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Battle Royal: Pulverized - Coal vs IGCC

The battle for the future of coal-fired power is heating up. Recent developments give IGCC a fighting chance.

Fortnightly Magazine - December 2005

Contractors such as GE and Bechtel are prepared to support IGCC projects with turnkey contracts and performance guarantees, but if all pulverized-coal projects were suddenly replaced with IGCC proposals, contractors would be sorely challenged to fulfill the demand for their services. Moreover, they might not have the credit depth to provide affordable guarantees for such a large fleet of what is, after all, still a leading-edge technology.

“IGCC will slowly increase its penetration, but it has some way to go before it is fully competitive,” says Bob McIlvaine, president of consulting firm McIlvaine & Co. in Northfield, Ill. “Utilities are encouraged by IGCC, but they are concerned that there is no experience at the 750-MW level.”

Despite these technology risks, at least 18 IGCC facilities are being developed across the country, representing more than 10 GW of capacity and at least $15 billion in investment. Not all of these facilities will move forward, of course, but many are sponsored by creditworthy entities, and they stand a fair chance of success if rate regulators can get comfortable with the costs and risks. In virtually every case, two fundamental questions will make or break the success of IGCC projects:

1) What is the bottom line business case for IGCC today?

2) How will decision makers value IGCC’s hedge against the risk of future CO 2 constraints?

Both questions must be answered soon, because the clock is ticking on U.S. baseload demand growth. Northern Florida and 100 other markets cannot afford to wait several years until all the pieces naturally fall into place for IGCC. They will invest in new capacity, and until IGCC is ready they seem certain to put their money into pulverized coal. In spite of predictions about future carbon constraints, pulverized coal is today the least-cost option.

At the same time, the same utilities recognize that they are effectively locking in decades of CO 2 emissions liability, and exposing their stakeholders to the increasingly plausible risk of regulatory changes that could leave pulverized-coal assets stranded.

“When you look at the life-cycle costs of pulverized coal, IGCC already is competitive,” says Julie Jorgensen, co-CEO of Excelsior Energy, an independent power developer that is planning an IGCC facility in northeastern Minnesota. “If you hang your hat on the initial cost of energy, you’re using the wrong analysis. You have to look at where emissions limits are now, and where they are likely to go.”

IGCC paves the way toward sequestering CO 2 while pulverized coal effectively blocks that route. “If we are going to use coal as a national-security tool, we have to be proactive and develop capacity in a way that allows flexibility,” Jorgensen says.

Getting state ratemaking authorities to finance that flexibility, however, will remain difficult until they are convinced carbon constraints are inevitable. “The big question, before we totally commit to going down this road, is whether CO 2 sequestration is needed,” says Holt of EPRI. “It isn’t a technical issue, but an economic one.”