Powering Up ; New Plant To Hum Along On Clean, But Pricey, Natural Gas
Mar 30 - Rocky Mountain News
With its shiny exterior and the latest high-tech equipment, the Hudson power plant looks like a giant space station. And keeping it running might be just as expensive. That's because the plant is fired by clean-burning, and increasingly pricey, natural gas.
Xcel customers could see a 2.5 percent rate hike this summer, as the utility
adds new power generation such as the Hudson plant to its system.
Plant owners Calpine Corp. of San Jose, Calif., aren't writing off the future
of this and other future natural gas-fired plants. Edison Electric Institute, an
industry lobby in Washington, D.C., says that natural gas still is the fuel of
choice.
"The plant was conceived in 1999 when we identified a need for more
electricity supply," said Ken Reif, director of the Office of Consumer
Counsel, which represents ratepayer concerns.
"But that plan was made when the price of natural gas was much
lower," Reif said. "Since then, the price has gone up and it will be
more expensive to run the plant now than was originally planned."
Sharing the risks
But Calpine is putting its money on Hudson.
It outbid other private power producers to grab the project that Xcel had
announced five years ago.
Under the terms of the contract, Calpine will build and operate the plant,
while Xcel will be its sole electricity buyer for 10 years.
Also, Xcel will supply natural gas to the plant at no cost to Calpine. In
return, Calpine will be paid for the electricity - if and when Xcel asks to
switch on the plant during times of power demand - at a competitive market rate.
"The beauty of this project is, if there is an equipment failure or
there is a cost overrun, Calpine is on the hook - not Xcel ratepayers,"
said Calpine spokesman Kent Robertson. "There is a huge advantage to
pursuing power generation in such a manner. There is no capital outlay on the
part of the utility, and very little risk on its part."
Although Calpine bears the risk of the project, it also believes it will be a
profitable venture.
"We have a tolling agreement with Xcel that allows us to eliminate the
fuel risk," Robertson said, adding that he couldn't disclose any further
details about the confidential contract.
In fact, Calpine is so optimistic about natural gas-fired plants that it is
willing to build and operate similar power plants in the future.
"Even if natural gas prices are going up, what is the alternative for
baseload plants? Coal? Even coal prices are going up," said Jim Owen,
spokesman of Edison Electric. "In our industry, we need to use all kinds of
fuel including natural gas to generate electricity."
But some others are not so sure.
"It is hard to believe anyone would want to build another baseload
natural gas-fired plant in the future because of the fuel cost," said
Justin Dawe, energy associate with Environment Colorado.
Baseload plants, such as the Hudson plant, are designed to run continuously
and typically generate more than 600 megawatt-hours of electricity.
One megawatt-hour is enough to serve the average power needs of 1,000 homes.
"I think at current natural gas prices, it will be hard to make profit
in a baseload plant running near full capacity at base electricity prices,"
said Tom Woods, senior consultant with Platts Research & Consulting in
Boulder. "If gas prices do not come down substantially and gas remains a
fuel of choice for new power plants, my concern is that we will see a push up in
off-peak or base electricity rates."
Paying the bill
Xcel ratepayers customers are likely to feel the pinch this summer.
The utility - which serves 1.2 electric customers in Colorado - is seeking
regulatory approval to raise rates by 2.5 percent. That's to pay for the 1,000
megawatt- hours of electricity it will buy from private producers such as
Calpine this year.
Xcel had won regulatory approval in 1999 to add 2,000 megawatts to its
system. But instead of building new plants itself, Xcel decided to seek bids
from private producers such as Calpine to build all the new plants and then buy
back power from them.
"In the 1999 plan, the Public Utilities Commission encouraged us to go
in that direction," said Xcel spokesman Steve Roalstad.
Xcel submits a long-term plan every four years to detail its electricity
supply to serve metro Denver's growing population.
In the 2004 plan, however, Roalstad said Xcel will invest in a $1.4 billion
coal-fired plant to generate 750 megawatt-hours of electricity.
Projects worth an additional 850 megawatts, or roughly $1 billion, would be
put out for private bids.
"In this way, you have more asset ownership spread around and get better
bargains for electricity, while ratepayers don't have to pick up the cost of the
power plants," Roalstad said. "But even with the privately owned
plants, their costs ultimately come out of the price of electricity they charge
us."
