Clean coal projects in 9 states gain $1 billion

Washington (Platts)--1Dec2006

Nine clean-coal projects in nine states will receive about $1 billion in tax
credits, but western coal projects are not included in this round of funding.

The law creating the tax incentives stipulates that recipients must remove 99%
of sulfur from the coal-fired fuel stream, and subbituminous coal is already
low-sulfur, making the requirement virtually impossible to meet, said
Secretary of Energy Samuel Bodman when he made the announcement Thursday
morning at the National Coal Council meeting in Washington.

The Internal Revenue Service tax assistance, as announced by the Treasury
Department, is a "major step for future implementation" of the Energy Policy
Act of 2005. Another $650 million under the law will be awarded in late 2007
or 2008.

Bodman said the projects were meant to commercialize previously tested
technologies and would lead to plants with much higher efficiencies and fewer
emissions.

The Energy Department and the IRS chose two integrated gasification
combined-cycle plants that will run on the bituminous coal found in Appalachia
-- the 795-MW Duke Energy plant in Edwardsport, Indiana, and the 630-MW Tampa
Electric-proposed Polk 6 plant in the Orlando, Florida, area. Both companies
will get $133.5 million for the projects, as will Southern Company's
Mississippi Power for a 700-MW lignite-powered IGCC unit in Kemper County,
Mississippi.

Duke will also get $125 million for the 1,600-MW advanced-coal Cliffside
modernization projects in Cleveland and Rutherford counties, North Carolina,
as will LG&E Energy parent E.ON US for the 750-MW Trimble County 2 advanced
supercritical pulverized-coal plant in Bedford, Kentucky.

In addition, the departments awarded $350 million to be shared among four
gasification projects in which the gas is used in other applications than
electricity production, but only named two recipients: California-based Carson
Hydrogen Power in Carson, California, and TXU Energy's Longview Gasification
and Refueling Project in Longview, Texas. The other two recipients chose not
to disclose their award, which is their right under the tax code, Bodman said.

To retain the assistance, the nine projects need to obtain permits in two
years and be built within seven years.

The IGCC projects could help plants reach 60% efficiency rates, up from about
35% today, saving coal and helping address global warming, Bodman said.

DOE seeking to change EPAct

DOE said it would work with Congress to amend the tax program, established in
EPAct 2005, to help companies wanting to use subbituminous coal to qualify for
some of the $650 million still to be allocated. The law said the plants had to
be able to remove 99% of its sulfur dioxide emissions, a difficult task when
using low-sulfur subbituminous coal, which makes up the bulk of the supply in
the prolific Powder River Basin.

The subbituminous type provided 46% of the coal used in power plants last
year, according to the Energy Information Administration, with bituminous
contributing 46%, and the remainder coming from lignite and waste coal.

The IRS received applications from 49 companies seeking help for projects
worth a total of $58 billion. The agency is now accepting applications for the
remaining $650 million. It said $267 million will be available for IGCC
subbituminous projects, contingent upon changes to the SO2 removal
requirement; $133 million for lignite-powered IGCC plants; and $250 million
for an advanced coal plant that does not use gasification technology.

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