Take the Long View on Coal Gasification

Posted on Thursday, November 8th, 2012

There are only two coal gasification plants under construction in the U.S. right now (another is being planned, for Texas); and both have been in the news in the 10 days. I’m seizing the moment of this publicity to make a case for taking the long view of this and other emerging technologies which have the potential to help meet our country’s requirement for abundant, cost-effective, environmentally-friendly, secure, and independently-produced energy over the next 30 to 50+ years.

Did I omit any stakeholders from the previous sentence? It’s not technical complexity which impedes progress in the development of cleaner, cost-efficient energy sources; it’s the cacophony of competing interests trying to get the ears of policy-makers. We need a national conversation that includes all stakeholders—power generators, investors, environmental organizations, engineers, and consumers—to form a coherent energy strategy which can be turned into a stable, national energy policy for the 21^st century. To begin such a conversation, however, all stakeholders need to cultivate the long view.

News from the past week about the coal gasification projects illustrates my point.

The Southern Company is building a 582-MW plant which its subsidiary, Mississippi Power, will operate in Kemper County, Mississippi. The plant is located next to an abundant source of lignite coal, which it will gasify. It is expected to be operational in 2014. Earlier this week the parent company issued a press release announcing a marketing agreement between another of its subsidiaries, Southern Generation Technologies, LLC and KBR, LLC to license the Transport Integrated Gasification (TRIG™) technology, on which the Kemper plant is being built, to energy companies around the world. KBR is a Houston-based construction company whose experience with global sales and marketing complements Southern Company’s technology expertise.

The proprietary TRIG technology represents an improvement to Integrated Gasification Combined Cycle (IGCC) technology. The TRIG process is designed specifically to work efficiently with lower rank coals like lignite which would not be usable in a conventional coal-fired generation plant.

Marketing the TRIG technology around the world is a smart business move. Coal gasification is an evolving but stable technology. The Great Plains Synfuels Plant owned by a North Dakota utility has been generating synthetic gas for more than 25 years; but gasification isn’t economically feasible in the U.S. right now because natural gas prices are so cheap—about 85% less than coal. The practice of hydraulic fracturing, “fracking,” has dramatically lowered the cost of extracting natural gas (and oil) from shale and, along with reduced demand resulting from the economic recession, led to a temporary glut of natural gas on the U.S. market.

In other parts of the world, however, coal gasification may be a timely and beneficial solution—both environmentally and economically. The carbon footprint of a coal gasification plant is similar to that of a natural gas-fired plant, and the technology continues to evolve toward increased carbon capture and sequestration (CCS). China, Australia, and Indonesia all have vast deposits of lower rank coal, and power generation agencies there will likely be able to produce electricity economically through coal gasification.

Duke Energy’s 630-MW coal gasification plant in Edwardsport, Indiana is closing in on commercial completion. It produced synthetic gas for the first time last week and is expected to be in regular production by May 2013.  (It is currently online using natural gas to generate electricity.)

Duke’s project has also been in the news this past week because the Indiana Court of Appeals rejected a proposed 30-year purchase agreement initiated by the Indiana Finance Authority. A new contract will be written and submitted to the Indiana Utility Regulatory Commission (IURC). Duke expects to bring the IGCC process online by May 2013.

Both the Mississippi project and the Indiana project have endured multiple legal challenges brought by state regulatory agencies and environmental groups. As a result, both projects have experienced construction delays and cost overruns, which have understandably provoked the state regulators whose only duty is to the state’s utility customers.

I am in business to help utilities and other companies plan projects in a way that avoids or mitigates construction delays and cost overruns. There is an unavoidable organizational learning curve for companies developing and deploying new technologies. Coal gasification is a specialized chemical engineering process that sits on the fringes of utility operations expertise. Integrating this expertise with the mechanical and electrical engineering functions involves a significant organizational change—which can be managed—but also requires time.

It’s clear that both companies are taking the long view of the technology. Both have agreed to cap the costs to be passed on to consumers below their actual construction costs and are writing off losses on their balance sheets. I applaud their willingness to innovate in the face of resistance, and I wish that state regulators could adopt a more balanced view, taking into account the present and future welfare of consumers.

Shale gas is plentiful and cheap today; but environmental groups oppose it strenuously. Should a link be demonstrated between fracking and unsafe drinking water, drilling for shale gas could be subject to an indefinite moratorium. In that case the companies now investing in coal gasification plants would become the envy of their competitors—several of whom designed coal gasification plants but abandoned the technology because current market conditions (that is, short-term) do not support it.

By the way, both Southern and Duke rely on diverse energy sources to generate electricity. Both have coal plants (which are being retrofitted or retired), nuclear plants, and—increasingly—wind and solar installations. In the face of regulatory uncertainty, diversity is the best, and perhaps the only strategy.

The U.S. Department of Energy (DOE) also takes the long view. It has been a steady partner to both projects, providing grants, sharing expertise, and expediting approval of tax incentives. This public/private partnership—which also incubated, over a period of almost 30 years, the technology which made fracking commercially viable—needs to continue for this and other emerging and evolving technologies.

Environmentalists have always taken the long view, but environmentally-minded citizen groups have sometimes lacked a perspective broad enough to understand the market forces, business planning, and technical complexity that all affect the utilities’ ability to supply electricity at a fair price. One environmental organization that partners with utility companies and acknowledges incremental progress toward cleaner energy sources is the Clean Air Task Force (CATF). The Duke plant in Indiana has received extensive support from CATF. The environmental group endorsed the project’s permit applications, educated local environmental groups which then dropped their objections to the project, and secured positive publicity in the mainstream media.

We need more people from all stakeholder groups who can listen to each other and collaborate to develop short-term improvements, a 50-year strategy, and the long-term development of renewable energy sources. If enough people bring their professional knowledge and emotional intelligence to the process, our great grandchildren just might look back on the end of the carbon era and say, “They done good.”