Power Co.  Japan is also testing a pilot scale (1 MW) molten carbonate fuel 
cell (MCFC) at a Chubu Electric Power Co. site. 

It is interesting to note that these advanced technologies have historically 
approached the installation cost of a nuclear plant, but have all the 
operational costs of a coal plant.  Now market conditions have changed, and 
despite the high capital and operating costs, clean-coal technologies can 
economically compete with natural-gas-fired generation, if gas prices 
continue to remain high.  Additionally, expectations are that the next 
generation of clean-coal power plants will cost significantly less than the 
early pioneers' cost.  The Department of Energy (DOE) for example, assumes an 
IGGC power plant can be built for $1,315/kW with an average heat rate of 
8,470 Btu/kWh in its "Annual Energy Outlook 2000" report.   

The DOE deserves a great deal of credit for bringing clean-coal technology to 
the point of commercialization.  In 1984, the clean-coal experiment began in 
response to the U.S./Canadian transboundary problem of acid rain.  In March 
of 1987, President Reagan agreed to a new $5 billion public-private 
initiative to make clean-coal technologies a reality.  The program led to 40 
projects in 18 states, including co-funding demonstration projects such as 
the PSI/Destec and TECO facilities.  In the mid-1980s the only options for 
reducing NOx pollution cost $3,000 per ton; today's low NOx burners have 
reduced this cost to under $200/ton.  These low NOx burners have also reduced 
emission levels from 700 parts per million (ppm) in the early 1970s to 100 
ppm today.  Furthermore, the Selective Catalytic Reduction (SCR) process 
reduces more than 80% of the NOx contained in coal combustion gas. The DOE 
reports that 75 percent of all coal-fired capacity in this country is now 
outfitted with low-NOx burners.  Similarly, the cost for scrubbing 
technology, which removes sulfur pollutants, has been reduced 75 percent 
since the 1970s.  

The improvement of power generation efficiency will be one of the most 
important technical issues for coal power plants because of its high carbon 
content.  The latest commercial plant has achieved a thermal efficiency of 43 
percent by increasing steam temperature and pressure.  Even with these 
improved efficiencies, the coal power plant of the future may still be unable 
to achieve the substantial greenhouse gas reductions that could be necessary 
to address global climate change concerns.  There are other existing 
environmental regulations that may also limit the adoption of new coal 
generation.  The SIP Call rule requires 22 Eastern states and the District of 
Columbia to reduce NOx emission by a specified amount by May 2003, with much 
of the reductions expected to come from coal-fired power plants.  In 1997, 
the National Ambient Air Quality Standards for particulate matter and ozone 
were adopted with an anticipated compliance cost for full attainment 
estimated at $37 billion per year (particulate) and $10 billion per year 
(ozone) respectively.  The Supreme Court is reviewing these EPA rules, and 
recently supported the EPA's right to regulate these emissions [see 3/1/01 
IssueAlert at www.ConsultRCI.com].  These rules are significant since they 
will lead to additional NOx and SO2 emission reductions, the two precursors 
to fine airborne particles.  Mercury reductions are also being contemplated.  
In November 1999 the EPA filed lawsuits against seven utility companies for 
Clean Air Act violations.  In a settlement with TECO, TECO agreed to cut NOx 
and SO2 emissions by 85 percent by 2010 and pay a $3.5 million civil 
penalty.   

But in the end, the nation will likely turn to coal to help meet its growing 
energy demands.  Great strides have been made to reduce the environmental 
impact of this abundant fuel source.  Since 1970, the use of coal has more 
than doubled while emissions of sulfur and nitrogen pollutants have declined 
by 70 percent and 40 percent, respectively.  If we can continue to achieve 
even greater emission reductions, coal may well help provide the energy 
bridge to the future. 

An archive list of previous IssueAlerts is available at
www.ConsultRCI.com




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