Business Aspects Jack Siegel ...
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Clean Coal Technologies: Policy/Business Aspects Jack Siegel Energy Resources International, Inc. Tel: 202-785-8833; Fax 202-785-8834; [email protected] 1. Introduction Although coal use is expected to be displaced by natural gas in some parts of the world, only a slight drop in its share of total energy consumption is projected by 2025 (Figure 1). As a consequence, its share of total world energy consumption remains near its 2002 share of 24 percent. In the Energy Information Agency’s International Energy Outlook 2005 (IEO2005) reference case, world coal consumption is projected to increase from 5,262 million short tons in 2002 to 7,245 million tons in 2015, at an average rate of 2.5 percent per year. From 2015 to 2025, the projected rate of increase in world coal consumption slows to 1.3 percent annually, and total consumption in 2025 is projected at 8,226 million tons. Of the coal produced worldwide in 2002, 65 percent was shipped to electricity producers, 31 percent to industrial consumers, and most of the remaining 4 percent to coal consumers in the residential and commercial sectors. These relative percentages are expected to remain about the same through 2025. In the industrial sector, coal is an important input for the manufacture of steel and for the production of steam and direct heat for other industrial applications. Figure 1. Coal Share of World Energy Consumption by Sector, 2002, 2015, and 2025
Sources: 2002: Derived from Energy Information Administration (EIA), International Energy Annual 2002, DOE/EIA -0219(2002) (Washington, DC, March 2004), web site www.eia.doe.gov/iea/. 2015 and 2025: EIA, System for the Analysis of Global Energy Markets (2005).
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To a large extent, the slight increase in the importance of coal in the industrial sector results from the substantial growth projected for industrial energy consumption in China, which has abundant coal reserves, limited reserves of oil and natural gas, and a dominant position in world steel production. Coal is expected to remain the fuel of choice in China’s rapidly expanding industrial sector. In the IEO2005 reference case forecast, the coal share of China’s industrial energy consumption increases from 50 percent in 2002 to 55 percent in 2025. In the rest of the world, coal’s share of industrial energy consumption is projected to decline from 15 percent in 2002 to 13 percent in 2025. Coal has been, and has been projected to continue to be, the most important energy option in India and China through 2025 (Figure 2), although other energy forms, especially natural gas, will eat into coal’s market share. The transitional economies, whose coal use was over 40% of total energy consumption in 1970, now use it for only 20% of its needs. This level of use is consistent with that of all of the other economies throughout the world and the level at which coal consumption is expected in these countries through 2025.
Figure 2. Coal Share of Total Energy Consumption by Region, 1970-2025
Sources: History : Energy Information Administration (EIA), International Energy Annual 2002, DOE/EIA -0219(2002) (Washington, DC, March 2004), website www.eia.doe.gov/iea/. Projections : EIA, System for the Analysis of Global Energy Markets (2005).
Total recoverable reserves of coal around the world are estimated at 1,001 billion tons— enough to last approximately 190 years at current consumption levels (Figure 3). As a result, some of the largest energy consuming and growing countries have ample supplies of coal to last into the foreseeable future. However, the future for coal use depends upon several important factors including: The economics of using coal versus other options; The stringency of environmental control requirements and their impacts on: (1) the cost of using coal compared to other options, and (2) the ability to meet the 2
requirements, regardless of cost; The ability to address social issues (such as public opposition to coal projects) that may discourage or further increase the cost of using coal; and Advancement in the development and commercial readiness of clean coal technologies to compete against other options. Figure 3. World Recoverable Coal Reserves
Note: Data for the United States represent recoverable coal estimates as of January 1, 2004. Data for other countries are as of January 1, 2003. Source: Energy Information Administration, International Energy Annual 2003, DOE/EIA0219(2003) (Washington, DC, June 2005), Table 8.2, web site www.eia.doe.gov/iea/.
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Coal Versus Other Options
As noted above, in the IEO2005 reference case, world coal consumption is projected to increase from 5,262 million short tons in 2002 to 8,226 million tons in 2025. The growth in coal use projected for emerging, mature and transitional economies is shown in Figure 4. EIA’s assessment competes coal-based systems against other options. Even though coal systems typically have higher capital costs than other options, EIA’s projections indicating significant growth in the use of coal imply that in many situations coal-based systems will be able to produce electricity at lowest cost, all factors considered. However, EIA’s projections indicate that few of the coal plants will be advanced CCTs because of their high costs compared to conventional systems. Cost and other factors will influence the commercial viability of the advanced CCTs. These are discussed in the following section.
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Figure 4. World Coal Consumption by Region, 1970 - 2025
Sources: History : Energy Information Administration (EIA), International Energy Annual 2002, DOE/EIA-0219(2002) (Washington, DC, March 2004), web site www.eia.doe.gov/iea/. Projections: EIA, System for the Analysis of Global Energy Markets (2005).
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Factors Influencing the Use of Clean Coal Technologies (CCTs)
As detailed above, coal demand is anticipated to increase dramatically in many regions of the World. Considering the very recent dramatic increases in the price of natural gas since issuance of EIA’s energy projections, future coal consumption could be even greater than projected. However, the issue yet to be resolved is the role of advanced clean coal technologies in meeting coal’s demand. The deployment of CCTs, defined in this discussion as advanced power generating systems ―integrated gasification combined cycle, pressurized fluidized -bed combustion, and supercritical pulverized coal boilers, remains very slow everywhere, including in the U.S., the world’s leader in clean coal technology research, development and demonstration. Several key factors that are affecting CCT uptake in U.S. markets can be used as indicators of issues that exist throughout the other coal-consuming regions of the world. These can be observed in the widely contrasting views within the power sector about the technical and economic viability of using CCTs. Power companies, the financial community and public interest groups remain cautiously optimistic. However, the conservative nature of project developers, especially in current power markets, tends to draw their attention to CCTs’ problems and risks. IGCC technology is used in this paper as an example to better understand the concerns of the private sector towards any advanced, capital intensive energy system. Most players in the power sector throughout the large coal-consuming countries believe that IGCC technology is very important to the future role of coal for power production, 4
