Rising power demand unearths coal dilemma
Jun. 27--By J.K. Wall, The Indianapolis Star Knight Ridder/Tribune Business News
Consumers in Indiana don't tend to worry about electricity. But they should.
Consumer demands for electricity now exceed the capacity of Indiana's
electric utilities and continue to rise. But instead of simply building new
coal-burning plants as they did before, utility companies now face more
stringent air quality standards requiring expensive pollution controls to clean
up the burning coal.
In Indiana, major utilities all have pursued a short-term fix by adding
pollution controls to their smokestacks -- saddling ratepayers with billions of
dollars in costs. But there are three distinct visions for how utilities will
answer the dilemma.
Some firms, such as Plainfield-based PSI Energy, are seriously considering
coal gasification, a new technology that turns coal into a clean gas and then
burns it.
Another utility, Indianapolis Power & Light Co., is comfortable with its
power supplies for the next five years and is weighing its options beyond that
time.
Lastly, the Indiana Citizens Action Coalition tells Indiana utilities to pour
more resources into promoting efficiency among its customers and to developing
renewable energy sources such as wind and solar.
Not seriously considered by utilities are natural gas and crude oil. Prices
of both spiked two years ago and haven't let up.
In response, President Bush has advocated the controversial policies of
drilling in a part of the Arctic National Wildlife Refuge and the building of
more nuclear generators. Last week, Bush called nuclear power "the one
energy source that is completely domestic, plentiful in quantity,
environmentally friendly and able to generate massive amounts of
electricity."
Nuclear power is unlikely to take off in Indiana. Memories still linger here
of the public backlash against PSI's proposed Marble Hill nuclear plant in the
late 1970s and early 1980s.
Indiana's electric utilities say they are committed to finding cleaner uses
for coal.
"We need to figure out how to use the Midwest coal resources, which are
relatively abundant and low cost," said Kay Pashos, president of PSI, a
subsidiary of Cincinnati-based Cinergy Corp.
Geologists estimate Indiana has more than a 250-year reserve of coal. And the
burning of coal -- however dirty -- has helped Indiana ratepayers enjoy rates
lower than all but seven states.
Utilities have not built a major coal-burning plant since 1989. As a result,
demand for electricity has begun to outstrip supply, according to the Indiana
State Utility Forecasting Group. At present rates, Indiana's electric utilities
will face a shortfall of 3,130 megawatts by 2010. That would mean Indiana would
lack one-seventh of its total electricity needs.
Also in 2010, new regulations from the Environmental Protection Agency kick
in. The new rules will require steeper reductions in nitrogen oxide and sulfur
dioxide emissions and, for the first time, reductions in mercury emissions on
coal plants.
"We need to be able to find a way to use that coal in a much more
environmentally benign way," Pashos said.
PSI has put its efforts into coal gasification. In October, it announced that
it had partnered with GE and Bechtel Corp. to study the feasibility of building
a coal gasification plant, preferably in Edwardsport. The 500- to 600-megawatt
plant would be at least twice as large as any coal gasification plant built to
date in the United States.
PSI estimates that the plant would cost $1.1 billion to build. How that would
affect ratepayers is impossible to say right now, said PSI spokeswoman Angeline
Protogere. But PSI has estimated that the $1.1 billion it will spend on
pollution controls in the next five years will increase its consumers' bills by
as much as 17 percent.
The price to build a coal-gasification plant runs about 10 to 20 percent
higher than a traditional coal burning plant. PSI officials say they will need
incentives from federal, state and local governments. So far, those governments
seem happy to oblige.
Loan guarantees for such technology are a part of the federal energy bill
nearing passage in Washington. In April, Indiana's General Assembly passed tax
incentives that would save Cinergy $75 million on a $1 billion plant, if it were
powered with coal from Indiana's mines.
That's good news for Edwardsport and Knox County, which lie in the coal-rich
region of southwestern Indiana. A new coal plant that size using only Indiana
coal would require a new mine, said Nat Noland, president of the Indiana Coal
Council.
