Coal: Cheap electricity with a high cost

WASHINGTON -- Of the fuels commonly used to run power plants, none releases more carbon dioxide than coal -- an unfortunate reality for utilities hoping to build a new generation of coal plants.

With Congress set to pass strict controls on climate-changing gases like carbon dioxide perhaps as soon as next year, a nationwide push for new coal-fired plants over the last few years has begun to fade.

Global warming fears have led to the cancellation or indefinite delay of dozens of proposed coal plants in recent months in almost every corner of the country. But with a few notable exceptions, the debate over coal's role in global warming has had much less of an impact on development of new coal plants in the Southeast.

New or expanded coal plants are in the works in Southwest Virginia, South Carolina, North Carolina and Georgia, which could collectively pump tens of millions of tons of carbon dioxide into the atmosphere.

"We're in a position of flux," said Cale Jaffe, an attorney for the Southern Environmental Law Center, which has brought several lawsuits against new coal plants in the Southeast.

"People are just beginning to clue into the fact that carbon regulation is coming. But, for now, it means we have new coal plants with no plans whatsoever to address global warming emissions" in much of the region.

A COAL BOOM

After two decades in which few new coal plants were built in the United States, the industry's interest in coal began to swell in the last few years.

Rising costs of natural gas, another popular power plant fuel, provided utilities incentives to consider coal more strongly. Regulatory hurdles that made new nuclear plants virtually impossible to build provided another. And more environmentally friendly energy sources, like wind and solar, were too expensive and not reliable enough to provide a constant supply of power, the utilities argued.

According to the Energy Department and the Sierra Club, plans for about 170 new coal plants have been announced since 2005. Utilities argue that unless more plants are built, the country will face disastrous energy shortfalls within a few years.

In South Carolina, the quasi-public utility Santee Cooper is obtaining permits to build a new coal-fired plant near Florence. The utility projects that population growth will leave the state with a shortfall of 525 megawatts by 2013, enough to power more than 250,000 homes, unless the new plant in the Pee Dee region is built.

"If we had our druthers we'd much rather be building a nuclear plant at Pee Dee. The biggest thing we know is that we can't get a nuclear plant by 2013," said Laura Varn, a Santee Cooper spokeswoman.

Environmental groups are skeptical of the industry's need-energy-now rationale for the coal boom. The Sierra Club, which is waging a nationwide legal battle with other groups to stop the construction of new coal plants, has termed this boom period a new "coal rush."

The group and others charge that the industry is rushing to build as many coal plants before new carbon controls under debate in Congress are put in place. Under current law, power plants in most states are under no obligation to restrict carbon emissions.

Although federal regulations are still under development, they likely will require utilities to pay for carbon emissions under a "cap-and-trade" system, eventually install technology to capture carbon or a combination of both.

Coal is a much cheaper fuel if the carbon costs are ignored. Factor in the cost of capturing carbon, which is not yet possible on a commercial scale, or paying to offset the environmental impact -- and the cost jumps markedly.

A recent report by Synapse Energy Economics, a Massachusetts firm, estimated that electricity rates from coal plants would leap about 75 percent under a mandate for carbon-capture technology.

And an analysis by Charlotte, N.C.-based Duke Energy of one of the leading climate-change proposals in Congress found that it would raise the utility's electricity rates between 10 percent and 60 percent by 2020.

The legislation, America's Climate Security Act of 2007, sponsored by Sen. John Warner, R-Va., and Sen. Joe Lieberman, I-Conn., is expected to reach the Senate floor in June.

It would set up a national cap-and-trade system to reduce greenhouse gas emissions and provide financial incentives to switch to low-carbon power sources.

COAL BUST?

For that reason, environmentalists, energy analysts and some in the industry say the outlook for new coal facilities is suddenly worsening.

Though Congress has not yet regulated carbon emissions, several states have raised the possibility of future regulation in blocking plant construction.

In the most notable case, Kansas last fall became the first state to deny an air permit to a new coal plant on global warming grounds.

"It would be irresponsible to ignore emerging information about the contribution of carbon dioxide and other greenhouse gases to climate change," the state's environment and health secretary, Roderick Bremby, said in announcing the decision.

The uncertainty over the scope of climate-change legislation in Congress and state regulation has also reduced enthusiasm on Wall Street to bankroll new coal plants.

For Wall Street, said David Schlissel, a senior consultant at Synapse Energy Economics, "it's not a matter of 'if' in terms of greenhouse gas regulation, but 'when,' and what form does it take?"

In February, three leading investment banks -- Citi, JP Morgan Chase, and Morgan Stanley -- said they would put more emphasis on the costs of regulating carbon emissions in financing energy projects. And in a January report on crucial financial challenges facing utilities, the credit rating firm Standard & Poor's said the No. 1 issue was the impact of carbon regulations on coal plants.

"It seems likely that the new administration in Washington will try to make its mark on greenhouse gas sometime in 2009," the report concluded.

For now, funding is still available for new coal plants. But the likelihood of added future costs to control carbon have made the plants a riskier bet for lenders. More risk generally means higher borrowing costs.

