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Southern, Duke push US coal gasification; others quit
* Gasification seen preserving coal as electric fuel
* Technology challenged by costly construction, cheap gas
* Duke IGCC project to raise Indiana rates 14 percent
By Eileen O'Grady
HOUSTON, June 12 (Reuters) - Only two U.S. electric utilities are building expensive coal-gasification power plants, while dozens of similar facilities have been scrapped and some remaining projects may eliminate coal in favor of abundant, cheap natural gas.
Duke Energy's 618-megawatt Edwardsport coal project in Indiana and Southern Co's 582-MW Kemper County project in Mississippi are the only "integrated gasification combined cycle", or IGCC plants, under construction out of more than three dozen proposed in the United States over the last decade.
Of the handful of other IGCC projects still in development, two are looking at switching to gas as the primary fuel and dropping coal -- at least for now.
The power industry cited gasification technology as a way to save coal's role as the dominant fuel in electric generation as federal limits on carbon dioxide (CO2) emissions appeared imminent, but the technology was unable to gain traction in the face of high capital costs, carbon legislation delay and rising supplies of natural gas.
IGCC plants face a "host of issues", starting with high construction costs, said Gary Stiegel, director of major projects at the Energy Department's National Energy Technology Laboratory, which supports clean-coal technology.
With only two plants being built, Duke and Southern "need to show that they are able to start up and achieve their production capacity within a reasonable time," Stiegel said.
IGCC technology employs a chemical process that converts coal into a synthesis gas, using steam and pressure. The so-called "syngas" can be stripped of impurities, then burned in a gas turbine to produce electricity.
IGCC also offers the ability to capture emissions -- such as heat-trapping CO2 -- for storage or other use.
DOGGED BY COSTS
The Environmental Protection Agency in March proposed its first rules to reduce CO2 from future coal-fired plants by requiring them to capture and store emissions. "That will add additional expense to these projects," Stiegel said.
High construction costs and technical glitches dogged the nation's first three IGCC projects in the 1990s. Only two still run: TECO Energy's 250-megawatt Polk County IGCC in Florida and the 260-MW Wabash River Power Station in Indiana, operated by Duke.
As prospects dimmed for carbon legislation, gas prices declined while shale production rose and recession eroded the need for new generation, many of the nearly 20,000 MW of proposed IGCCs were abandoned with little fanfare.
American Electric Power, which once touted IGCC as a "critical" technology for the nation, is no longer pursuing an ambitious plan to build three IGCC plants in the Midwest.
NRG Energy, Xcel Energy, ConocoPhillips and a utility owned by Berkshire Hathaway's MidAmerican Energy Holdings Co have also dropped IGCC plans.
Even TECO and Southern backed away from developing larger IGCC projects in Florida as coal fell out of favor there.
In 2008, after a long site-selection process, FutureGen, the industry's showcase IGCC plant featuring carbon capture and sequestration (CCS), lost Energy Department financial support due to soaring cost estimates. A revised FutureGen 2.0 project will not include coal gasification.
Now, the lowest gas prices in a decade make it even harder for companies to justify IGCC's costs for the ratepayers that must pay the tab.
"One challenge to moving this type of project forward is capital costs," Stiegel said. "Another big issue is getting financing. They are expensive and not many IGCCs have been built, so the financial markets are concerned."
Duke's Edwardsport IGCC project is expected to produce power by year-end. Cost overruns have boosted its price tag to $3.3 billion from early estimates of less than $2 billion.
Under a settlement proposed to satisfy consumer groups, Duke's Indiana customers will pay just 79 percent of Edwardsport's price tag. That will limit the rate increase on Duke's 790,000 customers in Indiana to 14.5 percent, down from 22 percent without the settlement, the utility said.
Construction at the IGCC project run by Southern's Mississippi Power Co continues despite an ongoing legal challenge by the Sierra Club.
After initially capping Kemper's cost at $2.4 billion, a divided Mississippi Public Service Commission raised the amount that the utility can recover from its 190,000 customers to a maximum of $2.88 billion.
In the most recent monthly update, Mississippi Power said it had spent or committed $1.5 billion to the Kemper project, which was running $366 million over the initial budget.
Southern also disclosed a $1.7 million consulting contract with Anthony Topazi, the former Mississippi Power president whom Southern credits for obtaining state approval of Kemper. Topazi, 62, who was promoted to chief operating officer at the parent company two months after regulators initially approved Kemper, said he will retire on Aug. 1.
Expected to be operational in 2014, the Kemper County IGCC plant will showcase technology developed by another Southern unit, along with KBR Inc and the DOE, called Transport Integrated Gasification, or TRIG, which can be used to gasify lower-quality coal such as the lignite in Mississippi.
In 2009, Southern licensed the TRIG technology to a Chinese utility. KBR presentations say the technology has "huge potential" in China, India, Australia and Indonesia, countries with large supplies of lower-quality coal.
Meanwhile, a handful of IGCC projects remain active, but some have decided to join the natural gas trend, rather than buck it.
Calgary-based EmberClear will use gas, rather than coal, to fuel its 300-MW Good Spring plant in northeastern Pennsylvania, dropping the IGCC component for now.
"Lack of regulatory clarity on emissions for coal-based electricity plants plus the immediate availability of natural gas provides a strong incentive to use natural gas as the primary fuel source," EmberClear said in a release.
"This modification lowers the project complexity, reduces the capital cost by at least 60 percent and accelerates the construction schedule."
Tenaska, which has been working to develop the Taylorville IGCC project in Illinois for several years, may build a gas-fired power plant and defer the gasification component, the Nebraska-based independent power producer said.
"The concept would be to wait until a subsequent legislative approval after economic conditions for gasification improve," said Bart Ford, Tenaska's vice president for development.
Other active IGCC projects include Summit Energy's 400-MW Texas Clean Energy project, Hydrogen Energy California in Kern County and ERORA's 770-MW Cash Creek IGCC in Kentucky.
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