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Released January 30, 2013 | SUGAR LAND
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Below is an interview with Brock Ramey, North American Power Manager for Industrial Info, conducted by Mark Bebawi, Power Research Analyst for Industrial Info. This is the first edition of Inside Power, a new series featuring articles, interviews and reports highlighting multiple aspects of the Power Industry. From trends in electricity generation, transmission and distribution, to discussions with public and private utilities, engineering, procurement and construction companies, and technology providers, Inside Power seeks to provide insight into how the industry runs.
Mark Bebawi (MB): Describe the state of play with current regulations and what is driving environmental spending. What is the latest with the Cross-State Air Pollution Rule (CSAPR) and Mercury and Air Toxic Standards (MATS)?
Brock Ramey (BR): The United States Court of Appeals for the D.C. Circuit denied the U.S. Environmental Protection Agency's (EPA) petition for a rehearing of the Court's August 2012 decision to vacate CSAPR. What is driving the SO2 and NOX spending right now varies by state by state, but on the federal level is influenced by the Clean Air Interstate Rule (CAIR) from 2005 and MATS. We are anticipating about $6 billion in spending in 2013 on environmental projects.
MB:
Are there state regulations that take precedent, or are the federal regulations the only ones that count right now?
BR:
Pennsylvania has some regulations moving forward and California, as you would expect, has numerous regulations that are over and above the federal regulations. The national air ambient standards are being looked at by each state. Some utilities, like Indianapolis Power & Light (Indianapolis, Indiana), PPL Corporation (NYSE:PPL) and Public Service Electric and Gas Company (NYSE:PEG) (PSEG), are making agreements with the states themselves.
MB:
There has been talk over the last year or two about the move from coal to gas. Some of was that due to low natural gas prices and the rest because of the costs of getting coal-fired units to comply with new environmental regulations. Where do you see coal's share of power generation over the next three to five years? Some people were saying that coal is going to go away. Industrial Info doesn't think that is true.
BR:
Well, the industry as a whole doesn't see that as true. It is true that in the last couple of years there has been a lot of talk about coal-to-natural gas switching, but the truth of the matter is around the fall of 2012, natural gas prices started to rise and regionally we saw coal assets being brought back online, whether they met environmental standards or not. It is based on cost--what is it going to cost to operate? What is it going to cost to bring it online? We're going to see the bringing of coal units back online increase, we're going to see the coal-to-natural gas switching reverse. But I want to stress that this is going to be regional, as we see natural gas prices rise. Right now it is over $3.50 per thousand cubic feet. The more we see that price increase, the more we're going to see, the larger assets of 500 megawatts (MW) and above come back online. As far as the overall generation mix, we are seeing coal, we're going to see some grassroot or unit additions, but probably not until late 2015 or 2016 because of the low cost of natural gas.
MB:
Is there a breakpoint where the industry is saying this is the level we are going to switch back?
BR:
We've talked to energy traders and the International Energy Agency (IEA), and we've made some assumptions on our own based on our numbers, and it is probably going to be in the $4.50 to $5.50 range. You're going to see that probably in late 2015 or early 2016. On the environmental side, the only two environmental regulations that are stopping coal development are MATS and the greenhouse gas (GHG) regulations. As we mentioned in an article earlier this month, there are 15 transitional units that have air permits, and if they can accomplish their water permitting, they can move forward with putting in baghouses and ESP's. The costs for these projects are in the billions of dollars, and that is why natural gas prices have to move past the high $4 to $5 mark to make them economically viable. (For more information, see January 2, 2013, article - Natural Gas Prices, EPA's Definition of 'Construction Start', Could Determine Fate of 15 New-Build Coal Plants.)
MB:
The last environmental piece I wanted to touch on relating to coal is the ash handling. We are starting to see lawsuits coming up around ash lagoons and ponds.
BR:
A lot of lawsuits are coming up because of that. As everybody knows, this has its roots in a 2008 Tennessee Valley Authority incident. What the utilities are looking at is spending $60 million to $100 million annually to try to clean all this up. They are looking at relining the ponds or even converting from wet ash to dry ash. But a lot comes down to the Coal Combustion Residual (CCR) regulations and what the EPA and the states are going to decide... and this is going to come down to whether the higher-grade ash is going to be considered a toxic waste or not; keep in mind that it can be sold and used in concrete for roadways.
