Coal Industry Gets a Makeover with Clean Technology - By Will McNamara
Reliant Energy (NYSE: REI) broke ground on the first major coal-fired power plant to be built in Pennsylvania in 20 years. The $800 million, 520-MW Seward Power Plant in east Wheatfield Township, Pa., will use a clean-coal technology called circulating fluidized bed (CFB) to burn waste coal while meeting stringent environmental requirements. In a separate announcement, Dominion Resources (NYSE: D) said that it will build a 450-MW coal and coal waste-fired power plant and mining complex in Upshur County, West Virginia, with coal producer Anker Energy Corp. The plant will use clean-burning coal technology and will use coal waste as over 65 percent of its feedstock.
Analysis: These two separate announcements illustrate what amounts to a re-emergence for coal, which is re-positioning itself to the energy industry once again after receiving a significant image makeover due to clean-coal technologies. The transformation is rather stunning, considering that only a year ago coal was for the most part written off as an antiquated fuel source that had long since seen its better days in the last century. However, due to a market opportunity afforded by high natural-gas prices, a supportive presidential administration and overall market volatility, coal is coming back with a vengeance, promising to be bigger and better than ever before. Reportedly, 34 new coal plants are being planned across the United States, and many of them will rely on new clean-coal technologies that attempt to reduce the amount of environmental pollutants associated with coal.
Keep in mind that, although coal's reputation has taken a beating over the last few years, it never really stepped down from its role as the nation's primary fuel source. In fact, coal still accounts for over half (52 percent) of the power produced in the United States, a figure that has remained fairly consistent over the last five years. And the use of the fuel source is only expected to increase in the future. Recent reports from the Department of Energy (DOE) suggest that by 2020 the United States is expected to consume about 22 percent more coal than today.
However, while coal remains an important fuel, it is considered comparatively dirty and harmful to the environment. The fact of the matter is that coal-fired plants do emit sulfur dioxide, nitrogen oxide and mercury emissions, as well as smog. In addition, coal-fired plants are expensive and take a rather long time to build when compared to natural gas, which has emerged as the fuel of choice for new plants. These two dynamics, when taken together, seemed to be steering the energy industry away from coal in the mid to late 1990s. However, natural-gas prices have been high over the last year, which has kept coal competitive. In fact, according to figures released by the DOE, nominal coal prices have fallen nearly 18 percent over the last decade, while oil and natural-gas prices have increased 31 percent and 11 percent, respectively. As economics drive this industry like everything else, coal production has remained consistently strong.
In addition, the Bush administration has become a champion for coal, and has included the fuel source in much of its proposed energy plan. For instance, President Bush has made attempts to relax certain regulations associated with coal-fired emissions, including restrictions against CO2 emissions. This alone could potentially increase coal production by as much as 40,000 MW (according to the National Coal Council). Further, the president is proposing a budget of $2 billion over the next 10 years to develop new technology to burn coal with less pollution and has outlined an energy plan that includes the construction of 1,900 new power plants, many of which will be fired by coal. In addition to the $2 billion in supportive funding that has been proposed by the Bush administration, the coal industry itself is spending about $10 million of its own money on a campaign to improve its public image.
Yet, there can be little doubt that, if coal continues its aggressive re-emergence, it will do so riding the wave of new, environmentally friendly technologies. For instance, the operation of Reliant's new coal plant in Pennsylvania reportedly will contribute to the reduction of more than 100 million tons of waste coal from the state over the course of the plant's life. In addition, alkaline ash produced at the plant will be returned to many of the waste-coal sites to neutralize any remaining acids. Along with Reliant and Dominion, Peabody Energy (NYSE: BTU), the world's largest coal company, should also be noted for being on the cutting edge of clean-coal technologies. Peabody, which went public with an impressive IPO in May, is planning a $1.5 billion 1,500 MW Thoroughbred plant in western Kentucky, which is scheduled to come online in 2005 and is being billed as an "environmental showcase." Peabody intends to build the plant beside an underground coal mine so that coal transportation, which itself releases carbon dioxide and smog agents, will be eliminated at that plant.
