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Coal Gasification Gets Real

The technology works, but public policy will dictate its future.
Fortnightly Magazine - January 2005

the time we start bringing in lenders," Jorgenson says. "The federal loan guarantee would make the project all the more attractive, but we will get the project over the finish line with or without it. We believe there are ample funds out there. The lynchpin will be the power-purchase agreement (PPA)."

Although the Minnesota legislature declared that Excelsior is "entitled" to a PPA with Xcel Energy, Excelsior still must negotiate the deal with Xcel and make its case to the state public utility commission, through a least-cost analysis and public-interest determination. Its case got a boost in November, when Xcel Energy released its resource plan for meeting demand through 2019. "Xcel said they would not be able to have a coal-fired generator online before 2013, but acknowledged that they need it sooner to reduce reliance on natural gas," Jorgenson says. "That is a most significant step."

Additionally, Excelsior must obtain various permits and secure contracts for the project. The company's current timetable calls for financial closing and groundbreaking in June 2006, with startup beginning in 2008. If the project stays on schedule, it will enter full commercial operation in June 2010.

Real Deal or Red Herring?

The U.S. electric utility industry in the 21st century is a weird chimera of public policy mandates and market forces. No power asset-whether owned by a regulated utility or an independent power company-is built without accounting for a variety of political factors.

Employment is one such factor, and it weighs more heavily in some cases than it does in others. Cinergy's project in Indiana, like Excelsior's in Minnesota, has received praise from state lawmakers for its ability to create jobs.For most power-plant investments today, however, the dominant public-policy considerations involve concerns about the environment and the nation's energy security.

Today, coal is the single largest fuel source for America's power industry, and no resource will challenge that position in the foreseeable future. Indeed, to the degree that natural gas supplies are unable to meet increasing demand, coal's role seems certain to expand. Furthermore, given rising concerns about air quality and the greenhouse effect, IGCC increasingly appears to be a leading technology for the power industry of the 21st century.

Appearances, however, can be misleading.

First, the natural gas crisis might not be as dire or as enduring as analysts have predicted. Breakthroughs in LNG and gas-pipeline investments, for example, could reverse the gas-price rise and curtail momentum toward coal.

"Clearly we will see a number of gasification investments going forward in the next couple of years," Feo says. "But the gestation period is fairly long, and a lot could happen. If natural gas prices get back to the $3 range, the discussion is ended."

Second, emissions restrictions might not intensify significantly in the mid-term future. Indeed, lacking a dramatic public outcry on environmental issues, the status quo could prevail for many years-at least at the federal level. In such a scenario, companies would be more likely to make token investments in clean-air technologies than to invest in a substantial number of IGCC plants.

"The president's Clear