even though significant IGCC deployment is not viewed as likely in the near term. In fact, many industry insiders are uncertain about why a company would invest in IGCC under current market conditions, even with financial support from the governments of host countries. Two main factors appear to be limiting industry’s optimism about IGCC. First, many utilities don’t believe that IGCC is commercially viable at this time for power-generation applications. They don’t believe that IGCC has been clearly proven as a commercial success and are more familiar with IGCC’s problems (e.g. startup delays at the Wabash River plant). In addition, IGCC still is a relatively expensive technology. As a result, most of the plans for new capacity additions using coal are for conventional pulverized coal boilers with advanced pollution control systems. This is so even though significant economic incentives have been legislated in the U.S. for advanced CCTs under the recently passed Energy Policy Act of 1995. Although a couple of commercial IGCC plants have been proposed in the U.S., they will, for business reasons, likely be low efficiency systems. For example, American Electric Power Corporation (AEP) recently announced that it will construct an IGCC powerplant in Ohio. To make the plant viable in today’s market conditions, AEP is seeking full cost recovery from the Ohio Public Utility Commission. The plant will have efficiencies of between 38% and 40%, not much better than modern conventional pulverized coal boilers. In addition, the plant will not be designed for easy carbon capture that could be valuable in the future to comply with potential carbon control requirements. And, although it is being built to be as cost-effective as possible, it still will have a capital cost of between US$1500-1700/kW―high in comparison with other coal and gas options. The high cost is, in large part, due to use of redundant unit operations to reduce risks associated with reliability and availability of the technology. Second, surprisingly enough, based on interviews conducted with a significant cross section of the coal producing and using communities, there is a general lack of information and knowledge about IGCC— and in particular, how IGCC compares with other technologies from performance and economic perspectives. There appears to be no good studies that compare, in detail and on an apples-to-apples basis, performance and cost information of these technologies against conventional systems. The result is that many utilities have limited information about IGCC, how it works, and how its performance, cost and other characteristics compare with competing technologies. The Role of Natural Gas In the Selection of CCTs Natural gas is projected to be the fastest growing component of world primary energy consumption in the IEO2005 reference case. Consumption of natural gas worldwide increases in the forecast by an average of 2.3 percent annually from 2002 to 2025, compared with projected annual growth rates of 1.9 percent for oil consumption and 2.0 percent for coal consumption. From 2002 to 2025, consumption of natural gas is projected to increase by 69 percent, from 92 trillion cubic feet to 156 trillion cubic feet, and its share 5
of total energy consumption is projected to grow from 23 percent to 25 percent. The electric power sector accounts for 51 percent of the total incremental growth in worldwide natural gas demand over the forecast period (Figure 5). Figure 5. World Natural Gas Consumption by End-Use Sector, 2002-2025
Sources: History : Energy Information Administration (EIA), International Energy Annual 2002, DOE/EIA-0219(2002) (Washington, DC, March 2004), web site www.eia.doe.gov/iea/. Projections: EIA, System for the Analysis of Global Energy Markets (2005).
Natural gas is seen as a desirable alternative for electricity generation in many parts of the world, given its high energy efficiency, and clean burning characteristics. Natural gas also produces less carbon dioxide for the same energy output than other fossil fuels when combusted and thus could be an attractive alternative for countries pursuing reductions in greenhouse gas emissions. Natural gas is also an important energy resource in the industrial sector. The industrial sector accounts for 36 percent of the growth in world natural gas demand over the 2002-2025 period. Natural gas fuels 19 percent of current U.S. power generation, up from 10 percent in 1995 when prices averaged $2 to $3 per thousand cubic feet. During the last nine years, 200,000 MW of gas-based generating capacity was planned, much of which is now online. Most of these new plants are intermediate or peaking plants whose marginal capital cost is much lower than that of baseload units. These plants were also perceived as having fewer of the investment risks associated with uncertain and competitive power markets. But, in the U.S., natural gas prices have increased about six-fold since 1995, and are expected to remain high as domestic gas supplies decline and are supplemented with 6
imports. Increasing natural gas prices are significantly affecting the competitiveness of its use for power generation. Coal generation is a more attractive baseload option now, since coal plants’ fuel costs are only about one-eighth of gas plants’ fuel costs. The price of natural gas will need to be about one-quarter its current price in order for it to remain competitive with coal for baseload generation. As a result of the rise of natural gas prices relative to coal prices in the U.S., 74 GW of new coal-fired capacity (about 148 plants in 36 states) have been announced and will be online by 2025. This accounts for 17% of planned new capacity additions and represents investments of about $72 billion. Most of these are still in the early planning stages; some have received permits and others are already under construction. The Role of Environmental Factors in the Selection of CCTs With stricter emission requirements planned for NOx, SO 2, and particulate matter in many countries and the likelihood of future control requirements for carbon emissions, CCTs may offer advantages over other coal-based options. Technologies exist that are routinely used to control NO x, SO 2 and particulate matter to very low levels. Advanced CCTs also are very low emitters of conventional pollutants. In addition, the advanced systems are more energy efficient than conventional coal-based systems, giving them some advantages in complying with carbon emissions requirements, when and if enacted. Also, one technology, advanced integrated gasification combined cycle, can be configured to produce a nearly pure CO2 stack gas stream that will enable relatively cheap carbon separation compared to combustion systems. However, these factors that favor use of advanced technologies will not result in the increased use of the advanced CCTs unless: Natural gas prices remain high relative to coal prices thus increasing the overall demand for coal plants; Emissions control requirements are stringent enough to demand advanced coal systems over conventional clean systems; Carbon emissions are mandated to be controlled or electric utilities are convinced that CO2 emissions control requirements will be imposed and they, as strategic investments, voluntarily agree to reduce CO 2 emissions; The advanced CCTs are proven to be at least as reliable and cost competitive as other coal options; Capital costs of the advanced systems can be reduced at the same time that efficiencies can be maintained and plant availability and reliability can approach the high levels of conventional coal plants; and General opposition to the construction and operation of new coal plants is addressed.
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Regional Factors Influencing Use of CCTs
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The attitudes of power generators, both utility and independent power producers, towards the clean coal technologies is expected to be different from region to region because attitudes are influenced by differing technological, environmental, economic and social constraints. The following discussion is an assessment of these differing attitudes and their implications on the take-up of the clean coal technologies in each region. Table 1 summarizes the author’s assessment of the potential of advanced CCTs to be significantly deployed in the main coal-consuming regions of the world. The key factors that will influence the uptake of the technologies include:
The amount of the projected new coal-based power generation capacity. Preferential policies to reduce the risks and costs of using the technologies Competition from natural gas and other types of generating capacity Stringent environmental requirements.
Demand for New Coal-based Power Generation World coal consumption is projected to increase from 5,262 million short tons in 2002 to 8,226 million tons in 2025. Much of the 407 million ton increase in coal consumption projected in the mature market economies is the result of expected strong growth in U.S. coal demand, largely the result of high natural gas prices during the forecast period. Coal consumption in Western Europe is projected to decline by 114 million tons between 2002 and 2025 as natural gas and renewable energy are projected to capture an increasing share of the region’s total energy consumption, displacing both coal and nuclear energy. Coal consumption in the transitional economies of Eastern Europe and the former Soviet Union (EE/FSU) is projected to rise over the forecast horizon from 771 million tons in 2002 to 874 million tons in 2025. Although Russia’s long-term energy strategy favors a considerable amount of new nuclear generating capacity, fossil-fuel-fired plants are expected to continue in their role as the primary source for electric power generation through 2020. For new fossil-fired generating capacity, Russia’s energy strategy promotes the construction of advanced coal-fired generating capacity in the coal-rich Siberian region (central Russia) and recommends a focus on efficient natural-gas-fired capacity for the western and far eastern areas of the country. Coal consumption in other FSU countries is projected to increase slightly, primarily as the result of increased utilization of existing coal-fired generating capacity in Kazakhstan and Ukraine.
