Going Green: And the Winner Is -- "Clean Coal"?!
by Craig Severance
The Going Green East conference was held last week in Boston, a showcase for "green" companies to talk about their business plans before a host of venture capitalists, investment bankers and media in attendance, The event, whose major sponsors include EcoWorld, Always On, Scientific American, Morgan Stanley, and KPMG, began with an announcement of the "Top 50" leading "greentech companies".
The shocker was that the Overall WInner in this competition among "green" companies is a "clean coal" company -- GreatPoint Energy, which has developed a proprietary coal to natural gas conversion process using a mix of steam and catalytic metals.
Going Green East organizer Ed Ring, Editor of EcoWorld, explained that the top winners this year were picked with an eye on the general economy. A combination of cheap energy and tight credit markets has severely impacted greentech companies, and conference organizers felt it important to pick companies that "will still do well now".
This pragmatic approach caused GreatPoint Energy's coal conversion process to rise to the top of the list. GreatPoint has already raised $140 million and has backing from several major corporations including Dow Chemical, Peabody Coal, AES, and Suncor Energy. The company says it proved its "catalytic hydromethanation" process in a pilot plant at the Gas Technology Institute in Des Plaines, Illinois, and now has a demonstration plant in Somerset, Massachusetts.
"Green" Coal? Most environmental organizations and "green energy" supporters question whether any process which uses coal as its feedstock could possibly be considered "greentech". However, GreatPoint Energy's CEO Andrew Perlman describes natural gas as the cleanest burning fossil fuel, while coal is the dirtiest.
Perlman argues that a process to convert coal into natural gas can be an important strategy to help reduce global warming, because a natural gas power plant typically produces less than half of the carbon dioxide per kWh spewed forth from a coal-fired plant. GreatPoint Energy's process combines pulverized coal in the presence of catalysts with steam (H2O), with the major outputs being methane (CH4), and CO2. Greatpoint plans to sell the methane as "Bluegas"(TM), directly into natural gas pipelines. The CO2 byproduct would need to be sequestered underground, to actually achieve any reduction in global warming effects.
The process does not achieve the >90% reduction in CO2 emissions sought by post-combustion "Carbon Capture & Sequestration" (CCS) schemes which are currently the subject of much "Clean Coal" research. The natural gas would typically be burned without any post-combustion process to capture its carbon emissions. However, Perlman stated that it is a major accomplishment to convert coal into natural gas and thereby achieve over a 50% reduction in CO2 compared to burning the coal directly to produce electricity. Other major air pollutants caused by burning coal, such as particulates and mercury, would also be removed in the conversion process. (Remember Beijing?)
In response to anti-coal environmentalists, Perlman states "You've got to show me a faster way to clean up the environment." An attendee at the Going Green conference, however, questioned Perlman, asking "what about the front end?" -- noting coal strip mines as examples of why coal is still a dirty fuel. Perlman counters "we should not let the perfect be the enemy of the good."
Not for U.S. Yet. In my interview with Perlman at the Boston conference, he said he expects his process to be adopted first in China, by Datang Power,"the single largest coal user and contributor to CO2 emissions on earth." China's massive program to expand electric generation from coal has been a major concern of global warming advocates. GreatPoint has proposed building a $200 Million plant in Inner Mongolia to process 2,200 metric tonnes/day of coal into roughly 36,000 million BTU per day of natural gas.
The Chinese will need to be encouraged to actually sequester the CO2 byproduct of the process underground, as Perlman said the use of CO2 to perform Enhanced Oil Recovery (EOR) is not yet common in China.
Asian countries are ripe for his process, Perlman argues, because they are paying much higher prices for natural gas than America. Coal to natural gas plants are also proposed for India and Indonesia.
In contrast, the U.S. currently has abundant natural gas reserves, which have recently caused natural gas prices here to plunge to around $4 per million btu (MBTU), a price that is less than the costs GreatPoint would need to pay to produce natural gas from U.S. coal. Perlman claims total costs here may be around $4-$5 per MBTU if the process is performed onsite at Western coal mines and a ready outlet is available to sequester the CO2. More expensive Eastern coal would result in a higher cost.
Asked whether GreatPoint Energy sees any hope of obtaining funding from the "Clean Coal" funding in the Stimulus Package, Perlman indicated they are looking into that, however he believes most of that money will go to GE's FutureGen demonstration plant in Illinois. He criticized the GE process as old technology, which is more energy intensive.
"Grey" Energy? If Perlman's argument, and the claimed economics of the process prove to be true, the coal to natural gas conversion process may play a role in reducing global greenhouse gas emissions, especially in Asia -- provided that the carbon dioxide byproduct is actually sequestered there.
Many global warming activists would have to swallow hard to accept "cleaned coal" as one piece of a global warming solution.
Coal is not a "green" or "renewable energy" fuel because it is a nonrenewable fossil fuel. Its "front end" still poses significant environmental and worker health issues from coal mining, especially in nations with lax environmental and worker safety regulations.
Thus, the prospect of reducing greenhouse gases from coal seems to make the GreatPoint process a "Grey Energy" source. In other words, this may not be a "black & white" issue. While environmentalists would love for coal to go away altogether, in an imperfect world where coal is likely to continue being mined because it is cheap and abundant, some significant reduction in coal's overall global warming impact may be helpful, at least until renewable sources are cheaper and can take over more of the load.
