Sunday, November 27, 2011

Consumers paying for cleaner coal; Some utilities passing along costs of tighter environmental regulations

– Some 285 feet underground, miners trudge behind a hulking remote-controlled machine that spins metal spikes into the earth and grinds out 20 tons of coal every 30 seconds.

Within months this mine will disgorge 20,000 tons of coal per day via conveyor belt into the boilers of Prairie State, the largest coal-fired generating plant built in the U.S. in 30 years. The 1,600-megawatt power plant, which will become fully operational in 2012 and produce enough electricity to power 2.5 million homes across eight states, is outfitted with more than $1 billion in environmental controls.

The Prairie State Energy Campus — an hour's drive from St. Louis, with a smokestack 70 feet taller than that city's famous Gateway Arch — likely wouldn't exist had its developers not locked in long-term contracts that pass on construction costs to consumers.

"This is the cleanest coal plant you can get. I don't know how you could make it much cleaner," Tom Foust, reliability manager for Prairie State, recently told visitors. The cost of Prairie State already exceeds $5 billion partly due to the expense of meeting tightening environmental regulations.

In the face of such requirements, some utilities are closing coal-fired plants. Roughly 8,000 megawatts of coal-fired power has gone offline since 2005. An additional 21,000 megawatts is expected to be lost by 2018.

Still, other utilities believe they can meet federal Environmental Protection Agencyregulations through retrofits or utilizing new technologies that lessen costs to comply.

"The impending EPA regulations on fossil-fuel-fired power plants are likely the single most important thing happening to the utility sector over the next five to 10 years," said Michael Lapides, vice president and senior analyst who follows utilities for Goldman Sachs & Co.

Consider Texas-based Dynegy, which is expected to complete by the end of 2012 a host of environmental retrofits at its 1,800-megawatt coal plant in Baldwin, Ill. The company decided that the cost of upgrading at $360 per kilowatt is less expensive than losing revenue by shutting down.

Between 2005 and 2012, Dynegy's environmental upgrades will total nearly $1 billion at its Illinois facilities to comply with a 2006 settlement to clean up those plants. Parties included the U.S. Justice Department and EPA and the state of Illinois.

To meet mercury emission limits imposed by the state, the company is spending millions of dollars annually to purchase a product called activated carbon to absorb mercury before it enters the air.

The upgrades were funded from internal sources, Katy Sullivan, a spokeswoman for Dynegy. "It is more cost-effective to maintain and continue operating safe, reliable and compliant plants like Baldwin rather than retiring them," she said.

The Baldwin plant sits on a 3,000-acre site, allowing room to add environmental control equipment. Just one piece of pollution control equipment at Prairie State, stacked on its end, would exceed the height of the NBC Tower in downtown Chicago.

Some older plants simply do not have room for certain upgrades.

Midwest Generation, for example, operates two plants in Chicago that illustrate that situation.

Its Crawford facility sits on just 72 acres; Fisk on only 50 acres. Those sites essentially rule out adding certain sulfur dioxide scrubbing equipment — which can be as tall as skyscrapers and require a huge swath of land for storing materials that are injected into the scrubbing system — as well as massive cooling towers that could be required under U.S. EPA regulations next year. So far, the company is betting that the cooling towers won't be required. And whether or not electricity markets recover from the recession also figures into the company's decision.

The type of coal a plant burns also plays a major role in how a company responds on environmental controls. Midwest Generation, which burns low sulfur coal, has determined that injecting a mineral called trona into the combustion process cuts lung-damaging sulfur dioxide emissions to meet new federal and state standards, said Douglas McFarlan, a spokesman for Midwest Generation.

Four years ago, Midwest Generation estimated that retrofitting its fleet of six coal plants in Illinois would cost $3.5 billion. With the discovery of trona, that estimate has been trimmed to $1.2 billion because of decreased capital costs. But if the plants burned high sulfur Illinois coal, the technology would not be sufficient to meet those standards.

Previous investments have also worked in favor of keeping the plants open. Midwest Generation reduced nitrogen oxide emissions — a precursor to acid rain and ozone — by about 60 percent at Crawford and Fisk between 2001 and 2002. This year, the company spent $20 million to add additional nitrogen oxide controls.

In 2008 and 2009 Midwest Generation spent about $12 million at both plants to remove about 90 percent of mercury, which is associated with impaired neurological development.

Regardless of whether utilities add more pollution controls, some environmentalists say shutting coal-fired plants makes the most sense because such plants will always produce emissions that are harmful to public health.

While coal has long been one of the cheapest and most reliable sources of power available, other sources of power carry a fraction of the emissions.

"Given the age of these plants and their location, the far more sensible approach is to retire them and replace them with something cleaner instead of continuing to keep these aging dinosaurs alive," said Shannon Fisk, a litigator with the Natural Resources Defense Council.

St. Louis-based Ameren Corp. is doing just that, shuttering by year-end its Hutsonville and Meredosia power plants in Illinois.

The Meredosia plant, about an hour west of Springfield, has two units — one coal and another oil — with a combined capacity of 369 megawatts. The 151-megawatt Hutsonville coal plant sits on the border of Illinois and Indiana.

"These plants were the oldest and smallest in (our) fleet," said Mark Eacret, vice president of business services and controller for Ameren. "Their fuel, other variable costs and fixed costs are high relative to the rest of (Ameren's) coal-fired fleet. At the same time, the prices for the energy that the plants would have produced have been adversely impacted by the current economic climate."

Shutting down the plants will also allow Ameren to retain its emissions allowances for sulfur dioxide and nitrogen oxide for another three years and put off upgrades that would reduce those emissions at its Edwards power plant in Illinois — saving $70 million through 2015.

At Prairie State, a cold rain evaporates to mist above a sky-high mountain of coal. The fuel is moved here along belts and chutes from the mine across the road. The coal deposit took 1 million years to form, but Prairie State's owners expect to consume it within 30 years.

The coal to fuel Prairie State is extremely high in sulfur, which means it requires more cleaning to remove toxic pollutants. And that adds substantially to costs.

To build Prairie State, Peabody Energy, the world's largest private-sector coal company, partnered with eight public power agencies that are bearing 95 percent of the project's cost through their customers: suburbs and municipalities who purchase electricity for their residents. Of those nine owners, three are Illinois-based municipal electricity cooperatives that purchase wholesale electricity on behalf of residents in municipalities across the state.

Bruce Ratain, clean energy associate at Environment Illinois, suggests that plants like Prairie State shouldn't be built because consumers are subsidizing the costs.

"Every year, we've seen plants come to the Illinois Legislature looking for sweetheart deals to build coal plants that weren't viable on the open market," Ratain said. "Often, ratepayers are proposed as those forced to bear the burden of increased rates and cost overruns to subsidize old-fashioned, polluting technology.

"If we are going to use public policy to distort the market and favor a particular source of energy, then logically we should only do so for the best options — those which pollute least (or not at all), create the most jobs, and move our country forward," he said, suggesting wind, solar and other forms of renewable energy.

In Illinois, developers of two coal gasification projects, in Chicago and Jefferson County, persuaded Gov. Pat Quinn and the Legislature this year to force the state's major gas utilities to purchase their gas to heat Illinois homes despite the fact that natural gas prices are expected to remain low for the foreseeable future and a plentiful supply already exists. One utility refused to sign the 10- and 30-year contracts and another has sued.

"No one has been able to build a new plant without significant help — either tax breaks, long-term contracts or multiple ownerships," said Sarah Wochos, a policy advocate with the Environmental Law and Policy Center, a Midwest environmental advocacy organization.,0,6641031,full.story

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