Experts doubt energy law will usher in coal gasification plants

Washington (Platts)--26Aug2005

Energy advisers and financiers said Wednesday they expect the new energy law
to spur sector-wide investments, particularly for liquefied natural gas import
terminals and electricity transmission. But some doubted new coal-gasification
facilities or nuclear plants are on the horizon, despite considerable
financial aid for them in the energy bill President Bush signed two weeks ago.

Lehman Brothers' Managing Director John Veech said at a New York conference
that the Energy Policy Act would provide a "shot in the arm" to the coal, LNG
and renewable energy industries. But even with nearly natural gas at nearly
$10/mmBtu and oil prices in the $65/barrel-range, he said companies will avoid
being the first "guinea pig."

Others on the panel said they anticipated demand for more coal generation
would drive prices upward, dimming the prospect that many integrated
gasification combined-cycle coal plants will be built. 

Longtime energy analyst Roger Gale, president of the Washington-based
consultancy GF Energy, said if coal prices continue to climb, they will send
the cost of IGCC plants, already more expensive than nuclear plants, "into the
stratosphere." Coal gasification investments remain "too risky," even with
substantial aid in the act, he said. The law offers loan guarantees and tax
breaks for IGCC projects. 

Still, Gale called IGCC plants a "stalking horse" because they "beatify" coal
at a time when natural gas prices are quadruple levels five years ago and
there is increasing concern with climate change and carbon dioxide emissions.
IGCC plants can be configured to have a carbon sequestration component. 

Jonathan Weisgall, the top lobbyist for MidAmerican Energy Holdings Co.,
argued that clean-air legislation--Bush's "Clear Skies" proposal or a
greenhouse gas emissions bill--will be Congress' next "energy bill," which
could make IGCC plants more attractive.

The fate of IGCC plants in the US seems to rest on the answers to two
questions--is the technology reliable and can construction costs be kept down.


According to a report released Wednesday by Standard & Poor's Rating Services,
non-economic factors, such as concerns over domestic energy security and
worries about global warming, a contractor's ability to complete a
standardized plant and demonstrated operational reliability "will be key to
IGCC's future prospects." 

The report, Prospects Improve For IGCC Technology In US, But Challenges
Remain, notes four factors that are influencing the choice between IGCC and
pulverized-coal power plants: capital costs and construction risks,
environmental performance, technology and reliability and non-economic
factors. 

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