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Regional Trends in the Evolution of Energy Efficient, Coal-Fired Power Generation Technologies, Coal Industry Advisory Board to the IEA, Paris, France, 2 nd Draft October 1996.
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Table 1. Factors influencing use of CCTs Coal-Based
Preferential
Electricity
Policies
Demand
CCTs
for
Competition
Environmental
Likelihood
Comments
With CCTs
Requirements
For
Growth Australia/
Low
No
Cheap Gas
Moderate
Near
Regarding
Term Use of
Likelihood
CCTs
CCTs
Limited
Economic
New Zealand
of
Competitiveness and Environmental Concerns
Southern
Low-Moderate
No
(1)
Africa
Conventional
Moderate
Low
Coal; Hydro
Limited Need for New
Capacity;
High Cost of CCTs OECD Europe
Low
Limited
Natural
Gas;
Stringent
Limited
Supercritical
Moderate
Good
Natural
with
Gas/
PC U.S.
Competition
Supercritical PC Gas;
Advanced
Stringent
Moderate
PC;
Supercritical
CCTs
need
to
reduce
costs
&
improve reliability
PC Japan
Low
Moderate
Range
of
Stringent
Moderate
Technologies
Government
will
Support variety of CCTs
for
early
operation. China
High
No(1)
Conventional
Moderate
Limited
Coal
Very interested in CCTs
but
can’t
afford them India
High
No
(1)
Low
Limited
Very interested in CCTs
but
can’t
afford them Non-OECD Europe
Moderate
No
Natural
Gas;
Low Cost Coal
Low, Stringent
Limited
Lots of gas, limited resources for CCTs
Technologies (1)
Seeking subsidies from developed countries.
In Eastern Europe, coal consumption is projected to increase slightly over the forecast period, from 374 million tons in 2002 to 394 million tons in 2025. Poland is the region’s largest producer and consumer of coal and the second largest coal producer and consumer in all of Europe, outranked only by Germany. The most recent (January 2005) long-term energy policy put forth by the Polish government indicates that coal-fired generation should remain relatively constant, with new natural-gas-fired capacity used to meet future demand in the electricity sector. Additional plans for both new coal-fired capacity and the 9
refurbishment of existing capacity in other Eastern European countries, including Bosnia and Herzegovina, Bulgaria, the Czech Republic, Macedonia, Slovakia, and Yugoslavia, is a strong indicator that coal will continue to be an important source of energy in the region. Coal consumption in the emerging economies of Asia is projected to more than double in the IEO2005 reference case forecast, increasing from 2,118 million tons in 2002 to 4,435 million tons in 2025. The majority of coal growth in the region will be in China (1,819 million tons) and India (315 million tons). The large increases in coal consumption projected for China and India are based on an outlook for strong economic growth and the expectation that much of the increased demand for energy will be met by coal, particularly in the industrial and electricity sectors. Despite the tremendous increases in coal consumption projected for emerging Asia, coal’s share of total energy consumption in the region is still projected to decline slightly, from 47 percent in 2002 to 44 percent in 2025 largely attributed to growth projected for natural gas use in the region. In the other areas of emerging Asia, a considerably smaller rise in coal consumption is projected over the forecast period, based on expectations for growth in coal-fired electricity generation in South Korea, Taiwan, and the member countries of the Association of Southeast Asian Nations (primarily Indonesia, Malaysia, the Philippines, Thailand, and Vietnam). In the electricity sector, coal use in the other emerging countries of Asia (including South Korea) is projected to increase by 2.6 percent per year, from 2.9 quadrillion Btu in 2002 to 5.2 quadrillion Btu in 2025. The key motivation for increasing use of coal in this region is to maintain a diversity of fuel supply for electricity generation. In 2002, Middle Eastern countries consumed 84 million tons of coal, with Turkey accounting for more than 86 percent of the total. Most of the coal consumed in Turkey is locally produced, low-Btu lignite. Israel accounts for most of the region’s remaining coal consumption. Over the forecast period, coal consumption in the Middle East is projected to increase by 32 million tons, primarily for electricity generation. Africa’s coal consumption is projected to increase by 81 million tons between 2002 and 2025, primarily to meet demand for electricity, which is projected to increase at a rate of 3.7 percent per year. South Africa currently accounts for 92 percent of the coal consumed in the continent and is expected to continue to account for much of the increase in Africa’s total coal consumption over the forecast period. Additional growth in coal consumption is likely to occur in some of the other countries of southern Africa that also are well endowed with indigenous coal resources. . Historically, coal has not been a major source of energy in Central and South America. In 2002, coal accounted for about 4 percent of the region’s total energy consumption. Brazil, with the world’s eighth largest steel industry in 2002, accounted for more than 62 percent of the region’s coal demand (on a tonnage basis); Colombia, Chile, Argentina, Peru, and Venezuela accounted for much of the remainder. In the forecast, Brazil accounts for most of the growth in coal consumption projected for the region, with increased use of coal expected for both steelmaking and electricity production. 10
Increased coal demand implies increased opportunities for the use of CCTs. Thus, based solely upon projected increases in coal demand, the best opportunities for significant use of clean coal technologies for new power generation plants are in the following regions:
China India United States Russia, and South Africa
Preferential Policies Serious impediments stand in the way of commercially deploying many of the advanced coal power generating technologies. These include: Capital cost uncertainties that relate to: Uncertainties about the environmental future that, if new requirements are imposed, would lead to significant capital expenditures that could make the technology noncompetitive. Top on the list is uncertainty regarding the control of CO 2 emissions; Potential for cost overruns brought about by the lack of well proven systems and the integration of unit operations; The amount of time required from start-up to reaching operational equilibrium is related to experiences in demonstration plants that indicate that long time periods are required to debug systems before they are able to operate and produce revenues; Capital availability, which is especially acute in some developing countries, but which also exists in developed countries because of the higher risks associated with newer technologies; Variable cost uncertainties that relate to: Natural gas prices; Carbon capture & sequestration costs, if carbon control mandates are imposed; Costs of fuel transportation & electricity transmission costs; Fixed costs that relate to: Staff retraining or hiring costs to ensure that staff who are qualified to operate and maintain the advanced systems are available; Reliability and availability – critically important concerns that not only affect the bottom line but the ability of generators to meet demand. For the first several advanced like plants, utilities throughout the world will demand riskreducing protections. In the U.S., utility regulators have, in some cases, provided guaranteed full recovery of investments in advanced technology projects. Equipment vendors may offer performance guarantees and/or reduced costs for early units. Tax 11
incentives, grants or loan guarantees may be provided by governments to reduce capital expenditures and project risks. As shown in Table 1, only a few countries have preferential policies for the commercial introduction of advanced CCTs. For example, the Japanese government has long had a policy to subsidize advanced technology projects through research, development and demonstration. The U.S. has invested billions of dollars in the demonstration and initial deployment of CCTs. Western European countries also have had programs aimed at reducing risks associated with new technologies, although not to the extent of Japan or the U.S. Competition As shown in Table 1, advanced CCTs will have competition everywhere they will be considered. Although the advanced CCTs offer the potential for significant efficiency improvements, the ability to meet extremely stringent environmental requirements and, especially in the case of IGCC, the potential for relatively easy carbon capture, their high capital costs and concerns over reliability and availability will impede their commercial development. In many countries, competition with natural gas-based systems will be of prime interest. Natural gas systems are very efficient and clean, have capital costs of ½ to ¼ those of advanced CCTs, can be constructed relatively quickly and are well proven to be reliable and available. However, the increasing delivered price differential between coal and natural gas in many parts of the world is a large advantage for coal-based systems. Stiff competition will also come from conventional coal systems. Advances in these systems now allow them to be built to meet very stringent environmental requirements for conventional pollutants. New plants are fairly efficient and reliable and have relatively low capital costs compared to the advanced CCTs. Coal-based utilities have many years of operating experience with these technologies and are very comfortable with them. Some of these utilities, especially in Japan and western Europe, have had success in constructing and operating supercritical coal systems and would likely select them over more advanced CCTs. To take market share from natural gas and conventional coal-based systems, the advanced CCTs must show, through multiple commercial demonstrations, that they: Can operate reliably, Will not require significant shakedown periods before operating at equilibrium, Can be built, using standardized designs, at capital costs that are not significantly higher than conventional coal-based systems.