A new mine would employ 240 miners, he estimated, each earning wages between
$40,000 and $70,000. A new mine also would require more manufactured goods,
which could boost employment by another 550, Noland said.
PSI officials say the reception from Knox County officials has been warm.
But Grant Smith, the executive director of the Citizen's Action Coalition,
said it makes no sense to prop up the 2,500-employee coal industry in Indiana in
order to sock PSI's 700,000 ratepayers with a high-cost option for new
electricity generation.
"What they're doing is promoting the highest cost alternative for
ratepayers so they can increase their profit," Smith said.
Citizens Action Coalition also has objected to plans by a Texas company,
Tondu Corp., to build a coal gasification plant near South Bend. The coalition
estimates that power produced by that plant would cost 40 percent more than that
produced by a traditional coal-burning plant.
Vectren Corp., based in Evansville, also is interested in coal gasification.
It confirmed last week that it wants to buy a minority stake in PSI's
Edwardsport plant -- if it is built. PSI projects a completion date between 2010
and 2015.
PSI has not signed a deal with GE and Bechtel, even though those companies
have completed their feasibility study. PSI is now gathering details from
ConocoPhillips and other companies that license gasification technology.
PSI will soon make a filing with the Indiana Utility Regulatory Commission to
have ratepayers cover the costs of its feasibility study, Protogere said.
The IURC "encourages companies to look at all possibilities as it goes
forward and all technologies as it goes forward that will improve the
environment and (will give consumers) a least-cost option," said Mary Beth
Fisher, IURC spokeswoman.
PSI has been dabbling in coal gasification for 10 years. It helped start a
gasification plant in West Terre Haute, which sends gas and steam to its
adjacent Wabash River power station.
The plant, which was dormant for 18 months, started up again last week. It
produces 292 megawatts by gasifying petroleum coke, a derivative of crude oil.
In contrast to PSI's public push toward coal gasification, Indianapolis Power
& Light Co., a subsidiary of Virginia-based AES Corp., got a head start on
its pollution controls and is now waiting to see which future option is best.
"We believe that we need to maintain flexibility. We haven't decided
which way to go," said Dwayne Burke, IPL's director of environmental
affairs.
Burke sees potential in coal gasification, but he also sees one looming
problem: carbon dioxide.
While coal gasification allows for easy extraction of carbon dioxide, the
problem is what to do with it after that. It can be "sequestered"
underground, but geologists don't know the long-term consequences of that.
Right now, carbon dioxide isn't regulated. But some believe Congress is
shifting in that direction. That also would add more cost to coal gasification,
noted Smith, of the Citizen's Action Coalition.
Smith heavily cites a 2001 study from the Environmental Law and Policy
Center, which claims that Indiana could reduce demand for electricity through
efficiency measures.
The study calls for Indiana consumers to eliminate their power supply
shortage by aggressively adopting efficiency measures. For homeowners, these
include better construction techniques and energy-saving refrigerators and light
bulbs. For businesses, they include newer industrial motors and ventilation
systems.
The study calls for Indiana electric utilities to cut their reliance on coal
from 98 percent to 68 percent by 2020, mainly by phasing out old coal plants. In
their place, utilities could use wind, solar and natural gas to make up the
difference.
"You have to employ these other alternatives and then see what your
resource needs are," Smith said.
Those alternatives are "attractive" because they have no emissions,
said Brian Bowen, assistant director of the Indiana Center for Coal Technology
Research at Purdue University. But he claims that neither wind nor solar
alternatives can produce the quantities of power Indiana needs.
"We have to think of the magnitude of demand," Bowen said.
"We're going to need large power plants. There's such a large increase in
demand."
-----
To see more of The Indianapolis Star, or to subscribe to the
newspaper, go to http://www.IndyStar.com .
Copyright (c) 2005, The Indianapolis Star
Distributed by Knight Ridder/Tribune Business News.
For information on republishing this content, contact us at
(800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail
reprints@krtinfo.com.