And it isn't just Wall Street that's wary of funding new coal plants. Earlier this year, the federal Rural Utility Service revealed that it had stopped providing government-backed low-interest loans for coal facilities until it could better account for carbon emission risks.

"Funding from the street has not dried up. But has it become more expensive? Yes. Every indication is that borrowing will be more expensive in the future," said Patrick Lavigne, a spokesman for the National Rural Electric Cooperative Association.

"It's not necessarily if, it's when we'll have carbon regulation. Look at the positions of the three major candidates. It will be a priority," he said.

CANCELED PLANS

Last year, lawsuits, permit denials and the uncertainty over future regulation led to the cancellation or delay of 59 new coal plants, according to the Sierra Club.

In Florida, an extremely low-lying state vulnerable to rising sea levels, Gov. Charlie Crist has made reducing global-warming emissions a priority.

Last year, the state Public Service Commission blocked plans by Florida Power & Light to build a coal-fired plant near the Everglades because of greenhouse gas emissions, and Tampa Electric shelved plans to construct a coal fired unit in Polk County, in part because of uncertainty over future regulations.

But in most of the Southeast, where several coal projects are advancing, the impact of carbon emissions has not played as large a role.

THE SOUTHEAST AND COAL

Unlike California, which gets less than one percent of its electricity from coal plants, or most Northeastern states, where coal accounts for less than 25 percent of the energy mix, the Southeast relies heavily on coal for power.

Most states in the Southeast get half their electricity from coal. Environmentalists and those in the industry say that dependence has helped prevent the carbon emission argument from gaining much traction in the region.

And although scientists are convinced that global warming is a real phenomenon worsened by rising carbon levels, some state regulators in the Southeast remain skeptical that the positives of restricting carbon emissions outweigh the negatives.

During a hearing this year on a new coal-fired plant in Wise County, Va., proposed by Dominion Virginia Power, the Richmond-based utility, a top utility regulator on the State Corporation Commission complained that "this country will go back to the Dark Ages if this carbon hysteria takes over."

"Sometimes I wish we had never gone to the moon, because everybody says, well, we can change the climate in this country, we went to the moon," said the regulator, Theodore Morrison, who recently retired from the commission. "Carbon dioxide. I am breathing a lot of it out right now. You are too," he added.

According to the Pew Center on Global Climate Change, 17 states have set independent targets for greenhouse emission reductions in coming decades. Only two of those states - Florida and Virginia - are in the Southeast.

And unlike California and four other states that have set binding carbon reduction targets, the targets in Florida and Virginia are non-mandatory goals.

Though utilities building plants in the Southeast refer to their facilities as "clean coal" plants, environmentalists complain they will utilize outdated pollution control technology instead of newer - and more expensive - methods of reducing emissions of mercury, sulfur dioxide, carbon dioxide and other pollutants.

For example, none of the plants under way in Virginia, South Carolina or Georgia will make use of a newer coal-plant technology called Integrated Gasification Combined Cycle, or IGCC, that energy analysts predict will be the most cost-effective type to retrofit with carbon capture technology when it becomes commercially available.

Jim Martin, Dominion's senior vice president for business development, said in an interview that the plant would be carbon capture compatible, and that the technology would be installed once it becomes commercially available.

"We've thought a lot about it," he said.

Virginia regulators, however, did not agree. They criticized the company's contention that the plant was compatible simply because it had set aside space to install such a system and that it was located near Virginia's coalfields, which scientists think could one day store captured carbon.

"Under this standard, it would seem that virtually any facility that is located in the coalfield region of the state...and has extra space available on its site, would qualify as carbon capture compatible," John A. Stevens, a senior utility engineer for the State Corporation Commission's energy regulation division, testified. "In the staff's view, this is not logical."

A SHIFT?

Environmentalists and industry representatives agree that carbon emissions have played less of a role in energy discussions in the Southeast than in other parts of the country.

Gudrun Thompson, an attorney with the Southern Environmental Law Center involved in legal challenges against new coal plants in North Carolina and South Carolina, said, "the South lags behind other regions in terms of progressive energy policy. But I think regulators and policy leaders are starting to wake up to the threat of global warming."

Besides Florida, there are indeed signs that the threat of global warming is beginning to play a larger role in another Southeastern state -- North Carolina.

In North Carolina, Duke Energy recently received approval from state air quality regulators to construct a new coal-fired unit at its Cliffside facility west of Charlotte.

As part of the agreement, Duke agreed to shut down several existing plants over the next decade whose carbon emissions equal two-thirds of the projected emissions of the new Cliffside plant, and find ways to offset the other one-third. The company says the move will eventually make the new plant "carbon neutral."

Keith Overcash, the head of the state division of air quality, called the agreement "groundbreaking."

"I am not aware of any other power plant in the United States that is required by its permit to offset its carbon dioxide emissions," he wrote in an Op-Ed in the Winston-Salem Journal defending the approval.

It is likely to be Duke's last new coal plant for a while. Two weeks after state regulators approved the permit, CEO Jim Rogers told reporters that the company would not build any new coal plants until they could be equipped with carbon sequestration technology.