Challenges to Competitiveness & Siting. While the Asian market may hold promise, several major challenges may determine whether "Bluegas"(TM) from coal ever comes out of your kitchen stove's gas burner. The U.S. market is far more challenging because of the ready availability and low price of U.S. natural gas, and current market conditions are making it difficult to advance major projects.
Capital Costs: GreatPoint Energy's process is highly capital-intensive. For instance, the $200 Million facility now proposed for Datang Power is a first commercial facility, but GreatPoint considers a "full size" plant to be much larger and expects each full size plant to cost upwards of $1 Billion. The larger facility would be designed to process 14,000 metric tonnes/day of coal and produce ~ 176,000 MBTU/day of gas,
If one applies typical Capital Cost Recovery Factors of .115 to .15 to a $1 Billion facility, just Capital Cost Recovery alone is likely to cost from $115 Million to $150 Million/year to pay off the investment in the plant's costs. Divided by roughly 60 million MBTU/year production (at 90% Capacity Factor operations) , this is roughly $2 to $2.50/MBTU of natural gas just for the capital cost component -- if construction costs do not go up. With O&M costs of $1 to $1.50/MBTU and feedstock costs of roughly $0.75 - $1/MBTU output, it is easy to see why GreatPoint is now estimating $4-$5/MBTU as its price for selling its gas. About half of this is the Capital Cost -- so the sensitivity to capital cost increases is very high.
GreatPoint Energy says the full size facility would take 4 years to construct, so cost escalations during the construction period will likely increase total capital costs above the original $1 Billion estimate. A worldwide trend of rapidly escalating construction costs for major energy sector projects has been well documented in recent years. Indeed, GreatPoint Energy's estimates of its total costs/MBTU have escalated along with this trend -- actually a healthy sign the company may be in touch with this reality. However, if construction cost escalations continue to outpace general inflation, the company could outprice itself unless it is in a market where natural gas prices are high (hence the Asia strategy).
Even if all the numbers work, the current freeze on project financing in the U.S. is crippling new ventures, especially those that are highly capital intensive. This appears to be a major reason why the Chinese project, funded by Datang, is now moving ahead of the U.S. (At the conference, Perlman noted the U.S. is in danger of falling behind the Chinese in development of these technologies.)
Water Use. With several U.S. Senators now calling for formal reviews of the water usage of any new energy proposals, and water shortages affecting more states, a major drawback to the GreatPoint Energy conversion process could be its water requirements. GreatPoint says its process requires roughly 1 1/2 tons of water for every ton of coal processed. Many coal rich areas in the Western U.S. are very dry, so siting possibilities may be limited by available water resources.
Sequestration of CO2. With the right siting (near oil fields that need CO2 for Enhanced Oil Recovery), Perlman argues a GreatPoint plant could cover its costs to sequester the CO2 and even treat CO2 as a revenue source. However, if oil fields' needs for CO2 are not present near the plant (or run out well before the coal mine resources
run out), the need to pay for the CO2 to be transported and sequestered will significantly affect the economics.
Implications. If natural gas prices rise again and therefore make the GreatPoint Energy process competitive in the United States, its eventual future use could pose major implications for the electric power industry:
- If a reliable and cost effective process to obtain natural gas from coal is developed -- and siting issues are resolved to obtain water for the process and sequestration sites for the CO2 -- then concerns about U.S. natural gas supply and prices could be stabilized. Many would argue the natural gas industry has already allayed these concerns with its recent expansion of reserves. However, the presence of competitive natural gas from coal may put a "cap" on overall natural gas prices. While this is likely to be at a price well above currently depressed U.S. prices for natural gas, stability in natural gas markets could allow U.S. utilities to continue their selection of natural gas as the "fuel of choice" for new power generation facilities.
- If nuclear power was not already dead, the availability of natural gas supplies at a reasonable cost with security of supply will drive the last nail in its coffin. Natural gas power plants are much cheaper and faster to build than nuclear plants or coal-fired power plants. If there are no longer major concerns about future availability and price of natural gas, there will be no reason (other than bringing renewable sources on line) to build anything but natural gas power plants.
- Renewable energy sources will not be able to count on natural gas running out, or reaching outrageous price peaks in the future. These renewable power sources will therefore need to compete with natural gas generated electricity for market share. However, this may not be a major problem, as many renewable energy companies are already on a trajectory to compete with even cheaper coal-fired power plants.
- More certainty that natural gas will be available could actually encourage the development of renewable energy power sources. Natural gas load following generators are typically necessary in conjunction with solar or wind power sources. An assurance that natural gas will be readily available could allay utility managers' concerns about using renewable power.
Overall, it seems the GreatPoint Energy process to convert coal to natural gas is a process "not quite ready for Prime Time" in the U.S., because it cannot compete with very low U.S. natural gas prices. Even after natural gas prices start to rise in the U.S., high capital costs and siting restrictions because of the need for water, and CO2 sequestration sites will likely slow its growth.
GreatPoint Energy is therefore heading to the Far East where natural gas is higher priced and coal is abundant and cheap. If these guys can convince the Chinese to stop building new coal-fired power plants and instead start sequestering CO2 and burning a cleaner fuel, more power to them. President Obama has said we need to sell our technology to the rest of the world so the coal that's going to be burned anyway, will be burned in a cleaner way. GreatPoint Energy must prove that this is what they can do. We'll be watching.
This Article was originally published on March 17, 2009.