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Environmental Control Requirements Continued tightening of environmental control requirements usually adversely affect coal more than other electric power technology options. This is because, when coal is combusted, it emits far more of a wider variety of pollutants then do other options. Costs to control emissions of these pollutants is usually higher for coal plants. However, significant progress has been made to increase pollutant capture efficiencies and reduce pollution control costs from coal-fired systems. In addition, advanced coal-based technologies inherently reduce, to a large degree, some important pollutants. For example, IGCC systems have near zero sulfur and particulate matter emissions, NOx emissions similar to natural gas systems, very low mercury emissions and the potential to fairly easily capture carbon. As a result, tightening environmental requirements could lean the scale more in the favor of advanced coal technologies over more conventional systems. However, tighter environmental requirements could also favor other options, like gas, renewable energy and nuclear, over coal thus reducing the potential market for advanced coal systems. Carbon control requirements will have the most significant impact on fuel and technology cost and choice. Depending on the stringency of carbon control requirements, coal use could be reduced significantly. Similarly, the stringency of the regulations will determine the extent to which advanced coal-based technologies will be the options of choice. Conclusions and Recommendations Conclusions It is the view of the author that advanced CCTs will not see widespread commercial deployment for the foreseeable future. Although there is potential for them to be used in repowering applications, they are more likely to be used in new baseload applications because of the relative ease of designing and building them in new greenfields situations. The main factors that will influence the pace at which the systems are commercially deployed are: Only a few countries are projected to have significant coal-based electricity demand growth through 2025. Advanced CCTs are still going through development and early commercial deployment. They are not yet viewed as reliable, proven technologies. This, in turn, requires risk reduction incentives before electric utilities would consider them for commercial operations. Future environmental requirements, especially as applies to the control of carbon dioxide, is still in question. Many power generation utilities believe that control 13
requirements will be imposed before long. However, their stringency is in question. This issue plays an important part in the selection of fuels and technologies by utilities. Finally, advanced CCTs are expensive when compared to other electric power options. Capital cost reduction through RD&D, standardized design, government and equipment supplier incentives, and other means is required to move these systems into the commercial marketplace. Considering the issues discussed in this paper, the author concludes that significant commercial deployment of advanced coal-based CCTs will be limited to the following countries: United States where IGCC systems – primarily first generation (i.e., low efficiency, high reliability, no carbon capture capability) will be the technology of choice. Japan where some of each of the advanced systems will be built and operated, including a few second generation systems. These projects will be supported financially by the Japanese government. OECD Europe, although coal capacity is not growing rapidly, where super critical and ultrasupercritical systems will be the technologies of choice (because of their experience with them) and possibly a few coal-based IGCC systems, with financial support of the OECD. This is not to say that some systems will not be built elsewhere, but they will likely be commercial demonstration plants supported by organizations such as the World Bank or the Global Environment Facility to give developing countries that will use a lot of coal (e,g,, India and China) some commercial scale experience with the technologies. Recommendations To accelerate the commercial deployment of the advanced coal-based CCTs, each of the barriers noted above needs to be addressed. This can be done by a number of means. The author suggests: Focusing attention only on the few countries that are projected to have significant coal-based electricity demand growth through 2025 (i.e., China, India, Russia, South Africa, and the United States). Provide education, collaborative RD&D, financial support, assistance in developing incentive regulations and policies and other means to accelerate the introduction. Accelerating the commercial demonstration of the technologies and providing easy to find and complete information that compares the cost and performance of these technologies against other viable options so that good information is available to make commercial decisions. Where risks remain after adequate demonstration, 14
provide risk reduction incentives to accelerate technology introduction. market take it from there.
Let the
Providing economic incentives for utilities to reduce their carbon emissions even before control mandates are put in place. Move quickly towards agreement on the level of carbon reduction and timing for the reduction that all countries can live and comply with. Creating capital cost reduction through RD&D, standardized design, government 2 and equipment supplier incentives, innovative financing schemes, and other means.
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The U.S. has enacted important incentive programs as part of the Energy Policy Act of 2005 that could be used as models elsewhere. They include: (1) Incentives for Innovative Technologies (Title XVII): Establishes a loan guarantee program to provide incentives for “inn ovative energy technologies” that avoid, reduce or sequester air pollutants or greenhouse gases and employ improved technologies in comparison to those in commercial use. Eligible projects include renewable systems, advanced fossil energy technologies (including coal gasification), hydrogen fuel cell technology, and advanced nuclear energy facilities, among others. There is no cap on the amount of funds used for this program. (2) Clean Coal Tax Incentives -- P ower Sector Tax Credits (Title XII - Section 1307, Sec. 48(A)): Creates two new investment tax credits for integrated coal gasification combined cycle (IGCC) and advanced combustion facilities. IGCC projects may receive a 20 percent credit and is capped at $800 million. Other advanced coal-based projects may receive a 15 percent credit and is capped at $500million.
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References 1. Deploying IGCC In This Decade With 3Party Covinant Financing, Rosenberg, et.al., July 2004. 2. EIA, Annual Energy Outlook 2004. 3. Booze Allen Hamilton, October 4, 2004; Coal-Based Integrated Gasification Combined Cycle, Market Penetration Strategies and Recommendations. 4. Clean Coal Technologies for Developing Countries, E. Stratos Tavoulareas, et. al., World Bank , 1999. 5. Advanced Power Technology Options: Case Studies in China, India, Kazakhstan, Poland and South Africa, SAIC for NETL, November 2004. 6. Moving Gasification Forward, Edward Lowe, GE Energy, 1994.
