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Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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Coal’s Last Hope: Carbon Capture Tech

Coal usage continues to fall and the coal industry wants to do something about that. So does the Trump administration. Their proposed solution to the problem of waning coal usage is carbon capture and sequestration (CCS)—a technology that has been around for a long time.

The basic idea behind CCS is to remove the carbon dioxide from the exhaust stream after burning the coal. Then the “captured” CO2 can be redirected.

But in the US, the Southern Company and others attempted to develop an additional process. Their ultimate goal was to use cheap and plentiful Mississippi lignite and convert it chemically into clean-burning synthetic gas. The CO2 produced from combustion would also be captured. One actual use is to pump CO2 into older, less productive oil field reservoirs to enhance oil recovery. One suggestion is to replace the oil with CO2 storage after the field has been depleted.

At present Southern Company’s Kemper County facility is synonymous with failure. A proposed $2.5 billion CCS plant was eventually completed at a cost of over $7 billion. What’s even worse, operation of the coal gasification unit has been suspended and the plant burns purchased shale gas. And there is no carbon capture whatsoever.

The Trump administration has its eye on a power plant in New Mexico that its owners would like to close. But the financial and technical framework of a rescue seems unclear. Related: Hong Kong Billionaire Loses $20 Billion In Canadian Oil Sands

Abroad, the giant coal miners (as opposed to the smaller American ones that have been skirting bankruptcy) launched Coal21 in Australia (where coal mining is a huge business) to do research and lobbying. The International Energy Agency argues that half the world’s coal-fired power plants are under 15 years in age, so sequestration will be required in order to reduce the world’s carbon emissions (one third of which are from burning coal).

This is ultimately being described in the language of finance. Coal-fired power plant owners are stating that their assets are relatively new. And their expectations are for a continued, long productive life. If not the assets would have to be written down. This would imply negative financial implications at the corporate level for both earnings and balance sheets.

Leaving aside the question of whether past (not fully depreciated) power plant investment should influence future decisions (the sunk cost issue), the real policy question is: what are we doing—limiting greenhouse gas emissions at the lowest possible cost or saving the coal industry?

One recent study by the Institute for Energy Economics and Financial Analysis produced these approximate costs (in cents) per KWH:

                            Wind power with storage                             2.1

                            Coal                                                             3.0

                            Solar power with storage                             3.5

                            Coal with sequestration (long term goal)     6.3                      

                            Coal with sequestration (current)                 9.6

The absolute numbers in this table are not as important as their relative values and their credibility. Builders are already bidding on wind and solar at relatively low numbers, so the quotes can be depended on as can costs for coal since we know how to build those plants.

The problem simply is that electricity produced by coal-fired plants using the latest CCS technology is several times the cost of other existing carbon-free technologies. With respect to a commodity product like electricity, these numbers are politically and financially untenable. To overly simplify, coal is already losing on price to wind. The CCS advocates propose to double the price of coal (from about 3 to at least 6 cents per kwh). Related: A Booming Niche In Energy’s Hottest Market

At the end of the day sequestration technologies fail to answer a simple question. Why add sequestration technology and the attendant costs when coal is already becoming increasingly uncompetitive as a boiler fuel relative to wind (which only costs 2 cents/kwh to produce)?

Furthermore, we have omitted from this discussion the likely environmental, insurance and legal issues in injecting and maintaining huge amounts of carbon dioxide underground. Any of these obstacles can turn a projects into a quagmire. In the heat of policy advocacy, sometimes the engineers and analysts may ignore these types of issues when they do their cost estimates. 

We do not deny the political and economic importance of maintaining coal production in many parts of the world. Perhaps the only way to reduce emissions from coal-fired power plants is to sequester CO2 because governments that own many of these power plants will only reluctantly close them down prematurely. But acknowledging the exigencies of pragmatic politics is however different than pretending economical, clean coal technologies are on the horizon.

By Leonard Hyman and Bill Tilles for Oilprice.com

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