A general definition of clean-coal technologies is that they include various efforts to clean the coal-burning emissions of sulfur dioxide, nitrogen oxide, carbon dioxide, mercury, air toxins, and particulates, while enabling coal-burning facilities to meet or exceed emission standards. The burning of coal releases these various pollutants into the environment, which has been the long-standing drawback of coal-fired generation. All of the R&D efforts around clean-coal technologies that are in place today focus on efforts that make the burning of coal environmentally cleaner.
Specifically, a great deal of emphasis is now placed on processes that turn coal into gas before it is burned so that carbon is separated, which in turn minimizes CO2 emissions. The process is referred to as "reburn technology" and has already been adopted by a significant number of coal-fired plants in the United States. Reportedly, 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 general, clean-coal technologies include the development of equipment that cleans the coal after it is mined, new methods of burning coal and new advances in treating gases after burning. Carbon is not released in the air but instead is stored deep in the ground. In addition, improvements in anti-pollution "scrubbers," which are designed to treat exhaust from smokestacks, have also been on the forefront of the clean-coal technology movement. Scrubbers used in coal-fired plants reportedly can cut up to 90 percent of sulfur dioxide emissions and growing amounts of nitrogen oxide.
These new technologies should support projections that coal production will reach a record of more than 1.1 billion tons within the next year. Much of this production seems to be based in the state of Wyoming, where coal is low in sulfur and near the surface (as opposed to the Appalachian region, where coal is buried much further in the ground and contains a higher content of impurities). In fact, the Western region as a whole has now outpaced the Appalachian region in terms of the amount of coal produced. According to the DOE, in 2000 the Western region produced 509.9 million short tons of coal, compared to the 420.6 million short tons produced in the Appalachian region.
Most recently, coal research has focused on the development of more efficient-burning methods that extract more electricity from less coal. An average pound of coal contains about 10,000 BTUs. Existing coal-fired plants capture only 33 percent to 35 percent of the 10,000 BTUs of energy in an average pound of coal. Efficiencies are supposed to rise to about 40 percent through new combustion technology being incorporated into new plants. An Energy Department projection for coal sets an efficiency goal of 60 percent by 2025.
Of course, there are critics, mostly those who favor strong environmental regulations, who claim that "clean-coal technologies" is a misnomer in that coal-fired generation will never be "clean." These critics argue that extracting coal from the ground is an inherently polluting process and that burning it, regardless of any technologies that reduce some amount of pollutants, will always result in some level of carbon dioxide, thus making coal unacceptable from an environmental standpoint. Some environmental groups have made it their mission to block any expansion of coal-fired generation and lobby heavily on the state and federal level to promote alternatives such as natural-gas, wind and solar. In addition, even those who support efforts to make coal more environmentally friendly may be dissuaded by the cost of the compliance efforts. Obviously, implementing clean-coal technologies increases the costs associated with coal-fired generation, which could dilute coal's chief selling point—that it is cheaper than natural gas.
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 DOE, for example, assumes that an integrated gasification-combined cycle (IGCC) 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.
Until very recently natural gas has been roundly characterized as the "energy source of the future." However, although natural gas will undoubtedly play a pivotal role in the nation's fuel mix for the foreseeable future, coal should not be overlooked or discounted. Coal is the nation's largest fossil fuel resource and represents an abundant power source. From a policy perspective, it seems evident that the United States cannot dismiss coal, but rather should continue attempting to put new technologies into place that will reduce coal's harmful environmental impacts. Moreover, while still supplying over half of the nation's energy needs, coal is presently undergoing a major metamorphosis that could cast the much-maligned fossil fuel in a whole new light that opens up unanticipated generation opportunities and provides an "energy bridge" to the future.
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