May 16, 2008
Alliant Energy's business strategy is shifting. With coal-fired generation becoming cumbersome, the utility is committing itself to use more natural gas.
Alliant's thinking is turning trendy again, at least for the time being. It is increasingly difficult in many states to get coal plants sited, resulting in a dramatic decline in the number of planned units. States such as Florida, Kansas and Oklahoma have recently rebuffed efforts by companies to build such facilities and have instead forced them to consider plants that use alternative fuels.
It's not just the regulatory strife that utilities must endure. It's also the fact that they are competing with other nations for the steel and cement to build capital intensive coal facilities. While coal may be relatively abundant and economical when compared to natural gas, coal-fired plants have become expensive headaches that now cost 40 percent more to build than they did in 2000, says an industry trade group.
In the case of Alliant, its Cedar Rapids, Iowa-based subsidiary Interstate Power and Light Co. said in February it would retire its coal units and switch to natural gas by 2013 if utility commissioners approve the overall plan. It's all part of its greenhouse gas reduction proposal that it says will lessen such emissions by 800,000 tons a year.
"We, alone, have an obligation to serve our customers and this plan fulfills that obligation by providing our customers with safe, reliable and environmentally responsible energy," states Tom Aller, president of Interstate Power. "Our proposal improves Iowa's air quality and environment while providing a reliable energy supply to support the growth of Iowa's economy."
When natural gas prices spiked to record levels after Hurricane Katrina in 2005, coal stood ready to serve. The U.S. Department of Energy had said 150 coal plants were on the drawing board -- all to fuel the expected 30 percent increase in electricity demand by 2030. Not all would get built. Surprisingly, though, many are dropping off the radar with 16 of them now canceled while others are put on hold.
In Texas, the private equity group that bought TXU has voluntarily withdrawn a prior request to build at least 8 such plants. After that, three leading investment banks said that the cost of carbon dioxide emissions would be calculated into their decisions over whether to make loans to utilities that choose to construct coal facilities. And now the U.S. Supreme Court has told the EPA carbon dioxide must be considered an emission to be regulated under clean air laws if the agency determines that it harms the environment.
The Fallout
The carbon content of natural gas is 60 percent that of coal. Its nitrogen oxide composition is furthermore a third that of coal. Sulfur dioxide and mercury are practically non-existent in natural gas whereas coal is flush with such compounds.
"The greatest benefit would occur by converting an inefficient coal plant with low sulfur dioxide emissions to a state-of-the-art gas turbine," says Katharine Hayhoe, a research scientist at the University of Illinois in Urbana, in a previous statement. "In this case, sulfur emissions are already low and the difference in efficiency is substantial, resulting in a significant climate benefit that is only slightly delayed."
But is this practical? Pending legislation on Capitol Hill would mandate reductions in carbon dioxide emissions by 70 percent by 2050. But the Edison Electric Institute says that would cause electricity prices to dramatically escalate. To comply, utilities would then limit coal generation until carbon capture and sequestration technologies matured. That, it says, would cause natural gas well-head prices to rise by 22 percent while residential customers would pay 40 percent more for energy, all by 2020.
Consider Florida, where state regulators turned down a request by Florida Power & Light to build a coal-fired plant near the Everglades: The utility has instead chosen to meet most of this increased need by expanding an existing natural gas plant. Meanwhile, a handful of other proposed coal facilities in the state have been nixed -- all of which the environmental community says will necessitate more green energy and conservation.
Nevertheless, one expert is cited in news reports as saying that Tallahassee's municipal utility that depends solely on natural gas charges 40 percent more for electricity than Gulf Power, which relies on coal for 70 percent of its generation. Another fear is that an even greater dependence on natural gas would lead to power shortages not just in California and New England where little-to-no coal power exists but also in Florida and Texas where populations and energy demands are rising.
Right now, the United States has to import natural gas from Canada to meet current demands. According to a just-released Government Accountability Office study, the level supply will remain a formidable concern even though producers have increased their drilling efforts. Beyond that, pipeline and storage capacity is inadequate. If natural gas is to fulfill its promise, then the financial and regulatory support must follow.
It's a tough sell on Capitol Hill. As a result, the government-watchdog agency says that a large-scale shift from coal to natural gas in the future is unlikely. Despite the blip now, the U.S. Energy Information Administration projects a 66 percent increase in coal-based power production by 2030.
Coal, in its current form, may be undesirable. But relying too heavily on natural gas is also unwise. Nevertheless, utilities will continue to oblige their regulators and build more modern gas facilities. Long-term that strategy will prove unsustainable. A prosperous nation must then demand the best from its coal sector while it also works to diversify its fuel portfolio.
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