The Barrel Blog

Now that the Environmental Protection Agency has proposed a regulation describing just what new coal and natural gas power plants must be like with respect to carbon dioxide emissions, one might think utilities and plant developers would have an easier time with long-range planning. The rule might deliver the certainty that executives always say they’re looking for. 

But it’s not necessarily so.

In the new rule, EPA tells the industry what it can and can’t do. After the handful of plants that already have air permits are built (these are exempt from the new rule), any new facility  would need to meet a stringent CO2 emission limit, equivalent to an advanced natural gas plant’s emissions. Coal isn’t ruled out, though: with carbon capture and storage, a coal plant could meet the requirement.

But CCS is nowhere near ready, and utilities say the government will need to help if it expects to get it ready to make coal a real option for the future. Not that the government hasn’t tried to help; so far, the power industry mostly has not been willing to spend the kind of money necessary to get CCS to a practical level. The FutureGen project has languished for years, unable to draw enough commitment.

In one of those great ironies, some companies say that if the government mandated carbon limits in a way that could be monetized–say, in the cap-and-trade program that Congress defeated–then utility regulators would be more willing to have ratepayers foot the bill for a CCS installation. Without that requirement, it’s just too expensive for utilities to pay for it themselves with no prospect of real reward. American Electric Power is the most obvious case.

AEP had government money and was going ahead with a CCS pilot project, but stopped it because West Virginia utility regulators nixed cost recovery and there was just too little prospect of future upside. If there had been a mandate for it, chances for cost recovery, and outlook for real significance to CCS development, would have been much brighter. And West Virginia is a state with a lot of interest in coal.

EPA’s new rule would give generators an opportunity to take a long-range view, banking on reasonably priced CCS at some point in the future. Go ahead and build a coal plant without CCS, EPA said, and as long as you install that technology within 10 years you can have a 30-year average emissions rate that meets the standard.

So a few years from now, if natural gas prices go up again and demand rises, and coal-state interests want to keep coal in the power mix, a utility might want to build a coal unit and emit above the limit, promising to install CCS later so it could meet the 30-year average. That could work–if EPA can arrange such commitments so they mean something–and if CCS gets better and more affordable.

John Litynski, carbon storage technology manager at the Department of Energy’s National Energy Technology Laboratory, says it can be done. He told Platts’ Cathy Cash that issues surrounding monitoring and operating deep geologic storage of carbon can be dealt with. And by 2030, he and his colleague Jared Ciferno said, costs will come down a lot. According to Ciferno, the CCS equipment could raise electricity costs for consumers as much as 60% in 2020 but only half that much by 2030. That 30% is a lot, but who knows what other market factors will be?

In the meantime, the coal plants operating now can keep going. They can upgrade, rebuild, do just about anything, without triggering CO2-control mandates. The next election probably will determine whether a next step–cutting existing-plant emissions–will be taken. Some of these plants will close anyway in the next few years rather than spend money to meet other EPA mandates. (If natural gas were more expensive, though, power prices would be higher and some of those plants would install controls instead of shutting down.)

With gas prices around $2/MMBtu and prospects for not much increase in upcoming years, the common wisdom is that most new capacity needs can be met with advanced gas plants. (And policymakers are trying mightily to keep new needs down by promoting energy efficiency and demand response programs, which use customer cutbacks instead of generation as supply.) CEO after CEO talks about gas as the future, or at least the long bridge to whatever the future may be. “Gas is going to inherit the earth, and the only question is how quickly,” NRG Energy chief David Crane said at last month’s CERAWeek event in Houston.

One is consistently cautionary, though. “Utilities shouldn’t put all their eggs in one basket,” Thomas Farrell, chief executive at Dominion, admonished, also at CERAWeek. Replacing up to 80,000 MW of coal power with gas in a short time would mean a “train wreck,” he said, though lots of gas would not mean less carbon emitted, if that is the goal, which it is, despite the absence of any legislative decision to make it so.

Jeff Phillips, senior program manager for advanced generation at the Electric Power Research Institute, told Cathy Cash last week that EPA’s new rule, while chilling to new coal, would not kill it entirely as a power source even though energy economics point that way now.

“Dracula is going to rise from the dead eventually,” he said. “You can’t have everybody do everything with natural gas and expect those prices to remain low.”

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