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Clean Coal Technologies: Policy/Business Aspects Jack Siegel Energy Resources International, Inc. Tel: 202-785-8833; Fax 202-785-8834; [email protected] 1. Introduction Although coal use is expected to be displaced by natural gas in some parts of the world, only a slight drop in its share of total energy consumption is projected by 2025 (Figure 1). As a consequence, its share of total world energy consumption remains near its 2002 share of 24 percent. In the Energy Information Agency’s International Energy Outlook 2005 (IEO2005) reference case, world coal consumption is projected to increase from 5,262 million short tons in 2002 to 7,245 million tons in 2015, at an average rate of 2.5 percent per year. From 2015 to 2025, the projected rate of increase in world coal consumption slows to 1.3 percent annually, and total consumption in 2025 is projected at 8,226 million tons. Of the coal produced worldwide in 2002, 65 percent was shipped to electricity producers, 31 percent to industrial consumers, and most of the remaining 4 percent to coal consumers in the residential and commercial sectors. These relative percentages are expected to remain about the same through 2025. In the industrial sector, coal is an important input for the manufacture of steel and for the production of steam and direct heat for other industrial applications. Figure 1. Coal Share of World Energy Consumption by Sector, 2002, 2015, and 2025
Sources: 2002: Derived from Energy Information Administration (EIA), International Energy Annual 2002, DOE/EIA -0219(2002) (Washington, DC, March 2004), web site www.eia.doe.gov/iea/. 2015 and 2025: EIA, System for the Analysis of Global Energy Markets (2005).
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To a large extent, the slight increase in the importance of coal in the industrial sector results from the substantial growth projected for industrial energy consumption in China, which has abundant coal reserves, limited reserves of oil and natural gas, and a dominant position in world steel production. Coal is expected to remain the fuel of choice in China’s rapidly expanding industrial sector. In the IEO2005 reference case forecast, the coal share of China’s industrial energy consumption increases from 50 percent in 2002 to 55 percent in 2025. In the rest of the world, coal’s share of industrial energy consumption is projected to decline from 15 percent in 2002 to 13 percent in 2025. Coal has been, and has been projected to continue to be, the most important energy option in India and China through 2025 (Figure 2), although other energy forms, especially natural gas, will eat into coal’s market share. The transitional economies, whose coal use was over 40% of total energy consumption in 1970, now use it for only 20% of its needs. This level of use is consistent with that of all of the other economies throughout the world and the level at which coal consumption is expected in these countries through 2025.
Figure 2. Coal Share of Total Energy Consumption by Region, 1970-2025
Sources: History : Energy Information Administration (EIA), International Energy Annual 2002, DOE/EIA -0219(2002) (Washington, DC, March 2004), website www.eia.doe.gov/iea/. Projections : EIA, System for the Analysis of Global Energy Markets (2005).
Total recoverable reserves of coal around the world are estimated at 1,001 billion tons— enough to last approximately 190 years at current consumption levels (Figure 3). As a result, some of the largest energy consuming and growing countries have ample supplies of coal to last into the foreseeable future. However, the future for coal use depends upon several important factors including: The economics of using coal versus other options; The stringency of environmental control requirements and their impacts on: (1) the cost of using coal compared to other options, and (2) the ability to meet the 2
requirements, regardless of cost; The ability to address social issues (such as public opposition to coal projects) that may discourage or further increase the cost of using coal; and Advancement in the development and commercial readiness of clean coal technologies to compete against other options. Figure 3. World Recoverable Coal Reserves
Note: Data for the United States represent recoverable coal estimates as of January 1, 2004. Data for other countries are as of January 1, 2003. Source: Energy Information Administration, International Energy Annual 2003, DOE/EIA0219(2003) (Washington, DC, June 2005), Table 8.2, web site www.eia.doe.gov/iea/.
2.
Coal Versus Other Options
As noted above, in the IEO2005 reference case, world coal consumption is projected to increase from 5,262 million short tons in 2002 to 8,226 million tons in 2025. The growth in coal use projected for emerging, mature and transitional economies is shown in Figure 4. EIA’s assessment competes coal-based systems against other options. Even though coal systems typically have higher capital costs than other options, EIA’s projections indicating significant growth in the use of coal imply that in many situations coal-based systems will be able to produce electricity at lowest cost, all factors considered. However, EIA’s projections indicate that few of the coal plants will be advanced CCTs because of their high costs compared to conventional systems. Cost and other factors will influence the commercial viability of the advanced CCTs. These are discussed in the following section.
3
Figure 4. World Coal Consumption by Region, 1970 - 2025
Sources: History : Energy Information Administration (EIA), International Energy Annual 2002, DOE/EIA-0219(2002) (Washington, DC, March 2004), web site www.eia.doe.gov/iea/. Projections: EIA, System for the Analysis of Global Energy Markets (2005).
3.
Factors Influencing the Use of Clean Coal Technologies (CCTs)
As detailed above, coal demand is anticipated to increase dramatically in many regions of the World. Considering the very recent dramatic increases in the price of natural gas since issuance of EIA’s energy projections, future coal consumption could be even greater than projected. However, the issue yet to be resolved is the role of advanced clean coal technologies in meeting coal’s demand. The deployment of CCTs, defined in this discussion as advanced power generating systems ―integrated gasification combined cycle, pressurized fluidized -bed combustion, and supercritical pulverized coal boilers, remains very slow everywhere, including in the U.S., the world’s leader in clean coal technology research, development and demonstration. Several key factors that are affecting CCT uptake in U.S. markets can be used as indicators of issues that exist throughout the other coal-consuming regions of the world. These can be observed in the widely contrasting views within the power sector about the technical and economic viability of using CCTs. Power companies, the financial community and public interest groups remain cautiously optimistic. However, the conservative nature of project developers, especially in current power markets, tends to draw their attention to CCTs’ problems and risks. IGCC technology is used in this paper as an example to better understand the concerns of the private sector towards any advanced, capital intensive energy system. Most players in the power sector throughout the large coal-consuming countries believe that IGCC technology is very important to the future role of coal for power production, 4
even though significant IGCC deployment is not viewed as likely in the near term. In fact, many industry insiders are uncertain about why a company would invest in IGCC under current market conditions, even with financial support from the governments of host countries. Two main factors appear to be limiting industry’s optimism about IGCC. First, many utilities don’t believe that IGCC is commercially viable at this time for power-generation applications. They don’t believe that IGCC has been clearly proven as a commercial success and are more familiar with IGCC’s problems (e.g. startup delays at the Wabash River plant). In addition, IGCC still is a relatively expensive technology. As a result, most of the plans for new capacity additions using coal are for conventional pulverized coal boilers with advanced pollution control systems. This is so even though significant economic incentives have been legislated in the U.S. for advanced CCTs under the recently passed Energy Policy Act of 1995. Although a couple of commercial IGCC plants have been proposed in the U.S., they will, for business reasons, likely be low efficiency systems. For example, American Electric Power Corporation (AEP) recently announced that it will construct an IGCC powerplant in Ohio. To make the plant viable in today’s market conditions, AEP is seeking full cost recovery from the Ohio Public Utility Commission. The plant will have efficiencies of between 38% and 40%, not much better than modern conventional pulverized coal boilers. In addition, the plant will not be designed for easy carbon capture that could be valuable in the future to comply with potential carbon control requirements. And, although it is being built to be as cost-effective as possible, it still will have a capital cost of between US$1500-1700/kW―high in comparison with other coal and gas options. The high cost is, in large part, due to use of redundant unit operations to reduce risks associated with reliability and availability of the technology. Second, surprisingly enough, based on interviews conducted with a significant cross section of the coal producing and using communities, there is a general lack of information and knowledge about IGCC— and in particular, how IGCC compares with other technologies from performance and economic perspectives. There appears to be no good studies that compare, in detail and on an apples-to-apples basis, performance and cost information of these technologies against conventional systems. The result is that many utilities have limited information about IGCC, how it works, and how its performance, cost and other characteristics compare with competing technologies. The Role of Natural Gas In the Selection of CCTs Natural gas is projected to be the fastest growing component of world primary energy consumption in the IEO2005 reference case. Consumption of natural gas worldwide increases in the forecast by an average of 2.3 percent annually from 2002 to 2025, compared with projected annual growth rates of 1.9 percent for oil consumption and 2.0 percent for coal consumption. From 2002 to 2025, consumption of natural gas is projected to increase by 69 percent, from 92 trillion cubic feet to 156 trillion cubic feet, and its share 5
of total energy consumption is projected to grow from 23 percent to 25 percent. The electric power sector accounts for 51 percent of the total incremental growth in worldwide natural gas demand over the forecast period (Figure 5). Figure 5. World Natural Gas Consumption by End-Use Sector, 2002-2025
Sources: History : Energy Information Administration (EIA), International Energy Annual 2002, DOE/EIA-0219(2002) (Washington, DC, March 2004), web site www.eia.doe.gov/iea/. Projections: EIA, System for the Analysis of Global Energy Markets (2005).
