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Financing Clean Coal

No single type of financial incentive closes the cost gap between clean coal and modern conventional coal technologies.

Fortnightly Magazine - June 2005
Table 2 - Summary of Base Case Incentives Compared With COE Gap ($/MWh)

and meet specific regional needs. Initially, the impetus for developing these technologies was to reduce sulfur dioxide emissions associated with acid rain, but recent concerns have focused on the potential health effects of microscopic particles and trace emissions of mercury, as well as the chance to reduce emission of greenhouse gases. Providing funds to demonstrate such technologies at commercial scale is the focus of the U.S. Department of Energy's Clean Coal Power Initiative. Meanwhile, the industry-sponsored "CoalFleet for Tomorrow" initiative is working to accelerate the commercial deployment of a portfolio of advanced coal-power systems. Our analysis of financial incentives for commercial deployment was sponsored by "CoalFleet" and EPRI.

For high-grade bituminous coals, integrated gasification combined-cycle (IGCC) plants offer significant advantages. By mixing the coal with steam and oxygen under high temperature and pressure, IGCC produces a combustible gaseous mixture called syngas, made up primarily of carbon monoxide and hydrogen. The clean-burning syngas is first consumed as fuel in a combustion turbine, then the hot exhaust from this turbine is used to produce steam that drives a steam turbine. Such a combined cycle provides very high levels of energy efficiency and the existence of a separate stream of syngas offers additional opportunities for producing hydrogen or capturing carbon dioxide. Existing IGCC systems can achieve thermal efficiencies of about 39 to 41 percent, with further advances in gas-turbine technology expected to raise this level to 45 to 50 percent. By comparison, the average efficiency of today's fleet of pulverized coal plants is about 33 percent.

For lower-ranked fuels, such as subbituminous coal or lignite, a variety of clean-coal technologies may prove to be important. For several IGCC implementations, other clean-coal technologies involving direct improvements in the combustion process currently appear to be more cost-effective. Ultra-supercritical (USC) pulverized coal (PC) plants, for example, are being developed to operate with steam temperatures and pressures high enough to achieve plant efficiencies of 45 percent. USC plants are approaching commercial maturity in Japan and parts of Europe where high fuel prices place a premium on efficiency. Projections based upon at least one IGCC process suggest that IGCC also may be competitive for the subbituminous coals. It clearly is an area of intense interest. DOE recently granted $200 million to a Southern Co. IGCC project that will use Powder River Basin coal. For large-scale plants burning very low-grade fuels, another technology, based on circulating fluidized bed combustion, may provide a high-performance, cost-effective option.

Need for Financial Incentives

Table 3 - Value of Tailored Incentives Compared With COE Gap ($/MWh)

Our initial analyses of possible financial incentives to stimulate deployment of commercial clean-coal power plants have focused on IGCC. Already there are four IGCC demonstration power projects built with partial government funding, as well as numerous smaller industrial coal-gasification facilities around the world, used mainly to produce chemical feedstock. In addition to having very low emissions of air pollutants such as sulfur, particulates, and mercury, IGCC also offers a carbon capture potential that could provide a useful hedge against future limitations on carbon-dioxide emissions. In this case, the syngas is mixed with steam to create relatively pure streams of hydrogen and carbon