Coal Stays on the Front Burner

Coal Stays on the Front Burner

Oct 19 - Power Engineering

Ron Wood, President of Black & Veatch's Energy Engineering and Construction Division, suggests it might be time again to consider reserving natural gas for highervalue uses such as heating, and letting coal replace gas for other uses such as electricity generation. His remarks came during the keynote session of COAL-GEN 2004, July 28-30 in Overland Park, Kansas. There, almost 2,100 persons gathered to discuss and respond to the issues referred to by Wood and by dozens of other speakers and panelists making presentations at the event. All agreed that a significant amount of new coal-fired generation will be needed to maintain an abundant, affordable supply of electricity in the U.S.

William Downey, President and CEO of Kansas City Power & Light, kicked off the keynote session discussing the building momentum for new coal-fueled generation. "From Wisconsin to , Iowa to Missouri, interest is growing in new coal-fired generation. Greater certainty, however, is needed to ensure these plants are built." Downey touched on the perfect storm that has brought the power industry full circle - from a point where natural gas was the favored son to a point where natural gas is struggling to be part of the family. With all the gas capacity that has come online in recent years, said Downey, it is the high capacity factor of our nation's coal plants that are pumping out the electricity our nation demands.

Nearly 2,100 persons attended COAL-GEN 2004 in Overland Park, Kansas. The event also drew more than 150 exhibitors.

He recalled his company's decision in 1999 to rebuild the Hawthorn 5 coal plant as one of the first signs of coal's renaissance. The decision to rebuild Hawthorn, in the process upgrading plant capacity by 150 MW, has been a key factor in KCPL's financial performance. Downey expressed his belief that a mix of resources will be needed in future generation planning to provide customers greater certainty in electricity supply and pricing, but stated that coal will have to be a part of this mix. In that vein, KCPL is seriously evaluating the addition of a new 800-900 MW coal- fired unit to meet baseload demand in the 2009-2010 time frame.

Wood provided an interesting look at the role coal could - and perhaps should play - in the long-term energy picture. Recognizing that petroleum and natural gas reserves represent limited resources in the U.S., whereas coal and nuclear are relatively abundant, he noted that it doesn't take much of a logical leap to conclude that coal should be a fundamental component of U.S. energy policy. If coal were to replace natural gas for power production as postulated by Wood, it could increase its share of U.S. energy supply on a Btu basis from about 25% to more than 50% by 2025, while reducing U.S. reliance on imported petroleum and natural gas.

Both Downey and Wood stressed the need for further research and development related to coal. "It's amazing to me how much technology has advanced just since Hawthorn 5 was rebuilt," said Downey. Gasification seems to be a focal point where R&D could reap significant benefits. "It's hard to see how we're going to meet all requirements, particularly environmental restrictions, using coal as a solid fuel."

The American Coal Council co-located its PRB Coal Use Seminal- at COAL-GEN this year for the first time. Kirk Weber, Senior Vice President with Norwest Corporation, began the seminar by examining coal supply trends and implications related to PRB. While the coal industiy, particularly in the PRB, has enjoyed remarkable productivity increases over the past decade, those productivity gains are beginning to slow. The rate of productivity improvement, in fact, has begun to decline, which is putting pressure on coal prices, according to Weber. The years 2001-2002 saw the first real price increases in several decades.

Mining company consolidation, a major driver in the PRB's meteoric rise, has also begun to slow. Five companies now control 97.5% of production out of the PRB, but further consolidation is unlikely in the face of possible opposition from the Federal Trade Commission. Continued PRB growth could also be pressured by regulatory permit constraints, railroad capacity limitations, rising lease costs, and even reserve depletion. The last factor - reserve depletion - is not talked about a lot, according to Weber, but it can't be ignored. Stripping ratios are expected to rise from 2.7 BCY/ ton in 2004 to 3.2 BCY/ton by 2014, putting greater pressure on coal production costs. While PRB coal will remain the major coal player for the foreseeable future, its growth is tapering off, and it's possible lower-quality, high-reserve regions such as the Illinois Basin may re-emerge in coming years to capitalize on the availability and installation of advanced combustion technologies and back-end emissions control equipment.

The COAL-GEN megasession To Build or not to Build: That is the Question, played to a packed audience that answered with a resounding "Yes" when chair Nancy Mohn of Alstom Power, asked their response to the session title.

Tom Fehring, vice president and general manager for Wisconsin Energy's W.E. Power, compared his company's Power The Future generation expansion plant to what the Germans are doing - replacing existing aging coal-fired infrastructure with much cleaner, more efficient supercritical baseload generation while installing a significant amount of renewable capacity.

Coal-fired units at WE's Port Washington Power Plant are being retired and replaced with two combined cycle gas-fired units, and two additional 615 MW supercritical coal-fired units will be built at the Oak Creek Power Plant. The plan also includes improving the operating efficiency and environmental controls on existing plants. The additions would result in generation increases of 65% while reducing emissions by two-thirds. Construction is expected to begin next year.

