'Clean' coal minus the coal
The case for Tenaska still hasn't been made
chicagotribune.com
May 14, 2012
For a few years now, Tenaska Inc. has been trying to sell Illinois lawmakers on a $3.5 billion plant in downstate Taylorville that would use coal to produce electricity with less pollution. Emissions would be kept underground instead of being released into the air. Voila! "Clean" coal.
The project has struggled, and with good reason: Energy from the Taylorville project would cost an estimated $300 million per year above market rates to produce electricity. The Legislature was being asked to guarantee that Illinois consumers and businesses pay that cost. Though this would provide work in Illinois and a market for Illinois coal, lawmakers were skeptical about the value. We were too.
As the debate over Tenaska's proposal dragged on, dramatic things happened in the market for energy. Our nation is awash in natural gas. It is plentiful and cheap. Natural gas sold for less than $2 per 1,000 cubic feet in April, down from $14 a few years ago.
Techniques like horizontal drilling and hydraulic fracturing are tapping into energy reserves that until recently were considered out of reach. Shale oil in North Dakota, oil sands in Canada and deepwater production in the Gulf of Mexico have made North America the world's fastest-growing source of new oil and gas supplies.
We know commodity prices are volatile, especially for natural gas. Based on the technological advances kicking in today, however, natural-gas prices aren't likely to rise in the foreseeable future to levels that would make clean coal anything close to a viable market alternative.
Tenaska, recognizing that its deal was going nowhere, now wants to dump the clean-coal part of its project and instead build its power plant to operate on natural gas.
If clean-coal technology ever becomes economical, the plant could be adapted at a later date to use it. As a result, the plant would still carry a higher-than-normal price tag, since it would contain the bigger turbines and specialized piping required for a clean-coal option that might never be needed.
It would be like paying extra for a car with a hopper on it, just in case someday you want to shovel in some coal to run it.
Tenaska wants a guarantee that the state will buy the power from its plant for 30 years, and it wants an 11.5 percent return on equity. Consumers and businesses would pay higher rates to cover the plant's approximately $1.1 billion cost, up to a certain cap.
Those guarantees sound great — for Tenaska. For the citizens of Illinois, they still sound mighty pricey.
Tenaska argues that this is a good deal for Illinois because it will add electric generating capacity at a time when coal-fired plants in the region are going to disappear. Yes, more capacity should temper energy prices in the future. We suspect, though, that if other companies were encouraged to bid, the same generating capacity could be achieved for a lot less money — without building a clean coal plant minus the clean coal.
Last year, Illinois lawmakers approved two subsidized coal-to-gas projects. Given the trends in natural-gas production, the Leucadia and Power Holdings projects look more like white elephants than ever. Making a synthetic version of a product found in growing abundance makes no economic sense. Neither plant has broken ground. Even with state assistance, they may never be built. Tenaska's 11th-hour decision to abandon clean coal for its project raises more doubts about these others.
Illinois legislators, take a break and see what happens now that natural gas is flooding the marketplace.
Midwest factories for years have operated at a disadvantage to rival manufacturing overseas, largely because of higher labor costs, but also because of high energy costs. Now we're seeing businesses take advantage where they can from lower prices. Trucking fleets are laying the groundwork to switch from diesel to natural gas. Office buildings, restaurants and shops can reasonably expect lower heating and cooling costs in the future.
The new wave of domestic energy production stands to increase output and growth pretty much across the board, unless government manages to get in the way.
Copyright © 2012, Chicago Tribune
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My thanks to Bearcatbob for bringing this story to my attention.
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