Oil and Gas

UPDATE 1-Tenaska Ill. Taylorville plant to cost $3.5 bln

* Coal-to-gas plant to enter service in 2014

* Plant to reduce CO2 emissions

* Plant to generate power for 600,000 homes (Updates with comment from competitive power suppliers)

NEW YORK, March 3 (Reuters) - Tenaska told Illinois the planned 602-megawatt Taylorville coal-to-gas-fired power plant would cost about $3.5 billion and enter service in 2014.

In a cost report to regulators and the state assembly, power plant developer Tenaska, of Omaha, Nebraska, said the plant will use Siemens AG's SIEGn.DE integrated gasification combined cycle (IGCC) technology to convert Illinois coal into pipeline quality substitute natural gas and then burn the gas to produce electricity.

Gasification allows for the separation of pollutants -- nitrogen oxide, sulfur dioxide and mercury -- from the gas before burning it, and also allows for the capture of carbon dioxide, a greenhouse gas blamed for global warming.

Tenaska said the project would be a “net reducer” of CO2 and other emissions because it will displace other higher emitting facilities. The facility will also capture and store more than half the CO2 produced, cutting emissions to levels produced by a similar sized natural gas plant.

That is important in Illinois, which gets about half its electricity from coal-fired generators, as the federal government seeks to reduce greenhouse gas emissions by putting a price on carbon.

Taylorville will use two combustion turbines and one steam generator to power up to 600,000 Illinois homes. It could either burn the gas or sell it into the market.

Tenaska based its cost estimates on construction starting in December 2010, with the plant entering service in December 2014.

Tenaska said it still needs Illinois environmental regulators to issue an air permit and the U.S. Department of Energy, which agreed to give the project a $2.6 billion loan guarantee, to complete an environmental review and other credit documents.

The facility will be located on a 713-acre site near Taylorville, in Christian County, about 35 miles southeast of Springfield, the state capital.

Tenaska estimated the project would create about 2,400 jobs during construction and about 155 full-time positions after entering commercial operation.

In addition, it will add about $126 million a year to the local economy, including purchases of Illinois coal, once it enters service.

To pay for all these benefits, however, the report estimated the plant would increase residential bills by about 1.8 percent, or about $1.82 a month, starting in 2015.

Project opponents like the Illinois Competitive Energy Association, a trade group representing competitive energy suppliers who say they would be forced to buy the plant’s power, said consumers would face billions in higher rates to subsidize the plant if the state approves of it.

Christian County Generation LLC, a joint venture between Tenaska and MDL Holding Co of Louisville, Kentucky, is developing the project. (Reporting by Scott DiSavino; Editing by Walter Bagley)