King Coal returning to the throne

Long the symbol of a "dirty" economy and seemingly destined for oblivion in the age of global warming, coal is making a resurgence in the United States and Canada, propelled by the big blackout last summer and the volatility of natural gas prices.

It is a small advance, but 4,900 megawatts of coal-fired generation is under construction or in advanced development in the United States and another 11,000 megawatts is in early development, according to a Standard & Poor's report in March.

Beyond that, 90 new coal-fired power plants are on the drawing boards, with a combined capacity of 50,000 megawatts and a price tag of $75 billion. Currently, total U.S. electricity capacity is 900,000 megawatts.

Even those projects that are under way are the first coal-fired plants in about a dozen years and stem directly from the growing uncertainty around gas prices, said Loren Cox, associate director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology.

"When gas prices are high and/or volatile and high, then there are enormous incentives to switch to coal because the price of coal is very stable and the resource base is so huge," he told a Calgary conference this year.

Although dual-fired power generation capacity has shrunk over the last 15 years, that trend could easily be reversed, Cox said.

"The owners of generation facilities want to stay in business," he said. "The one thing that no generator ever wants to experience is being shut down because the supply is not there."

Gas-fired plants built when gas cheap

When natural gas was cheap and plentiful in the 1990s, North America embarked on a wave of building gas-fired generating plants.

Now the pendulum has swung back, with fuel costs for gas generation as high as 4 cents per kilowatt-hour, compared with 1 cent for coal plants. The threshold price for gas production is estimated at $3 per million British thermal units, barely half current gas prices and sufficient to make coal-fired power a bargain.

"Two or three years ago we would have said sooner rather than later," said Thomas Shockley, chief operating officer of American Electric Power Co., the largest U.S. electricity generator, referring to the likelihood of coal-fired generation shutdowns. "But $5 gas pushed that out."

Brushing off the tarnished environmental image of coal, Cox said coal-fired plants can be "virtually as clean as a gas-fired plant" by eliminating all sulfur emissions.

Jim Dinning, an executive with Alberta-based utility TransAlta, said the term clean-coal is not a misnomer, noting that the coal gasification in use at several U.S. power plants turns coal into synthetic gas, hydrogen, sulfur, chemicals and a "relatively pure stream" of carbon dioxide that can be shipped to depleted oil fields for sequestration, or for enhanced oil and coalbed methane recovery.

Referring to the "naysayers," Dinning likened them to "the folks who said we'd crash at Y2K."

Duke du Plessis, a research manager at the Alberta Energy Research Institute, said there are now technologies that can "remove most or all emissions of concern" from coal in the production of power.

Still critics of clean-coal technology

However, the critics are not swayed, arguing that investment in clean-coal technology is a diversion of money from established electricity supply sources that already meet climate change and environmental protection targets, such as wind power.

At the nub of the debate in the United States is the extent to which coal can be a factor in national energy security.

The Department of Energy gives a strong vote of confidence by rating coal as "one of the true measures of the energy strength of the United States."

The Bush administration's energy strategy has endorsed that view by including coal as a key element of the energy mix and describing coal-fired generating plants as "the cornerstone of the United States' central power system."

Adding to the momentum, a preliminary report on natural gas submitted to the DOE by the National Petroleum Council promoted the goal of "alternative energy sources" for industrial consumers and power generation by opening the door to "greater flexibility in fuel-switching and fuel choice."

Still problems for coal

It's not all plain sailing for the coal industry, however.

Mark Zand, a principal at Wexford Capital, an investment company with interests in energy and natural resources, told Petroleum Economist that one of the problems with continuing low coal prices is that "producers don't make any money."

He said smaller, low-cost producers are being driven out by large-scale operations as they lose the battle to "make enough to cover liabilities such as future land reclamation and legacy costs - pensions and disability coverage." And once producers enter bankruptcy they "can't just come back," he said.

On the other hand, he said utilities must have coal no matter what the price, thus the "free ride" for consumers may be over.

While adopting a coal-friendly stance, the Bush administration has also acknowledged the environmental concerns by introducing legislation targeting further cuts in nitrogen oxides and sulfur dioxide emissions and, for the first time, proposing a cap on mercury emissions.

It is not yet clear what form those changes will take or when they might be imposed, but if plants are required to lower mercury emissions by 70 percent by 2018, coal-fired generators would face a severe challenge as would western U.S. producers whose coal has mercury content that is difficult to remove.

Hanging more heavily over the industry is the prospect of controls on emissions of carbon dioxide, identified as the greatest contributor to greenhouse gases.

The administration, because of its opposition to the Kyoto Protocol, does not touch the CO2 issue, but there has been movement in Congress to regulate CO2 - a threat that some analysts believe could kill one-third to one-half of the U.S. coal industry because there is no technology available to remove CO2 from coal-fired plants.