Forced Coal-Plant Conversions to Natural Gas: False Hope for "Cheap" Climate Action
[Editor: This MasterResource post from July is reprinted given the 'war on coal' strategy by environmental groups and certain activist strands of the upstream natural gas industry, led by Chesapeake Energy (Aubrey McClendon.]
Robert F. Kennedy Jr., president of Waterkeeper Alliance, posits in the Financial Times (July 19) that converting our fleet of coal-fired power plants to natural gas could be accomplished “practically overnight” and will have the effect of “jump-starting our economy….without the expense of building new power plants.” Thus did Kennedy express his new-found love of natural gas: It’s our “bridge fuel to the ‘new’ energy economy.” (Where have we heard that before–wasn’t that Enron’s tag line decade or two ago?)
Yet Kennedy’s proposal ignores the extremely high cost of fuel conversion (upwards of $100 million for a medium-size coal plant) and the added fuel cost to burn gas. He seriously mischaracterizes how an electricity market operates. And Joe Romm (Climate Progress) had added to the confusion by calling Kennedy’s proposal a “game changer.” For Romm plentiful gas means “damn easy and cheap” compliance with the Waxman-Markey climate bill (HR 2454).
Environmentalists looking to draft the natural gas industry in a forced conversion effort against coal do not know what the gas industry does: it is highly uneconomic and would overload the pipeline system that was not built with coal conversions in mind.
Gore’s 100% Dream … and Round Two
Late last year Al Gore, self-appointed father of the climate-change movement, astonished his most ardent acolytes with a plan to produce 100% of the nation’s electricity from renewable energy and carbon-free sources within 10 years. In making the announcement, Gore noted that “The quickest, cheapest, and best way to start using all this renewable energy is in the production of electricity. In fact, we can start right now using solar power, wind power, and geothermal power to make electricity for our homes and businesses.” As always, Gore carefully sidesteps the impact of his proposals to the consumer’s pocketbook and our country’s future economic well-being.
Reasonably priced electricity is the lifeblood of this nation. Many, such as Gore and Kennedy, honestly believe that this nation can go “cold-turkey” by instantly opening the circuit breakers on thousands of coal-fired power plants to facilitate a transition to a renewables-based economy. The resulting cost to our economy in loss of jobs and a depressed GDP are incalculable.
Yet Gore’s economy-busting electricity resource plan was not persuasive to the public and utility regulators charged with ensuring a reliable and affordable power supply system. Others, not burdened with those responsibilities, have elected to take a more subtle, but no less destructive, approach by adding a little sugar to Gore’s medicinal cure.
The latest flavor of this “renewables only” approach to resource planning is Robert Kennedy’s suggestion that natural gas should be used as a “transitional fuel” until sufficient wind turbines and photovoltaic systems are constructed some day in the future. Make no mistake—this is just Gore’s proposal but with slower operating circuit breakers.
Kennedy is correct in one small way about natural gas supplies but he neglected to read the report’s fine print. Yes, the Potential Gas Committee (PGC)—a group of industry, government, and academic volunteers—concluded in a recent report that U.S. natural gas reserves were likely up 39% from their estimate two years ago. New and advanced exploration, well drilling, and completion technologies have allowed the committee to reach those conclusions. Reserves are up, not supplies as Kennedy wrote.
But an increase in reserves doesn’t immediately translate, as Kennedy suggests, to natural gas available for use in power plants. In fact, John Curtis, a committee member and professor of geology at the Colorado School of Mines, cautioned that the current assessment is a “baseline estimate” of what the committee considers to be “technically recoverable” gas and assumes “neither a time schedule nor a specific market price for the discovery and production of future gas supply.”
Kennedy Missed the Memo
Kennedy’s column then digressed into a discussion of electricity market mechanisms that are just flat wrong: “[P]ublic regulators generally require utilities to dispatch coal-generated power in preference to gas. For that reason, high-efficiency gas plants are in operation only 36 percent of the time.” I suspect this is a case of wishful thinking rather than an accurate description of how a power market operates.
In our open energy markets, power generators bid to supply energy and other services to the local independent system operator. Every power generator determines their costs of production and prices their commodity bid accordingly. Regulators do not determine the dispatch order of plants in a region—the market mechanisms of a competitively bid energy market determine the most economic combination of bids. If natural gas prices are high, then the price of electricity produced by every gas-fired plant will be higher than bids submitted by owners with coal-fired plants. A free market selects the lowest bid price independent of the technology used to produce the electricity—it’s not a market where dispatch orders are determined by ideology.