MB:
During the election, we heard the phrase "clean coal" a few times. For most environmentalists, there is no such thing. The idea of "dirty" used to be based around emissions that lead to acid rain or smog, but now there is a lot more talk about GHG--not dirty in the common usage, but GHG are a key part of the climate change discussion. Where do you see that tying into carbon capture and sequestration (CCS) and integrated gasification combined cycle (IGCC)? How close are we to those things being ready for real world application?
BR:
We do have some IGCC's that have CCS technology on them. Kemper County has some CCS technologies. The Summit Power project that is being proposed has some CCR, and there is the Boundary Dam project in Canada. Those do have the technologies. CCS is more feasible on a combined-cycle power block right now because of cost. When you try to attach this technology to a conventional coal-fired power plant, it costs $3 million to $6 million per megawatt (MW), depending on what technologies you're using, to capture those emissions. American Electric Power (NYSE:AEP) (Columbus, Ohio) did the pilot project, its Mountaineer Power Station in West Virginia, where they were looking at taking one of their units and doing a full-size CCS project. They saw that it was going to cost hundreds of millions of dollars, so they cancelled the project. The EPA basically stated that they know that based on the cost, a viable technology for CCS is probably at least 10 to 15 years away.
MB:
How does that tie into the GHG regulations?
BR:
GHG regulations say that anything that is emitting 1,000 tons of carbon annually has to have CCS, but it is open-ended and they have not formalized that date. But the key is that all existing power plants are exempt. They have exempted IGCC technologies, but they say as a caveat that they have to be CCS ready. And the transitional units--the 15 we mentioned earlier--have to be CCS ready. That means it is going to require more land and certain kinds of pipe and systems, but they will have to be ready. As an industry, the dollar amount for these CCS processes is going to have to get a lot lower for this to be a really viable technology.
Inside Power is a new series by Industrial Info.Inside Power will feature articles, interviews and reports highlighting multiple aspects of the power industry. From trends in electricity generation, transmission and distribution to discussions with public and private utilities, engineering procurement and construction companies and technology providers, Inside Power seeks to provide an insight into how the power industry runs. It is available exclusively to Industrial Info customers.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
Mark Bebawi (MB): Describe the state of play with current regulations and what is driving environmental spending. What is the latest with the Cross-State Air Pollution Rule (CSAPR) and Mercury and Air Toxic Standards (MATS)?
Brock Ramey (BR): The United States Court of Appeals for the D.C. Circuit denied the U.S. Environmental Protection Agency's (EPA) petition for a rehearing of the Court's August 2012 decision to vacate CSAPR. What is driving the SO2 and NOX spending right now varies by state by state, but on the federal level is influenced by the Clean Air Interstate Rule (CAIR) from 2005 and MATS. We are anticipating about $6 billion in spending in 2013 on environmental projects.
MB:
Are there state regulations that take precedent, or are the federal regulations the only ones that count right now?
BR:
Pennsylvania has some regulations moving forward and California, as you would expect, has numerous regulations that are over and above the federal regulations. The national air ambient standards are being looked at by each state. Some utilities, like Indianapolis Power & Light (Indianapolis, Indiana), PPL Corporation (NYSE:PPL) and Public Service Electric and Gas Company (NYSE:PEG) (PSEG), are making agreements with the states themselves.
MB:
There has been talk over the last year or two about the move from coal to gas. Some of was that due to low natural gas prices and the rest because of the costs of getting coal-fired units to comply with new environmental regulations. Where do you see coal's share of power generation over the next three to five years? Some people were saying that coal is going to go away. Industrial Info doesn't think that is true.
