Coal-Fired Generation Under Attack--Can Future Demand Be Met Without "Old Faithful"?

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Researched by Industrial Info Resources (Sugar Land, Texas)--During the past few years, the United States Power Industry has experienced both the rebirth and vanishing of the development of new coal-fired generating capacity. It seems like yesterday that Industrial Info Resources was tracking 200 new units and more than 85,000 megawatts (MW) that were proposed to be built across the country. Over time, the continuously escalating costs to build new power plants coupled with looming carbon legislation on the horizon led to a quick end of the coal-fired renaissance, before it actually got started. For the past few months, costs have stabilized, but the uncertainty about future environmental regulations lingers. Since the beginning of 2007, 84 projects and $68 billion of new coal-fired generation capacity has been confirmed as cancelled or placed on indefinite hold.

Despite the setbacks, a respectable amount of new coal-fired generation capacity remains under construction in the United States. At last count, 31 new coal-fired units accounting for 15,600 MW of capacity are currently under construction. These new units are being built as part of 24 projects and nearly $30 billion in capital spending. One of the more active regions is the southwestern U.S., where Oak Grove Management Company LLC, a subsidiary of Luminant Energy (Dallas, Texas) is under way on the 1,600-MW Oak Grove Generating Station near Franklin, Texas. In the Great Lakes region, Duke Energy Indiana Incorporated (Plainfield, Indiana), a subsidiary of Duke Energy Incorporated (NYSE:DUK) (Charlotte, North Carolina), has started construction of the 630-MW Edwardsport integrated gasification combined-cycle plant in Indiana. In Virginia, Dominion Resources Incorporated (NYSE:D) (Richmond, Virginia) is under way with construction of the 585-MW Virginia City Hybrid Energy Center. Projects currently under construction are all expected to be completed from 2010 through 2012. After this point, uncertainty abounds as to when there might be any significant amount of new coal-fired capacity moving forward.

It is safe to say that future development of coal-fired projects will face a much different environmental landscape. In fact, the major stumbling block to development of new coal-fired generation is the uncertainty about the direction of carbon legislation. Earlier this summer, we caught a glimpse of the direction a legislative approach might be headed with the U.S. House of Representatives' passage of the American Clean Energy and Security Act (H.R. 2454). The bill is still facing what some consider an uphill climb to pass the U.S. Senate. While it remains to be seen how stringent the final piece of legislation might be, in the current form, H.R. 2454 puts in place far-reaching mandates to reduce greenhouse gas emissions. The bill would put a cap on these emissions and would require the industrial sector to reduce output to specific targets between now and 2050. The bill covers 85% of the overall economy, including power producers, oil refineries, natural gas suppliers, steel, iron, cement, and the pulp and paper industry. In addition to emission cuts at existing facilities, the legislation also mandates a national renewable electricity standard and energy efficiency standards.

While building a new coal-fired power plant would not be impossible, the proposed legislation would raise the environmental hurdle, increasing the capital costs involved. New coal-fired plants could be built between 2009 and 2020, however owners would be expected to implement carbon capture and sequestration technologies when they become widely available. By 2025, all coal-fired plants built after 2009 must capture 50% of CO2 emissions, while plants built after 2020 will be required to capture 65% of CO2 emissions. By some accounts, this could increase the capital investment cost of building a new coal-fired power plant by 30%.

Certainly the near-term projections appear bleak for would-be developers of new coal-fired generation. However, it is difficult to imagine how we might meet future energy demands without one of our most reliable forms of fuel playing a significant role. According to the U.S. Department of Energy's Energy Information Administration, we will need an additional 240,000 MW of net capacity by 2030 to keep pace with demand. Recognizing that more than 200,000 MW of our currently installed fossil-fueled fleet is aged 30 years or more is also important. At this point, renewable energy will without a doubt play a much larger role in meeting future demand. Yet valid concerns exist about widespread transmission constraints and the ability of renewable energy sources to provide efficient, reliable and affordable base load capacity. From this aspect, it is sensible that the nation and the power industry would strive toward developing a diverse fuel portfolio.

In spite of the challenges, some forward-looking developers still have coal-fired projects on the books. At present, Industrial Info Resources is tracking 60 new generating units, representing nearly 22,000 MW, that are listed as active. Construction of these units is scheduled to begin between 2010 and 2014. It is likely that financing hurdles and tightening environmental regulations will lead to cancellation of some projects, as well as delays for others. Assuming that all of these units moved forward to the construction stage, this would represent capital investments totaling $50 billion as part of 28 projects.

The vast majority (14,235 MW) of new coal-fired capacity under development is being proposed as part of projects that utilize super critical pulverized coal technology. These projects include Tenaska Incorporated's (Omaha, Nebraska) 765-MW Trailblazer Energy Center in Texas and Old Dominion Electric Cooperative's (Glen Allen, Virginia) Cypress Creek Power Station near Dendron, Virginia. The Old Dominion project is being proposed as a 750- to 1500-MW plant that would co-fire biomass as a supplemental fuel and utilize carbon capture and sequestration technology. Also under development is 2,600 MW of capacity from integrated gasification combined-cycle plants including Southern Company (NYSE:SO) subsidiary Mississippi Power's (Gulfport, Mississippi) 600-MW Kemper County project. This project is currently under review by the Mississippi Public Service Commission, and decisions regarding approval are expected during spring 2010. In addition to these projects, there is an additional 800 MW of proposed capacity using circulating fluidized bed technology and another 3,900 MW of which developers have not determined the technology that will be used.

Despite the hurdles, activity to add new coal-fired generating capacity still moves forward as construction continues and development proceeds across the country. It is safe to say that the only the thing certain for this segment of the industry is the uncertainty about the extent that future environmental regulations will impede further development of new coal-fired capacity.

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Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.