GHG cuts could improve plant economics vs. pulverized coal plants

Washington (Platts)--2Feb2006

Current economics favor pulverized-coal plants over integrated gasification
combined-cycle plants, but if a reduction in greenhouse gases is required in
the future, the two "are in a dead heat," said Bruce Braine of American
Electric Power. 

The current cost of electricity is about $57/MWh for a PC plant, while it is
$63/MWh for an IGCC plant, said the AEP vice president of strategic analysis
at the Coaltrans Americas conference Tuesday in Miami. Tax credits in the 2005
Energy Policy Act would narrow the gap. 

However, IGCC plants with a carbon capture system are less expensive than PC
plants with carbon scrubbing, he said. 

The electricity rates ignore future greenhouse gas mandates, he said. Any
investment considerations should include the future "option value" of IGCC
plants over PC plants for carbon capture. 

In its filing for a possible IGCC plant in Meigs County, Ohio, AEP analyzed
four scenarios ? no carbon dioxide legislation, CO2 legislation by 2015 with
low carbon prices, CO2 legislation by 2015 with high carbon prices and
stringent CO2 legislation forcing carbon capture by 2020. Those results showed
that with no legislation and with low carbon prices, PC plants are about $140
million less than IGCC plants, but with legislation and high carbon allowance
prices, the gap reverses to favor IGCC plants by $231 million. 

AEP also looked at scrubbers to remove nitrogen dioxide and sulfur dioxide, he
said. In an existing plant without scrubbers, emissions costs are high, but
after a retrofit, fuel costs drop because the plant can burn the lowest cost
fuels and emissions allowances costs will drop significantly, possibly by 95%.

Call for carbon regulation growing 

Pressure for regulating carbon is growing in states, among some legislators
and in the international community, said John Blaney, managing director of ICF
Resources. Although no national action is imminent, several bills have been
presented and have failed so far. 

Switching to lower-sulfur coal will be insufficient to achieve the Clean Air
Interstate Rule requirements, he said. Fuel switching will "do little" to
reach mercury and nitrogen oxide emissions reductions mandated, even though
some fuels have lower mercury and Powder River Basin coal use can reduce NOx
emissions. The economics of SO2 scrubbing improve when mercury emissions
reductions are included. 

"Controls are critical to sustained coal plant competitiveness," Blaney said.
Scrubbed coal plants will dispatch before gas-fired combined-cycle plants, no
matter the cost of sulfur allowances, he predicted. "However, the value of SO2
allowance prices will be a critical determinant of the capacity factor of
unscrubbed coal units going forward." Some 45 GW of new scrubbers have been
announced, and he projected an additional 40-50 GW of scrubbers will be built.

He sees the cost of air regulations having an impact on the competition
between new gas and coal-fired generation. As long as natural gas stays above
$7/mmBtu, it is more costly, but if it drops to $5.50, then conventional coal
plants would be competitive with new combined-cycle units and IGCC plants
could have a significant cost advantage without carbon regulations. 

With carbon constraints, higher natural gas prices would push new plants
toward IGCC, he said. 

-- Charlotte Wright, charlotte_wright@platts.com

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