BR:
Well, the industry as a whole doesn't see that as true. It is true that in the last couple of years there has been a lot of talk about coal-to-natural gas switching, but the truth of the matter is around the fall of 2012, natural gas prices started to rise and regionally we saw coal assets being brought back online, whether they met environmental standards or not. It is based on cost--what is it going to cost to operate? What is it going to cost to bring it online? We're going to see the bringing of coal units back online increase, we're going to see the coal-to-natural gas switching reverse. But I want to stress that this is going to be regional, as we see natural gas prices rise. Right now it is over $3.50 per thousand cubic feet. The more we see that price increase, the more we're going to see, the larger assets of 500 megawatts (MW) and above come back online. As far as the overall generation mix, we are seeing coal, we're going to see some grassroot or unit additions, but probably not until late 2015 or 2016 because of the low cost of natural gas.
MB:
Is there a breakpoint where the industry is saying this is the level we are going to switch back?
BR:
We've talked to energy traders and the International Energy Agency (IEA), and we've made some assumptions on our own based on our numbers, and it is probably going to be in the $4.50 to $5.50 range. You're going to see that probably in late 2015 or early 2016. On the environmental side, the only two environmental regulations that are stopping coal development are MATS and the greenhouse gas (GHG) regulations. As we mentioned in an article earlier this month, there are 15 transitional units that have air permits, and if they can accomplish their water permitting, they can move forward with putting in baghouses and ESP's. The costs for these projects are in the billions of dollars, and that is why natural gas prices have to move past the high $4 to $5 mark to make them economically viable. (For more information, see January 2, 2013, article - Natural Gas Prices, EPA's Definition of 'Construction Start', Could Determine Fate of 15 New-Build Coal Plants.)
MB:
The last environmental piece I wanted to touch on relating to coal is the ash handling. We are starting to see lawsuits coming up around ash lagoons and ponds.
BR:
A lot of lawsuits are coming up because of that. As everybody knows, this has its roots in a 2008 Tennessee Valley Authority incident. What the utilities are looking at is spending $60 million to $100 million annually to try to clean all this up. They are looking at relining the ponds or even converting from wet ash to dry ash. But a lot comes down to the Coal Combustion Residual (CCR) regulations and what the EPA and the states are going to decide... and this is going to come down to whether the higher-grade ash is going to be considered a toxic waste or not; keep in mind that it can be sold and used in concrete for roadways.
MB:
During the election, we heard the phrase "clean coal" a few times. For most environmentalists, there is no such thing. The idea of "dirty" used to be based around emissions that lead to acid rain or smog, but now there is a lot more talk about GHG--not dirty in the common usage, but GHG are a key part of the climate change discussion. Where do you see that tying into carbon capture and sequestration (CCS) and integrated gasification combined cycle (IGCC)? How close are we to those things being ready for real world application?
BR:
We do have some IGCC's that have CCS technology on them. Kemper County has some CCS technologies. The Summit Power project that is being proposed has some CCR, and there is the Boundary Dam project in Canada. Those do have the technologies. CCS is more feasible on a combined-cycle power block right now because of cost. When you try to attach this technology to a conventional coal-fired power plant, it costs $3 million to $6 million per megawatt (MW), depending on what technologies you're using, to capture those emissions. American Electric Power (NYSE:AEP) (Columbus, Ohio) did the pilot project, its Mountaineer Power Station in West Virginia, where they were looking at taking one of their units and doing a full-size CCS project. They saw that it was going to cost hundreds of millions of dollars, so they cancelled the project. The EPA basically stated that they know that based on the cost, a viable technology for CCS is probably at least 10 to 15 years away.
MB:
How does that tie into the GHG regulations?
BR:
GHG regulations say that anything that is emitting 1,000 tons of carbon annually has to have CCS, but it is open-ended and they have not formalized that date. But the key is that all existing power plants are exempt. They have exempted IGCC technologies, but they say as a caveat that they have to be CCS ready. And the transitional units--the 15 we mentioned earlier--have to be CCS ready. That means it is going to require more land and certain kinds of pipe and systems, but they will have to be ready. As an industry, the dollar amount for these CCS processes is going to have to get a lot lower for this to be a really viable technology.
Inside Power is a new series by Industrial Info.Inside Power will feature articles, interviews and reports highlighting multiple aspects of the power industry. From trends in electricity generation, transmission and distribution to discussions with public and private utilities, engineering procurement and construction companies and technology providers, Inside Power seeks to provide an insight into how the power industry runs. It is available exclusively to Industrial Info customers.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