Kennedy then makes the fallacious argument that the age of a coal-fired power plant is somehow related to what he calls “horrendously inefficient” plants. Not true—those supercritical power plants built over 30 years ago are still running strong and sport very respectable thermal efficiencies. I wrote in POWER last February, TVA’s 10-unit, 1,369 MW Shawnee Fossil Plant’s Unit 6 operated for over 1,093 continuous days, a new industry record. The last unit at Shawnee was constructed in 1957, yet each of the ten units continues to operate with a thermal efficiency around 40%. I’m not aware of any modern gas-fired combined cycle plant that has demonstrated the reliability of this 50+-year-old plant. The age of a well-maintained coal-fired power plant is not necessarily an indicator of the plant’s efficiency or reliability, its useful life, nor its cost to produce electricity.
Kennedy then deftly attempts to equate plant efficiency with production costs but his logic leap results in a face plant. Kennedy states that older coal plants are “60 to 75 per cent less fuel-efficient than combined cycle gas plants.” Looking beyond the patently false claims that there are coal-fired plants in the U.S. operating with a thermal efficiency of 15%, Kennedy overlooks the market mechanisms that reward those with the lowest cost of production, not the age of a plant or its thermal efficiency. The busbar price of electricity drives every decision made by generators seeking a return on their investment.
Coal Conversion Misinformation
Kennedy concludes his diatribe by naively suggesting that a coal-fired plant can make a fuel change to burn natural gas at the snap of his fingers. “In an instant, this simple change [converting coal plants to burn natural gas] could eliminate three-quarters of America’s coal-burning generators and save a fortune in energy costs.”
Beginning upstream, someone must first invest in facilities and equipment to convert “technically recoverable” natural gas reserves into compressed gas in the pipeline and then construct a vast system of gas interstate pipelines to connect deliver the gas to hundreds of coal-fired plants. It would take decades to construct these pipelines, for starters.
There are a number of fundamental design issues that Kennedy’s arm-chair engineering overlooks. A fuel conversion from coal to natural gas is not a “simple change” but is a major plant reconstruction in order to burn a fuel that the furnace and balance of the plant equipment were not designed for.
Every coal-fired boiler furnace was designed for a specific fuel much like your automobile engine is designed for gasoline and not diesel fuel. Dramatically change the fuel specification and the boiler furnace may work for a time but it won’t work safely and reliably and certainly not at rated output. For example, boiler furnace dimensions are selected based on fuel type, ranging from very large for poor fuels such as Texas lignite to a relatively small furnace (half the size or less) to burn natural gas. Also, the heat transfer surface design would be completely inappropriate for natural gas (too much surface in some areas and not enough in others), the combustion controls and all the burners systems would require replacement, all the air quality control equipment are inappropriate for natural gas, and so on. A solid to gas fuel conversion project of this magnitude could easily require reconstructing major portions of the furnace and backpass plus replacement of primary air fans, ductwork, etc. that would cost tens of millions of dollars and many months to complete.
Often overlooked in the cost accounting of utility projects are the extraordinarily expensive replacement and purchase power costs that a utility must absorb during an unplanned plant outage. These costs often exceed the construction cost of a project. Using Kennedy’s hypothetical 500-MW coal plant as an example, a six month outage at a 90% capacity factor will cost the generator about $59 million, using $50/MWh for the spot market price of the replacement power and $20/MWh as the marginal cost of generating power from that plant.
To estimate the total project cost, sum the pipeline extension cost, about $200,000/mile according to the Institute of Transportation Studies, to transport the natural gas from that conveniently located main trunk line next to the plant, with the construction costs and the replacement power costs and my back of the envelope estimate for converting a single, moderately size coal-fired unit to burn natural gas could easily top $100,000,000.
The Physical World
There are no shortcuts to success in the business of generating power. If converting a coal plant to burn natural gas made economic sense, dozens of utilities executives would have made the switch years ago. No self-respecting PUC commissioner would entertain a proposal to spend so much money to “fix” a well-operating, inexpensive plant so that it can burn a more expensive fuel with a long history of extreme price volatility.
Proposals such as Kennedy’s work only in the realm of wishful thinking, where corrections are made on a computer with the delete key. Power plant engineers work in a more practical world of concrete and steel that produce the electricity to power that computer. It’s a world of difference.