Ryan Randazzo
The Arizona Republic
Apr. 12, 2008 04:32 PM
Source: http://www.azcentral.com/arizonarepublic/business/articles/0412biz-coalfuture0413.html

Uncertainty about the future of coal power plants could prevent Arizonans from tapping the inexpensive and abundant resource to meet their growing electricity demands, and likely will mean higher energy bills.

Coal powers a hefty portion of American appliances for electric utilities and their ratepayers.

But coal releases more carbon dioxide than other energy sources, and with growing agreement that those emissions must be capped, cut or taxed to address global warming, utility companies see coal as a low-hanging yet forbidden fruit.

With legislation pending in Congress and other parts of the world to charge utilities for CO{-2} emissions, utility officials are hazy on the future of traditionally cheap coal power.

Companies such as Arizona Public Service Co. and Salt River Project are wary of committing to new coal projects that might seem inexpensive now. New global-warming laws could make those plants much more expensive to operate down the road.

They predict they either will have to pay more for the emissions or pay more for yet-to-be-invented equipment to catch those emissions. Or they could rely on more expensive sources of electricity.

Like all other utility expenses, those would be passed on to ratepayers in monthly bills.

For example, Sens. Joe Lieberman, I-Conn., and John Warner, R-Va., support legislation that aims to cut greenhouse-gas emissions 19 percent below 2005 levels by 2020, and 63 percent by 2050.

APS officials used some assumptions to calculate that would cost them $180 million a year in 2012 in operating expenses, based on the coal plants they operate. That would add 5 percent or more to customer bills. SRP officials declined to offer such estimates.

A separate analysis of the bill by the U.S. Environmental Protection Agency estimates that if utilities could pass on the expenses, customers could see bills go up 44 percent in 2030 and more afterward.

Whether that bill or similar legislation gets passed, and when, is completely up in the air. Lenders already are setting new guidelines for coal plants, though, to make sure the potential expenses are accounted for in business plans.

Filling the gap

The uncertain future of coal generation is revealed in the blueprints for the proposed Desert Rock coal-fired power plant outside Farmington, N.M.

Developer Sithe Global Power would be happy to see APS or SRP sign agreements to buy the plant's electricity for Phoenix customers. But the utilities are holding off on new big coal plants until they know about the costs.

A huge gap in the middle of the 1,500-megawatt Desert Rock plant's design could be the deal breaker or deal maker.

Sithe is leaving space for equipment that can capture CO{-2}, but nobody knows how to do that very well yet.

"When you take coal into consideration, you have to take in CO{-2} as part of the equation," said Nathan Plagens, vice president of the Desert Rock Energy Project. "When we get this carbon regulation straightened out, we can put something in that gap."

Plagens takes in the sweeping landscape of the high-desert site near the Four Corners for the proposed plant, with monumental Shiprock and Colorado's snow-capped peaks on the horizon.

The site is on the vast Navajo Reservation and has the endorsement of the tribal government.

A few miles away, draglines work around the clock digging coal for another generator, the Four Corners Power Plant run by APS, and stand ready to fuel Desert Rock if it gets built.

Plagens has a few other hurdles before that happens. His company just sued the Environmental Protection Agency for delays in getting an air permit for the plant. He said the EPA is stalling because coal is "politically incorrect" amid the growing concern over global warming.

He's remains optimistic. Dozens of coal-plant cancellations have drawn lots of attention in the past year, but the U.S. Department of Energy still lists 47 coal plants either permitted or under construction, including an Arizona addition from SRP.

Coal-burning plants, mostly in the Four Corners area, generate 38 percent of the power for APS customers, and 45 percent for SRP's. Nationwide, about half of electricity generation comes from coal plants.

Plagens and other proponents argue the country should use coal, which is more plentiful than natural gas and less complex than nuclear power.

"Our company is technology-neutral," Plagens said. "If we could get the same return on natural gas, we would do that."

The land near Desert Rock is bursting with coal, with a deposit so vast that it breaks through the ground surface in places. Lightning strikes occasionally spark underground coal-seam fires that can burn for years.

Utilities already tap the Fruitland coal formation to fuel the massive San Juan Generating Station and the Four Corners Power Plant. Both existing plants sit next to their mines, as would Desert Rock.

The mine feeding Four Corners has dug an area 14 miles long by three to four miles wide since the plant opened in 1963, providing inexpensive, around-the-clock electricity for the utility, and there is plenty of coal left.