Natural gas is seen as a desirable alternative for electricity generation in many parts of the world, given its high energy efficiency, and clean burning characteristics. Natural gas also produces less carbon dioxide for the same energy output than other fossil fuels when combusted and thus could be an attractive alternative for countries pursuing reductions in greenhouse gas emissions. Natural gas is also an important energy resource in the industrial sector. The industrial sector accounts for 36 percent of the growth in world natural gas demand over the 2002-2025 period. Natural gas fuels 19 percent of current U.S. power generation, up from 10 percent in 1995 when prices averaged $2 to $3 per thousand cubic feet. During the last nine years, 200,000 MW of gas-based generating capacity was planned, much of which is now online. Most of these new plants are intermediate or peaking plants whose marginal capital cost is much lower than that of baseload units. These plants were also perceived as having fewer of the investment risks associated with uncertain and competitive power markets. But, in the U.S., natural gas prices have increased about six-fold since 1995, and are expected to remain high as domestic gas supplies decline and are supplemented with 6
imports. Increasing natural gas prices are significantly affecting the competitiveness of its use for power generation. Coal generation is a more attractive baseload option now, since coal plants’ fuel costs are only about one-eighth of gas plants’ fuel costs. The price of natural gas will need to be about one-quarter its current price in order for it to remain competitive with coal for baseload generation. As a result of the rise of natural gas prices relative to coal prices in the U.S., 74 GW of new coal-fired capacity (about 148 plants in 36 states) have been announced and will be online by 2025. This accounts for 17% of planned new capacity additions and represents investments of about $72 billion. Most of these are still in the early planning stages; some have received permits and others are already under construction. The Role of Environmental Factors in the Selection of CCTs With stricter emission requirements planned for NOx, SO 2, and particulate matter in many countries and the likelihood of future control requirements for carbon emissions, CCTs may offer advantages over other coal-based options. Technologies exist that are routinely used to control NO x, SO 2 and particulate matter to very low levels. Advanced CCTs also are very low emitters of conventional pollutants. In addition, the advanced systems are more energy efficient than conventional coal-based systems, giving them some advantages in complying with carbon emissions requirements, when and if enacted. Also, one technology, advanced integrated gasification combined cycle, can be configured to produce a nearly pure CO2 stack gas stream that will enable relatively cheap carbon separation compared to combustion systems. However, these factors that favor use of advanced technologies will not result in the increased use of the advanced CCTs unless: Natural gas prices remain high relative to coal prices thus increasing the overall demand for coal plants; Emissions control requirements are stringent enough to demand advanced coal systems over conventional clean systems; Carbon emissions are mandated to be controlled or electric utilities are convinced that CO2 emissions control requirements will be imposed and they, as strategic investments, voluntarily agree to reduce CO 2 emissions; The advanced CCTs are proven to be at least as reliable and cost competitive as other coal options; Capital costs of the advanced systems can be reduced at the same time that efficiencies can be maintained and plant availability and reliability can approach the high levels of conventional coal plants; and General opposition to the construction and operation of new coal plants is addressed.
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Regional Factors Influencing Use of CCTs
1
The attitudes of power generators, both utility and independent power producers, towards the clean coal technologies is expected to be different from region to region because attitudes are influenced by differing technological, environmental, economic and social constraints. The following discussion is an assessment of these differing attitudes and their implications on the take-up of the clean coal technologies in each region. Table 1 summarizes the author’s assessment of the potential of advanced CCTs to be significantly deployed in the main coal-consuming regions of the world. The key factors that will influence the uptake of the technologies include:
The amount of the projected new coal-based power generation capacity. Preferential policies to reduce the risks and costs of using the technologies Competition from natural gas and other types of generating capacity Stringent environmental requirements.
Demand for New Coal-based Power Generation World coal consumption is projected to increase from 5,262 million short tons in 2002 to 8,226 million tons in 2025. Much of the 407 million ton increase in coal consumption projected in the mature market economies is the result of expected strong growth in U.S. coal demand, largely the result of high natural gas prices during the forecast period. Coal consumption in Western Europe is projected to decline by 114 million tons between 2002 and 2025 as natural gas and renewable energy are projected to capture an increasing share of the region’s total energy consumption, displacing both coal and nuclear energy. Coal consumption in the transitional economies of Eastern Europe and the former Soviet Union (EE/FSU) is projected to rise over the forecast horizon from 771 million tons in 2002 to 874 million tons in 2025. Although Russia’s long-term energy strategy favors a considerable amount of new nuclear generating capacity, fossil-fuel-fired plants are expected to continue in their role as the primary source for electric power generation through 2020. For new fossil-fired generating capacity, Russia’s energy strategy promotes the construction of advanced coal-fired generating capacity in the coal-rich Siberian region (central Russia) and recommends a focus on efficient natural-gas-fired capacity for the western and far eastern areas of the country. Coal consumption in other FSU countries is projected to increase slightly, primarily as the result of increased utilization of existing coal-fired generating capacity in Kazakhstan and Ukraine.
