Momentum For Clean Coal Conversion Burning Out

President Obama’s recent public support of clean coal and his waning interest in cap-and-trade legislation may not be enough to save the American coal industry from a perfect storm of competitive technology, stricter regulation and growing obsolescence.

Harald Sund | Photographer's Choice | Getty Images

Despite claims that the U.S. has a potential 200-year supply of domestic energy, coal is now vilified for its carbon emissions. (Just over half of U.S. electricity is generated by coal combustion, and independent research firm Pike Research pins 86 percent of our stationary emissions on these coal-fired power plants.)

But environmental regulations unrelated to cap-and-trade, the 40-year average age of an American coal-fired power plant and growing scalability from other cleaner fuels, may do more to shutter the coal industry than a new breakthrough agreement to replace Kyoto.

“Why are you putting money into clean coal technology when you’re hindering on other fronts?” says American Coal Council, ACC, CEO Janet Gellici, a trade association representing 150 of the nation’s coal producers and associated businesses. “It’s baffling to me.”

She points to potential new regulation from the Environmental Protection Agency, declaring coal ash a hazardous material in the wake of a coal ash slurry spill that flooded part of the town of Kingston, Tenn. in December 2008.

Coal ash is used as a component in highway materials and concrete production and earns up to $10 billion a year for the coal industry. Currently it costs about $10/ton to handle, but the coal industry fears it could reach $150/ton if declared a hazardous material.

“That’s going to put a big kibosh on the sector,” says ACC’s Gellici.

Then there’s the current state of clean coal—a catch-all term describing a basket of technologies that still in their infancy when used in electricity generation.

The most popular of these is carbon capture and sequestration, where carbon emissions from burning coal are captured and buried or stored in liquid form, typically in depleted gas fields, unmineable coal seams and salt deposits.

But to date, implementation has moved little beyond a small handful of pilot projects in the U.S. Other countries have cancelled projects because CCS technology is unproven and the cost of other energy sources has fallen.

CCS’ high price tag is also an issue, with a recent Pike Research report saying “the addition of CCS systems to both existing and future power plants will likely add between 50 percent and 70 percent to the cost of producing electricity” from coal.

Duke Energy is working one of the first commercial-scale CCS facilities in the U.S., funded in part by $3.4 billion in financing for clean coal technologies in 2009’s American Reinvestment and Recovery Act—better know as the stimulus package. But it remains to be seen whether this technology is feasible.

The Carbon Challenge - A CNBC Special Report - See Complete Coverage
The Carbon Challenge - A CNBC Special Report - See Complete Coverage

"Some power generation projects are intended to be carbon-capture ready but the technology and storage has still to be proven at scale," says Mark Fulton, managing director of Deutsche Bank’s DB Climate Change Advisors.

Another clean coal technology is coal gasification, wherein coal is treated with a catalyst along with massive amounts of steam and heat to produce methane and hydrogen, which can then be burned to make electricity.

But while gasification facilities exist for products used in the fertilizer and chemical industries, it has had limited use in utility-level production and could be years away from a scalability.

"Coal gasification works, but the issue is that it has been used for industrial purposes so far,” says DB’s Fulton. “There are very few instances where it has been used for power generation exclusively."

Exelon is supporting a model gasification facility in Illinois, but that effort is still in demonstration stage.

ACC’s Gellici says even retrofits of America’s existing coal-fired plants—with turbine and other technologies that are fuel-agnostic—get caught up in state and federal regulatory approvals, prompting some operators to simply let these plants slide into obsolescence, rather than tackle the red tape for a questionable return on investment.

Would you invest, asks Gellici, “if you’re going to be slapped with a lawsuit from the EPA?”

According to several sources, about 250 coal-fired plants could benefit from these upgrades, providing a 3-5 percent carbon emissions reduction while adding up to an additional 30,000 MW of capacity—meaning fewer new plants would need to be built, and easing the transition to other non-coal-fired plants in the coming years.

This category tops the Department of Energy’s projections for new coal-fired capacity additions through 2030—meaning that allowing the refurbishment of existing coal plants may mean almost no new coal plants would need to be built.

But instead, power producers are evaluating the long life of these power production assets and seem to be trending away from new coal-fired plants.

According DoE statistics, between 2001 and 2008, the number of coal-fired plants in the U.S. dropped from 645 to 599, while renewable energy plants jumped from 672 to 1,080 and natural gas–powered plants rose from 1,576 to 1,653.

Natural gas-fired plants did peak at 1,696 in 2003, as higher gas prices later in the decade may have made new plants less feasible, slowing their development.

Ironically, it is a green fuel that could help pull coal through: biomass, a renewable fuel derived from forestry and agricultural waste, industrial food production and even household organic waste.

Coal-fired plants can be more cheaply converted to co-fire with biomass fuels, making their electricity output less carbon-intensive.

Midwestern power producer FirstEnergy invested $200 million to convert an Ohio plant to that format in early 2009.

"The coal generation industry is certainly looking at adding co-fired biomass into their mix as well to reduce emissions,” says Fulton, possibly extending the life of these plants.

ACC’s Gellici says she’s concerned the Obama administration is being short-sighted.

“If we’re serious about national security and gaining energy independence, then we need to look at indigenous sources of energy,” she says.

But while the White House says it has increased financing for clean coal technologies—by a modest $5 million from the 2010 fiscal year to $438 million in their 2011 proposed budget—John Gartner, senior analyst with Pike Research says the current economic climate limits what they may be willing to spend on old technologies.

"The administration is just saying it can’t do it now," he says.