July 22, 2010

        American Public Power Association (APPA) officials July 7 released a new study showing that forcing coal-fired power plants to switch to natural gas - supposedly to meet future legislated limits on carbon dioxide (CO2) emissions - would be far more costly than is generally assumed in studies that show abundant natural gas supplies in North America.

        What's more, the hundreds of billions of dollars required for such a coal-to-gas scheme could become a stranded investment. Reason: A switch to natural gas cannot deliver anywhere near the 85% reduction in carbon dioxide "greenhouse" emissions targeted by 2050 in pending legislation.

        In contrast, investing in CO2 capture and storage (CCS) development, for both coal-fired and gas-fired power, at least theoretically has a chance of hitting an 85% CO2 reduction target, if test programs over the next decade can prove efficacy, economy, practicality and safety of long-term carbon storage.

        Power companies already know that technology exists today for 85% (or better) CO2 capture at power plants. The challenge will be to prove that CO2 storage (permanent, not temporary storage) can be met, as APPA environmental services director Theresa Pugh pointed out to Hart Energy Publishing in an interview last week following the unveiling of the new APPA-sponsored study.

        A copy of APPA study is available here: link to document.

        Mark Crisson, president and chief executive officer of APPA, commented that "this study raises questions and concerns about the significant hurdles utilities would face converting from coal to natural gas in the face of these regulations.

        "Other studies have addressed [natural gas] supply. We commissioned this study because we are concerned about just how utilities would extract, store, and move natural gas to where it is needed in a reliable, sustainable, affordable and environmentally sound way. It strongly suggests that policymakers will need to take a fresh look at the regulations and incentives to make sure the problems identified in this study are addressed going forward."

        The study, "Implications of Greater Reliance on Natural Gas for Electricity Generation," examines natural gas demand, supply, transmission and storage infrastructure, and the operational considerations that electric utilities will need to take into account if future "greenhouse" emission rules require a switch from coal to natural gas.

        Among the findings:

        1. Investments in North American pipeline capacity to meet the additional natural gas demand would need to total approximately US$348 billion should all coal-fired generation need to be replaced with natural gas.

        "The magnitude of this investment is inconsistent with the much touted idea of natural gas as a temporary ‘bridge fuel,'" according to the study.

        2. Natural gas storage capacity would need to increase by 1.4 trillion cubic feet (Tcf) at a cost of close to $12.5 billion - and geology limits the opportunities for siting new storage facilities.

        3. Operational considerations such as the requirement to nominate natural gas in advance of its use, curtailments that must occur should supply or pipeline capacity run short, or unforeseen events such as hurricanes which could increase natural gas prices or restrict supply, are further obstacles to fuel switching.

        4. Certain areas of the United States, such as the East Coast and Central Plains states, have significantly more problems with natural gas storage and capacity than other areas.

        5. While conventional wisdom indicates that it's possible to retrofit existing coal-fired units to burn natural gas, virtually all conversions achieved to date have been replacement units, not retrofits, the study found.

        6. The cost to build new gas-fired units to replace existing coal units would be in the range of $330 billion. This amount does not include the cost of outstanding debt utilities have incurred in building their existing fleet of coal-fired power plants.

        7. If all existing U.S. coal-fired generation were to switch to natural gas, then overall demand for natural gas would increase from 23 Tcf per year to 36 Tcf per year, a nearly 50% increase, with two-thirds of it serving electric power plants, up from just under one-third today.

        8. Supplies of natural gas are adequate to meet demand, but the cost of those supplies to serve demand levels could be much higher than today. "Potential U.S. Environmental Protection Agency (EPA) regulations governing techniques such as hydraulic fracturing could impact both the cost and supply of natural gas," according to the study.

        9. The actual future CO2 regulatory requirements could require vastly greater CO2 reductions than would be possible by merely switching from coal to natural gas, thus potentially imposing huge "stranded" costs on electric utilities.

        A "great unknown" remains about "how CO2 will be regulated and what CO2 emissions standard could apply," according to the study. "Combustion of natural gas emits only half as much CO2 as coal, but if those emissions are regulated plant-by-plant (instead of by utility portfolio), [then] it is unclear whether CO2 control would occur under [US Environmental Protection Agency] New Source Performance Standards (NSPS) or BACT [best available control technology].

        "Utilities today don't know if that will include some type of emissions or performance standard potentially set near or below the emissions of an NGCC [natural gas combined cycle plant] or a requirement that can only be met with geologic sequestration (assuming geologic sequestration is demonstrated to be commercially feasible and deployable) or something else. That cost of compliance is also currently unknown for geologic sequestration at coal plants or natural gas plants."

        The study, commissioned by APPA with support from the Utility Air Regulatory Group (UARG), was conducted by Catherine Elder, senior associate, energy and resource analysis, at the Aspen Environmental Group. Elder has more than 25 years of experience in the natural gas and electricity industries and has reviewed fuel plans and prepared natural gas market assessments for more than 40 natural gas-fired power projects around the United States. - Jack Peckham

Source: Gasification News 2010 Hart Energy Publishing