1
Regional Trends in the Evolution of Energy Efficient, Coal-Fired Power Generation Technologies, Coal Industry Advisory Board to the IEA, Paris, France, 2 nd Draft October 1996.
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Table 1. Factors influencing use of CCTs Coal-Based
Preferential
Electricity
Policies
Demand
CCTs
for
Competition
Environmental
Likelihood
Comments
With CCTs
Requirements
For
Growth Australia/
Low
No
Cheap Gas
Moderate
Near
Regarding
Term Use of
Likelihood
CCTs
CCTs
Limited
Economic
New Zealand
of
Competitiveness and Environmental Concerns
Southern
Low-Moderate
No
(1)
Africa
Conventional
Moderate
Low
Coal; Hydro
Limited Need for New
Capacity;
High Cost of CCTs OECD Europe
Low
Limited
Natural
Gas;
Stringent
Limited
Supercritical
Moderate
Good
Natural
with
Gas/
PC U.S.
Competition
Supercritical PC Gas;
Advanced
Stringent
Moderate
PC;
Supercritical
CCTs
need
to
reduce
costs
&
improve reliability
PC Japan
Low
Moderate
Range
of
Stringent
Moderate
Technologies
Government
will
Support variety of CCTs
for
early
operation. China
High
No(1)
Conventional
Moderate
Limited
Coal
Very interested in CCTs
but
can’t
afford them India
High
No
(1)
Low
Limited
Very interested in CCTs
but
can’t
afford them Non-OECD Europe
Moderate
No
Natural
Gas;
Low Cost Coal
Low, Stringent
Limited
Lots of gas, limited resources for CCTs
Technologies (1)
Seeking subsidies from developed countries.
In Eastern Europe, coal consumption is projected to increase slightly over the forecast period, from 374 million tons in 2002 to 394 million tons in 2025. Poland is the region’s largest producer and consumer of coal and the second largest coal producer and consumer in all of Europe, outranked only by Germany. The most recent (January 2005) long-term energy policy put forth by the Polish government indicates that coal-fired generation should remain relatively constant, with new natural-gas-fired capacity used to meet future demand in the electricity sector. Additional plans for both new coal-fired capacity and the 9
refurbishment of existing capacity in other Eastern European countries, including Bosnia and Herzegovina, Bulgaria, the Czech Republic, Macedonia, Slovakia, and Yugoslavia, is a strong indicator that coal will continue to be an important source of energy in the region. Coal consumption in the emerging economies of Asia is projected to more than double in the IEO2005 reference case forecast, increasing from 2,118 million tons in 2002 to 4,435 million tons in 2025. The majority of coal growth in the region will be in China (1,819 million tons) and India (315 million tons). The large increases in coal consumption projected for China and India are based on an outlook for strong economic growth and the expectation that much of the increased demand for energy will be met by coal, particularly in the industrial and electricity sectors. Despite the tremendous increases in coal consumption projected for emerging Asia, coal’s share of total energy consumption in the region is still projected to decline slightly, from 47 percent in 2002 to 44 percent in 2025 largely attributed to growth projected for natural gas use in the region. In the other areas of emerging Asia, a considerably smaller rise in coal consumption is projected over the forecast period, based on expectations for growth in coal-fired electricity generation in South Korea, Taiwan, and the member countries of the Association of Southeast Asian Nations (primarily Indonesia, Malaysia, the Philippines, Thailand, and Vietnam). In the electricity sector, coal use in the other emerging countries of Asia (including South Korea) is projected to increase by 2.6 percent per year, from 2.9 quadrillion Btu in 2002 to 5.2 quadrillion Btu in 2025. The key motivation for increasing use of coal in this region is to maintain a diversity of fuel supply for electricity generation. In 2002, Middle Eastern countries consumed 84 million tons of coal, with Turkey accounting for more than 86 percent of the total. Most of the coal consumed in Turkey is locally produced, low-Btu lignite. Israel accounts for most of the region’s remaining coal consumption. Over the forecast period, coal consumption in the Middle East is projected to increase by 32 million tons, primarily for electricity generation. Africa’s coal consumption is projected to increase by 81 million tons between 2002 and 2025, primarily to meet demand for electricity, which is projected to increase at a rate of 3.7 percent per year. South Africa currently accounts for 92 percent of the coal consumed in the continent and is expected to continue to account for much of the increase in Africa’s total coal consumption over the forecast period. Additional growth in coal consumption is likely to occur in some of the other countries of southern Africa that also are well endowed with indigenous coal resources. . Historically, coal has not been a major source of energy in Central and South America. In 2002, coal accounted for about 4 percent of the region’s total energy consumption. Brazil, with the world’s eighth largest steel industry in 2002, accounted for more than 62 percent of the region’s coal demand (on a tonnage basis); Colombia, Chile, Argentina, Peru, and Venezuela accounted for much of the remainder. In the forecast, Brazil accounts for most of the growth in coal consumption projected for the region, with increased use of coal expected for both steelmaking and electricity production. 10
Increased coal demand implies increased opportunities for the use of CCTs. Thus, based solely upon projected increases in coal demand, the best opportunities for significant use of clean coal technologies for new power generation plants are in the following regions:
China India United States Russia, and South Africa
Preferential Policies Serious impediments stand in the way of commercially deploying many of the advanced coal power generating technologies. These include: Capital cost uncertainties that relate to: Uncertainties about the environmental future that, if new requirements are imposed, would lead to significant capital expenditures that could make the technology noncompetitive. Top on the list is uncertainty regarding the control of CO 2 emissions; Potential for cost overruns brought about by the lack of well proven systems and the integration of unit operations; The amount of time required from start-up to reaching operational equilibrium is related to experiences in demonstration plants that indicate that long time periods are required to debug systems before they are able to operate and produce revenues; Capital availability, which is especially acute in some developing countries, but which also exists in developed countries because of the higher risks associated with newer technologies; Variable cost uncertainties that relate to: Natural gas prices; Carbon capture & sequestration costs, if carbon control mandates are imposed; Costs of fuel transportation & electricity transmission costs; Fixed costs that relate to: Staff retraining or hiring costs to ensure that staff who are qualified to operate and maintain the advanced systems are available; Reliability and availability – critically important concerns that not only affect the bottom line but the ability of generators to meet demand. For the first several advanced like plants, utilities throughout the world will demand riskreducing protections. In the U.S., utility regulators have, in some cases, provided guaranteed full recovery of investments in advanced technology projects. Equipment vendors may offer performance guarantees and/or reduced costs for early units. Tax 11
incentives, grants or loan guarantees may be provided by governments to reduce capital expenditures and project risks. As shown in Table 1, only a few countries have preferential policies for the commercial introduction of advanced CCTs. For example, the Japanese government has long had a policy to subsidize advanced technology projects through research, development and demonstration. The U.S. has invested billions of dollars in the demonstration and initial deployment of CCTs. Western European countries also have had programs aimed at reducing risks associated with new technologies, although not to the extent of Japan or the U.S. Competition As shown in Table 1, advanced CCTs will have competition everywhere they will be considered. Although the advanced CCTs offer the potential for significant efficiency improvements, the ability to meet extremely stringent environmental requirements and, especially in the case of IGCC, the potential for relatively easy carbon capture, their high capital costs and concerns over reliability and availability will impede their commercial development. In many countries, competition with natural gas-based systems will be of prime interest. Natural gas systems are very efficient and clean, have capital costs of ½ to ¼ those of advanced CCTs, can be constructed relatively quickly and are well proven to be reliable and available. However, the increasing delivered price differential between coal and natural gas in many parts of the world is a large advantage for coal-based systems. Stiff competition will also come from conventional coal systems. Advances in these systems now allow them to be built to meet very stringent environmental requirements for conventional pollutants. New plants are fairly efficient and reliable and have relatively low capital costs compared to the advanced CCTs. Coal-based utilities have many years of operating experience with these technologies and are very comfortable with them. Some of these utilities, especially in Japan and western Europe, have had success in constructing and operating supercritical coal systems and would likely select them over more advanced CCTs. To take market share from natural gas and conventional coal-based systems, the advanced CCTs must show, through multiple commercial demonstrations, that they: Can operate reliably, Will not require significant shakedown periods before operating at equilibrium, Can be built, using standardized designs, at capital costs that are not significantly higher than conventional coal-based systems.
