Is Clean Coal Viable For Utility Companies In The Long Run?

Duke Energy (NYSE:DUK) brought its Edwardsport gasified coal power plant online recently. The plant, located in Indiana, has a capacity of around 618 MW and is touted to be one of the world’s largest clean coal facilities. The project has been the subject of a lot of criticism due to significant cost overruns and delays. The initial budget was set at around $1.9 billion, but higher raw material and input costs pushed the final bill up to around $3.5 billion. A part of these increased costs will be borne by consumers through higher electricity rates. The cost overruns and bad publicity could also potentially affect the image of gasified clean coal technologies, which already face strong competition from natural gas and renewable sources. In this article, we briefly examine the viability of gasified coal, and how it compares with other generation sources and its potential impact on the electricity generation landscape in the United States.

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What Are Gasfied Coal Power Plants?

Rather than burning coal directly, gasified power plants uses technologies to convert the coal into a gas and then remove pollutants such as sulfur dioxide, mercury and carbon dioxide, helping to reduce the environmental impact. For instance, Duke’s Edwardsport plant will emit around 70% less pollutants that are regulated by the EPA and around 50% less carbon dioxide for every unit of power produced. ^[1] It is also easier and less expensive to install carbon capture technologies onto gasified coal power plants as compared to regular power plants, making it easier for them to comply with carbon dioxide and greenhouse gas regulations in the future.

Gasified plants are also much more efficient than conventional coal-fired power plants since the gasses produced are first fired to power a gas turbine to generate electricity after which they are used once again to power a steam turbine. According to the U.S. Department of Energy, these plants can potentially achieve an efficiency of over 50% compared to conventional coal power plants which have efficiencies of around 30%. This would help to effectively reduce operating costs.

How Do Gasified Power Plants Compare With Natural Gas And Renewables?

Coal currently accounts for around 40% of electricity generation in the United States and coal-fired power plants are the largest emitters of carbon dioxide in the country. ^[2] As more stringent environmental regulations take effect, coal is likely to see its share of the generation mix gradually slide.

While clean coal technologies appear promising from an environmental standpoint, cost still remains the primary barrier to installation. For instance, if we consider the total capacity (618 MW) and cost of the Edwardsport plant (around $3.5 billion), the price works out to roughly $5,200 per kilowatt (including financing costs). In comparison, the capital costs for a combined cycle natural gas-fired power plant are around $2,000 per kilowatt, making them significantly cheaper to construct.

Natural gas-fired power plants are also cheaper to run at current gas prices, and the expanding pipeline infrastructure in the United States makes it a lot easier to transport natural gas unlike coal which is usually carried by rail. This make clean coal technologies more attractive in states where coal is mined and is available in abundance. Renewables are also catching up with coal in terms of costs. For instance, utility scale solar power plants now cost less than $5000 per kilowatt on average excluding land. Since renwables have near zero emissions and low running costs (primarily maintenance costs), they are likely to be  much more competitive going forward, as their prices continue to fall.

Despite the growing price benefit edge of natural gas and renewables, coal will still remain a mainstay in the U.S. electricity generation landscape since utility firms typically look to diversify their generation sources to hedge against sudden cost inflation of any one source of power. The EIA estimates that the share of coal in electricity generation will decline to around 35% by 2040.

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1. Motley Fool [↩]
2. US EIA [↩]