"We are in an interesting position right now as a utility and as a country," said Don Robinson, senior vice president of planning for APS, who added that "interesting" isn't necessarily good. "I don't think anybody can go out today and start a new coal plant without some assurance of where CO{-2} is headed. Whatever tax or system is put in place will factor into whether we continue to run plants or replace them."

APS and other utilities are researching a variety of ways to limit greenhouse-gas emissions, from pumping CO2 underground, which is commonly done to enhance oil wells, to feeding it to algae that is converted into biodiesel or ethanol. But capturing it without significantly reducing the capacity of a plant isn't easy.

Either way, the price of coal power looks to be rising, but how much? And how do utilities compare the unknown future price of coal generation to the also illusionary prices of natural gas, or to expenses of building a nuclear plant with nowhere to permanently store nuclear waste?

APS has begun a series of industry meetings to help the utility decide what major power source to pursue. Utility officials are hopeful they get state regulators' endorsement of the energy plan so that they aren't left on the hook if their energy-price predictions are off the mark.

Customers would pay

If a utility builds or agrees to buy power from a coal plant and emissions are taxed, electric customers will see higher prices. Likewise, if a utility builds a natural-gas or nuclear plant and encounters unexpected costs, customers will pay.

Robinson wouldn't comment specifically on Desert Rock. But he said the utility recently asked for proposals to provide more base-load energy, and has spoken with every energy developer in the region.

"Right now if you tell me somebody is out there who wants to build a coal plant, and they will take the risk and not pass it on to me, I'd certainly consider that. But nobody is going to do that," Robinson said. "They certainly are willing to build a plant and have me take the risk on my customers' behalf."

SRP, which splits electricity service in the Valley with APS, is building a coal generator at an existing power plant but holding off on larger projects for now.

"It is critically important for us to find a way to continue to utilize coal," said John Coggins, who manages resource planning for SRP.

"If we were to look at a coal project today, we certainly would want to know as much as we can about the future of CO{-2} regulations," he said.

SRP is spending $700 million to add a new coal generator to the existing Springerville Generating Station that should come online by 2010. SRP also operates the 773-megawatt Coronado Generating Station in northern Arizona, and has partnerships in several others, including the 2,250-megawatt Navajo Generating Station near Page and the 2,000-megawatt Four Corners plant.

"We really need to pursue every option," Coggins said. "I don't think we can abandon coal. We need to find the right solutions to make it work."


Industry optimism

As environmental groups try to stop new coal development, coal-mining companies promote the fuel, suggesting that "clean" methods of burning it are a breakthrough away from reality.

"I do believe in my lifetime we will have the ability to produce energy from coal with little of the pollutants that are now regulated, and the ability to capture and store carbon," said Joe Lucas, executive director of the coal advocate Americans for Balanced Energy Choices. "Coal is going to have a central role in America's energy future and the world's energy future."

The group began in 2000 and now has a budget of $35 million to advertise and educate people on the benefits of coal. Lucas doesn't want to see inexpensive coal in the United States passed up for imported natural gas or uranium, and emphasizes that relying on other energy sources likely will raise power bills.


Alternatives limited

New nuclear power could play a role with an expansion of Palo Verde Nuclear Generating Station, but the investment is much larger than coal just to get the proper permits, not to mention concerns over where the radioactive spent fuel will be stored.

"For a utility to move forward with a project like that, there already is tremendous risk, $50 million or more, just to get the license, and you don't even know if the project can go forward," Coggins said.

Meanwhile, APS coal plants are coming off a record year, operating well above 80 percent capacity, Robinson said. The performance makes coal that much more attractive and difficult to replace with solar or wind.

He's succinct when asked if alternative energy can replace coal.

"No," he said. "Remember, I've got 1,750 megawatts right now that is running 24 hours a day basically. It is there overnight, all the time.

"If I look at building solar plants, it would be very difficult to replace that 24-hour operation even with something like solar-thermal with backup heat storage and 16 to 17 hours a day of power."

APS and SRP both can meet growing power demand for a few years with new natural-gas and alternative energy, but eventually will have to decide whether coal or another fuel will add to their base energy.

"The big issue with coal right now is the emissions," Robinson said. "The question is, what is going to be the technology that comes about, if any, that helps us eliminate that as an issue?"