Private power plant for silicon valley?

Silicon Valley's energy-hungry tech industries are studying the feasibility of building their own $850 million, 600-megawatt power plant to guarantee a reliable source of low-cost power.

The idea, still in the concept stage, would be the first of its kind in the nation and likely would involve emerging "clean-coal" technology. Plans call for construction of a state-of-the-art plant, possibly in the Central Valley, by 2012.

Seed money would be supplied by Silicon Valley businesses and data center operators, who would commit to purchasing at least a 1 percent equity interest in the plant and sign a long-term contract to buy a minimum of 6 megawatts of power. That seed money would be used to gain financing. The bulk of the electricity would be sold to municipal utility companies and energy trading companies.

Estimated discounts for big users range from 25 to 45 percent below market rates, depending on a company's individual energy portfolio.

While municipal power companies have long banded together to build power plants that supply its customers power, private companies building large-scale power plants for their private use is without precedent in the United States.

"We need to bring all options to the table," says Justin Bradley, energy director of the Silicon Valley Leadership Group, which is spearheading the effort. "The cost of energy is a growing concern... of all businesses. I think this will get some serious consideration."

While Pacific Gas & Electric Co. can provide power to large energy users for as little as 11 cents a kilowatt, SVLG claims the clean-coal plant would sell power in the range of 6.5 cents a kilowatt. Even most direct access customers -- those who buy power directly from energy suppliers -- pay between 8.5 and 12 cents a kilowatt nowadays.

But is that enough of a discount to lure businesses into opening up their check books?

"I gotta admit, that would be a tough job," says Earl Bouse, an energy consultant to Hansen Permanente, a concrete concern and large energy user which would seem a likely candidate to be among those approached by SVLG. "It's a worthy chore to find out."

SVLG's energy committee is convinced that energy prices will remain high unless businesses start looking at new options, says John Redding, a former General Electric executive who has been hired by SVLG to study the feasibility of the project and recruit large energy users.

The thinking is the state's commitment to natural gas-fired power plants and renewable energy sources will keep California's electricity prices among the highest in the country for the foreseeable future.

"I think by 2012 large energy users will be buying power very differently then they are today," Mr. Redding says.

But building their own power plants?

During the height of the California Energy Crisis, a flood of mostly small companies tried to get Silicon Valley businesses to build on-site, natural gas-fired power generators to provide at least a portion of their energy needs. Most failed to get contracts signed.

However, some companies -- including Excel Communications, Sun Microsystems, Network Appliance, Cypress Semiconductors and Stanford University among others -- have built power plants on their property to meet at least a portion of their own energy needs. These and companies like them would be the most natural candidates to participate.

Building a large, coal-fired plant has some serious hurdles to overcome, not the least of which is meeting the state's tough emission regulations. Any coal-fired power plants would be expected to meet the emission standards of the newest natural gas-fired power plants. There are no known coal-fired plants that meet that standard in the United States, although several coal-mining organizations say it is only a matter of time before they do.

Mr. Redding says $350 million of the $850 million price tag would be for emissions control. The still-experimential technology involves ejecting carbon dioxide emitted from the coal-burning process directly into the ground.

One scenario has the plant being built near oil fields in Kern or Santa Barbara County. Some drilling companies inject carbon dioxide into the ground to bring oil supplies closer to the surface.To compare, the 600-megawatt Metcalf Center power plant built by Calpine Corp. cost an estimated $400 million.

Mr. Redding says the plant could be located outside of California if necessary but the hope is that this plant would spur the construction of other coal-fired plants here.

"There has been a lot of ideas out there over the years for cheap electricity (from coal) -- some of them good ones -- but none have been built," says Matt Freedman, an attorney with the Utility Reform Network, a consumer advocacy group. "But this is a technology right on the cusp of happening."

The state will always need to get a large portion of its electricity from fossil fuels, says Ralph Cavanagh, energy program director for the San Francisco-based National Energy Resources Defense Council.

"If they can indeed do it cleanly... it would be a welcomed development," he says.

But emissions isn't the only problem facing those endorsing coal-fired power plants in California.

Many environmentalists decry the mining practices that tear up large swaths of land. Virtually all the coal used would be imported from other states. Others are skeptical that large mining corporations will follow through on commitments to reduce CO2 emissions.

"The political climate to site a coal power plant in California are slim to none," says an energy consultant with a Bay Area Democrat Assembly member who asked not to be named because the person didn't want their boss associated with the project.

California Energy Commission Chairman Joseph Desmond's renomination is in danger because of his support for clean coal, although Mr. Desmond says any clean-coal plant would have to meet California's clean air regulations.

"We know there are people out there who are against coal no matter what," Mr. Redding says. "But there are those who opposed coal in the past who are looking again. That (SVLG) is involved send the message that we are serious."