Closer and cleaner
With two gas turbines, each generating 150 megawatt-hours of power - or three
times the power of the similar but smaller jet engines used to power passenger
aircraft, the Hudson plant is an engineer's dream.
It will use 100 million cubic feet of natural gas a day to fire the plant.
Waste heat from the gas combustion is captured and used to create steam.
Calpine has contracted with the city of Aurora to use 4,000 acre- feet of
recycled wastewater each year. The steam then is used to turn a turbine and
generate an additional 300 megawatt- hours of power. This is called a combined
cycle design, and often used in newer, more efficient power plants.
For instance, 88 percent of the 25,000 megawatt-hours of new natural
gas-fired generation that will come online nationwide in 2004 is from combined
cycle plants, according to a Platts report.
Calpine's Roberston said his company, too, was very bullish about natural
gas-fired plants.
By 2006, the company will be operating close to 25,000 megawatt- hours worth
of combined cycle power plants - up from its current portfolio of 18,000
megawatt-hours.
"Part of it is due to absence of alternatives to natural gas; as carbon
dioxide emissions become more of a regulatory issue, you will see other
technologies being constrained," Robertson said. "It is simply the
environmental attributes of clean-burning natural gas that will keep it to the
front and center."
Natural gas-fired plants also score on other points.
Because these plants do not emit as much pollution as coal- fired ones, they
can be located closer to the service markets. That reduces investment in
transmission lines that deliver electricity from the plants to the cities.
Also, the cost of technology and of environmental permitting is cheaper for
natural gas-fired plants.
For instance, the construction cost of a conventional coal-fired plant is
about $1,000 for every kilowatt-hour of electricity it produces.
Cost of a wind power plant is $900 per kilowatt-hour, nuclear is $1,700 per
kilowatt-hour while solar thermal is $2,400 per kilowatt- hour.
In contrast, the cost is much lower at $400 per kilowatt-hour for a natural
gas-fired plant, according to the Energy Information Administration.
Still, some say the future of large scale natural gas-fired plants is iffy.
"I think that the continuing pressure on natural gas caused by supply
constraints is going to make the economics increasingly difficult on large
gas-fired plants," said Jim Sims, who runs the Golden-based Western
Business Roundtable. "That is why you are seeing a lot of utilities,
including Xcel, talking of coal-fired baseload plants."
But the dynamics could change if natural gas supplies loosen up. Production
in the Rocky Mountain is growing, and so are imports from other countries.
Currently, there are five natural gas import terminals, and roughly 30 are in
the planning process - although all of those may not materialize.
"In the long run, natural gas- fired plants are faster to get online,
they face fewer regulatory hurdles and don't have as many problems with
emission," Sims said. "But their future really depends a lot on the
price of natural gas. And that is an unknown factor; most economists expect
relatively high natural gas prices are here to stay for the time being."
INFOBOX 1
Costs of providing power
The costs of various fuels to generate one kilowatt-hour of electricity.
* New coal: 4 to 5 cents per kWh; established plants are a little less due to
reduced overhead costs
* Natural gas: The new combined cycle, 5 to 6 cents per kWh. This is the
method the Hudson plant will use.
Combustion turbine costs slightly more than combined cycle.
* Wind: 2.8 to 3.5 cents per kWh
* Solar: At least 10 to 15 cents per kWh
* Hydro: 3 to 4 cents per kWh
INFOBOX 2
Combined-cycle plants limit waste
Hudson's combined-cycle power plant uses two natural gas turbines to produce
300 megawatt-hours of energy. Instead of releasing the heat exhaust into the
atmosphere, the plant harnesses that heat to create steam to produce another 300
megawatt-hours.
HOW A COMBINED CYCLE PLANT WORKS:
1. Combustion system, fueled with natural gas, creates turbine motion.
2. Gas turbine powers generator, creating energy.
3. Thermal exhaust from gas turbine is routed to steam generator. Steam
created from river or treated wastewater.
4. High pressure steam from steam generator sets steam turbine in motion.
5. Steam turbine powers second generator, sending additional energy to
transformer.
Source: Calpine Corp. Copyright © 1996-2004 by CyberTech,
Inc.