Kiah Hands of Bums & McDonnell summarized the growing number of new coal-fired power projects being developed by publicly-owned utilities. "Public power utilities are required by their local owners to be cost-based, so they tiy to put in the lowest-cost resources they can, and that favors coal facilities," he said. "They have a highly assured cost recovery through local rate regulation and only have to please their rate payers and local governance. And certainly they have an advantageous cost structure that allows debt financing of a large portion of their investment (relative to IOUs or IPPs), which benefits the high capital cost of a coal installation."

Steve Hoech, Vice President of Employee Relations for Zachry Construction Corp., addressed labor issues associated with a new cycle of coal plant construction. "In the late 80s and early 90s, people believed power plant construction needed to be performed by union companies," he said. "This belief was based in part on the supposition that a qualified work force was only available through the unions and their contractors. But there are certainly many merit shop companies that can compete in today's market. It is important for owners to look at all their options."

Hoech said that whether considering union or non-union contracture, project managers should consider the firm's capabilities in safety; ability to manage a project consisting of 1 million to 1.5 million work-hours/yr; the ability to provide and locate an adequate amount of construction equipment such as large cranes; and how well it can deal with issues such as housing, schooling and medical care for people who will be moving in to a community and living there for a short time.

Collin Kelly of Peabody Energy provided an update on the status of Peabody's Prairie View mine-mouth coal facility to be built in southern Illinois. He said that even though Peabody has been in southern Illinois for more than 100 years and has positive name recognition, there was still a need to build a project specific PR program. "We started two years ago with an outreach program to the community doing town hall meetings and it has worked very well," said Kelly. "In addition to a media campaign, we keep a database on everyone we talk to, keep them on a mailing list and keep them informed. Many people come to us asking how they can help advance the project. They place editorial content in papers and talk on the local AM radio stations to build support for the project."

He said a recent survey shows 87% of southern Illinois residents support the project, more than 94% of the public in the four-county St. Louis area believe the economic message for coal is getting across, and 85% endorse coal as the fuel for the future. Furthermore, many of those who support the project consider themselves environmentalists.

"When they hear about what new coal technology is, they flip. When they hear what the technology can do, they go from being an anti-coal person to saying 'this makes sense for the country and for the region.'"

Peter Rigby, Director of Utilities, Energy and Project Finance for Standard & Poor's, compared the relative abilities of investor- owned and independent power companies to build coal plants. "Unfortunately lenders, particularly bond holders - are not in a good position to take cost overrun or delay risks, so that's going to make it more difficult for the IPP companies trying to finance coal plants on a nonrecourse basis," he said. "The independent power company typically does not hav\e the financial wherewithal to keep pouring equity into the project if delays and overruns occur."

He said an interesting risk that IOUs will have to take is supply margin assessment stemming from FERC's concern about market power. "The FERC wants to be sure that a load serving entity that has control over generation does not have the ability at peak times of the day to exercise undue market power and thereby influence power prices. If a utility fails that test, . and many utilities will likely do so, they lose the ability to sell power at market-based rates. That may or may not be so bad, but utilities that have excess generation and want to benefit from selling power to the wholesale markets can lose that ability and move into a potentially less profitable costof-service environment. That could also make it difficult for utilities that sign power purchase agreements, because if you control a power plant through a PPA, that generation effectively moves into your portfolio and could also make it difficult to pass that supply margin assessment test."

He said transmission access can impair the ability of IPPs and IOUs to finance building coal-fired generation. "Power plants built long distances from load, such as mine-mouth plants, may not be able to get their electricity to a load center, which is the exact same problem that many IPPs who build combined cycle gas turbines face. The plants easiest to site are out in the middle of a corn field close to a gas pipeline and electric transmission line but not a electric transmission line that necessarily can get that power into the city."

Natalie Rolph of Black and Veatch said she believes the process for gaining transmission access is getting better. That includes initial, approval and estimates of grid impact and initial up-front charges to interconnect at a specific spot on a grid. "But access charges are high. If you come back with an access charge of around $30 million, you've gotten off easy." She said another problem is that a project should be close to the load center but, in most eases, that's where the congestion is.

"The answer is to do the studies up front," she said. "We have load flow models and locational marginal price models and you have to do your homework up front and know the direction in which the ISO is heading, what FERC is saying in terms of who will be members of what ISO and anticipate future power flows. And take those factors into account and use them to determine the location that will minimize investment in new grid upgrades."

During COAL-GEN's second megasession, Security Issues for Coal- Fired Power Plants, a panel discussed the mandated security practices standard in the nuclear industry and how many of those practices can, and probably will, be adopted by coal plants to meet threats posed by terrorism. Session chair Edward Byme, director of security operations for Pieschek Protective Services, stressed that high-tech security devices do not replace security personnel. "If there's no one to respond to security breaches discovered by such technology, which is after the fact, what use are they?"

Panelists pointed out common practices allowed at coal plants not tolerated at nuclear plants such as lack of background checks for vendor and contractor access, and allowing unrestricted access within a plant to all employees. "Unrestricted internal access is rarely a good idea," said Byrne. Other security issues discussed included failure to maintain clear sightlines around plants, lack of protection of plant substations - which are susceptible to damage by gunfire - and granting vendors access to, and information about, computer systems, thereby creating a potential for cyber terrorism.

BY STEVE BLANKINSHIP, ASSOCIATE EDITOR