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Environmental Control Requirements Continued tightening of environmental control requirements usually adversely affect coal more than other electric power technology options. This is because, when coal is combusted, it emits far more of a wider variety of pollutants then do other options. Costs to control emissions of these pollutants is usually higher for coal plants. However, significant progress has been made to increase pollutant capture efficiencies and reduce pollution control costs from coal-fired systems. In addition, advanced coal-based technologies inherently reduce, to a large degree, some important pollutants. For example, IGCC systems have near zero sulfur and particulate matter emissions, NOx emissions similar to natural gas systems, very low mercury emissions and the potential to fairly easily capture carbon. As a result, tightening environmental requirements could lean the scale more in the favor of advanced coal technologies over more conventional systems. However, tighter environmental requirements could also favor other options, like gas, renewable energy and nuclear, over coal thus reducing the potential market for advanced coal systems. Carbon control requirements will have the most significant impact on fuel and technology cost and choice. Depending on the stringency of carbon control requirements, coal use could be reduced significantly. Similarly, the stringency of the regulations will determine the extent to which advanced coal-based technologies will be the options of choice. Conclusions and Recommendations Conclusions It is the view of the author that advanced CCTs will not see widespread commercial deployment for the foreseeable future. Although there is potential for them to be used in repowering applications, they are more likely to be used in new baseload applications because of the relative ease of designing and building them in new greenfields situations. The main factors that will influence the pace at which the systems are commercially deployed are: Only a few countries are projected to have significant coal-based electricity demand growth through 2025. Advanced CCTs are still going through development and early commercial deployment. They are not yet viewed as reliable, proven technologies. This, in turn, requires risk reduction incentives before electric utilities would consider them for commercial operations. Future environmental requirements, especially as applies to the control of carbon dioxide, is still in question. Many power generation utilities believe that control 13
requirements will be imposed before long. However, their stringency is in question. This issue plays an important part in the selection of fuels and technologies by utilities. Finally, advanced CCTs are expensive when compared to other electric power options. Capital cost reduction through RD&D, standardized design, government and equipment supplier incentives, and other means is required to move these systems into the commercial marketplace. Considering the issues discussed in this paper, the author concludes that significant commercial deployment of advanced coal-based CCTs will be limited to the following countries: United States where IGCC systems – primarily first generation (i.e., low efficiency, high reliability, no carbon capture capability) will be the technology of choice. Japan where some of each of the advanced systems will be built and operated, including a few second generation systems. These projects will be supported financially by the Japanese government. OECD Europe, although coal capacity is not growing rapidly, where super critical and ultrasupercritical systems will be the technologies of choice (because of their experience with them) and possibly a few coal-based IGCC systems, with financial support of the OECD. This is not to say that some systems will not be built elsewhere, but they will likely be commercial demonstration plants supported by organizations such as the World Bank or the Global Environment Facility to give developing countries that will use a lot of coal (e,g,, India and China) some commercial scale experience with the technologies. Recommendations To accelerate the commercial deployment of the advanced coal-based CCTs, each of the barriers noted above needs to be addressed. This can be done by a number of means. The author suggests: Focusing attention only on the few countries that are projected to have significant coal-based electricity demand growth through 2025 (i.e., China, India, Russia, South Africa, and the United States). Provide education, collaborative RD&D, financial support, assistance in developing incentive regulations and policies and other means to accelerate the introduction. Accelerating the commercial demonstration of the technologies and providing easy to find and complete information that compares the cost and performance of these technologies against other viable options so that good information is available to make commercial decisions. Where risks remain after adequate demonstration, 14
provide risk reduction incentives to accelerate technology introduction. market take it from there.
Let the
Providing economic incentives for utilities to reduce their carbon emissions even before control mandates are put in place. Move quickly towards agreement on the level of carbon reduction and timing for the reduction that all countries can live and comply with. Creating capital cost reduction through RD&D, standardized design, government 2 and equipment supplier incentives, innovative financing schemes, and other means.
2
The U.S. has enacted important incentive programs as part of the Energy Policy Act of 2005 that could be used as models elsewhere. They include: (1) Incentives for Innovative Technologies (Title XVII): Establishes a loan guarantee program to provide incentives for “inn ovative energy technologies” that avoid, reduce or sequester air pollutants or greenhouse gases and employ improved technologies in comparison to those in commercial use. Eligible projects include renewable systems, advanced fossil energy technologies (including coal gasification), hydrogen fuel cell technology, and advanced nuclear energy facilities, among others. There is no cap on the amount of funds used for this program. (2) Clean Coal Tax Incentives -- P ower Sector Tax Credits (Title XII - Section 1307, Sec. 48(A)): Creates two new investment tax credits for integrated coal gasification combined cycle (IGCC) and advanced combustion facilities. IGCC projects may receive a 20 percent credit and is capped at $800 million. Other advanced coal-based projects may receive a 15 percent credit and is capped at $500million.
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References 1. Deploying IGCC In This Decade With 3Party Covinant Financing, Rosenberg, et.al., July 2004. 2. EIA, Annual Energy Outlook 2004. 3. Booze Allen Hamilton, October 4, 2004; Coal-Based Integrated Gasification Combined Cycle, Market Penetration Strategies and Recommendations. 4. Clean Coal Technologies for Developing Countries, E. Stratos Tavoulareas, et. al., World Bank , 1999. 5. Advanced Power Technology Options: Case Studies in China, India, Kazakhstan, Poland and South Africa, SAIC for NETL, November 2004. 6. Moving Gasification Forward, Edward Lowe, GE Energy, 1994.
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